The implication is often that incumbent banks are being caught by surprise by the changing environment and the foray of fintech startups, new virtual banks, or tech giants from the US or mainland China into financial services.
I have a more optimistic outlook.
True, the financial sector is evolving rapidly, being reshaped by the potential offered by emerging technologies. But the banks-as-dinosaurs argument rests on the assumption that firms in financial services have ignored technology’s potential to enhance the way customers are served with cheaper, faster and more convenient services – or the need to build agile, digital working cultures.
The data tells a different story: close to 90 per cent of HSBC’s retail banking transactions in Singapore are already digital, and retail banks around the world are expected to invest some USD13 billion in digital banking this year alone1. Many banks, including HSBC, have been making significant investments in digital and technology for many years, and this will continue. We know what we need to do, and we’re already doing it.
Competition is always a good thing, for customers and for any industry as a whole. New digital players will help spur innovation, and the industry and our customers benefit as a result.
The organisations that succeed in the new world of digital banking will be those that pass three criteria: their ability to provide customers with the service they want on the channel where they want to be served; how trusted they are as partners and as custodians of customers’ assets and data; and their ability to negotiate the increasingly complex matrix of global regulatory requirements.
New digital players will face challenges against these criteria just like established players. Managing highly complex regulation in a rapidly changing, multi-faceted environment, for example, is an area where established banks are at an advantage. Similarly, customer trust: banks like HSBC have built up trust over a history of more than 150 years, newer entrants will need to build this trust over time.
A survey by Boston Consulting Group and Capgemini underlines just how important this is. The survey asked respondents what kind of company they trusted most to manage their data: more than 80 per cent said banks; less than 5 per cent said consumer tech2.
Banks are also on the front line in the fight against money laundering and terrorist financing. Banking regulation needs to be extremely rigorous to ensure that weakness is not introduced into the overall economy to protect consumers. Banks have deep responsibility for people’s financial wellbeing. As fintech companies join the industry, they will have to sign up to the same regulatory and compliance frameworks – and bear the same costs – this stewardship requires.
Banks are also showing themselves capable of using technology to enhance the way they serve customers, by integrating digital capabilities efficiencies into all channels. Branches are becoming more efficient, relationship managers are equipped with digital tools, and contacts centres are increasingly using AI and chatbots to quickly and effectively meet customers’ needs 24 hours a day, seven days a week.
Meanwhile, as mobile banking becomes ubiquitous, the challenge is to build apps that customers can’t live without. At least, that’s our goal with HSBC Singapore’s QuickFX app, which allows customers to get the latest breaking news that impact the currency market, monitor currency performances, and make international payments and remittance using their mobile phones.
And we’re rolling out the same technology to all our retail markets. If there is a gap between what established banks and tech players can deliver, the established banks are rapidly closing it.
In the long-term, technology is only going to be part of what good banking service looks like to customers. While many day-to-day activities – such as payments, lending and account opening – will be efficiently managed through digital platforms, truly understanding individual customers’ needs, helping support them as they manage their wealth, take out a mortgage or buy protection for the future, remains a distant goal for technology.
People is at the heart of what we do, and human interaction is an essential part of that. Customers still want to talk to someone they can trust, particularly when it comes to bigger life decisions or complex situations that need empathy. It is too easy to paint a vision of a future where people are completely and easily removed from the banking equation.
A recent report by Bain & Co3 on the future of banking paints a picture of “hyper-personalisation” of services delivered by a combination of advanced technology and branch networks staffed by re-skilled and highly motivated employees. We agree: the banking experience of the future will be multi-channel; part people, part digital.
The leading established banks are already digital, but this is not a reason for complacency. No one in the industry doubts that there is still substantial room to grow. This is one reason why we welcome new entrants into the market.
Yes, there will be competition, but there will also be partnerships between banks and fintechs that will help the banking ecosystem evolve and us to serve customers in new and as yet unimagined ways.
A contribution piece by Kevin Martin, Regional Head, Retail Banking and Wealth Management, Asia-Pacific, HSBC. A version of this piece was first published in The Edge Singapore on 3rd February 2020.
2 Quoted in https://www.bankofengland.co.uk/-/media/boe/files/report/2019/future-of-finance-report.pdf Page 60, figure 5.