Live Report: Panel Session - "New Trends in Financial Services"
Panel Discussion is being moderated by Professor Paul McGuinness and will include Christine Ip, Tim Pagett, Hendra Tan, and Wilson Wan.
McGuinness, Professor, Department of Finance, CUHK Business School, The Chinese University of Hong Kong, introduces the discussion as being focused primarily on 'Financial Innovation'. He highlights the exciting Fintech prospects for Hong Kong. Capital Funding is also a key point of discussion. He proceeds to introduce the panelists.
Ip. opens up the discussion regarding the involvement of the banking industry. She mentions the internet boom in the early 2000's, and the technological developments which has allowed it to be sustainable. Ip is Managing Director and CEO, Greater China, United Overseas Bank Limited. Banking industry will face similar growth prospects with fintech developments, particularly in mainland China, where growth rates are much higher than in the US and Europe. Emphasizes the importance of collaboration with other companies to penetrate China, arguably the biggest market right now for Hong Kong and other 'big foreign players'.
Ip furthers the fintech discussion by bringing up crowd-funding platforms which give access to new opportunities for companies, particularly start-ups to push for innovative products and services, and well-established companies and banks are given new investment opportunities. There are however dangers in fintech: "if you turned on the radio this morning, you will have heard about yet another story of someone getting scammed out of 3 million dollars through a digital fintech platform in China." She says that this is usually due to 'ignorance and negligence' and can be avoided, notes the important role universities play in properly educating young people entering the banking/finance industries in this new fintech era.
Final point: with the devaluation of the RMB, this will only further fuel Hong Kong's ability to invest abroad.
Tim Pagett opens up letting us know it's his 50th birthday and how he's the same age as the CUHK MBA.
Pagett, Financial Services Industry Leader, Deloitte China, thinks back to the early days when you used to be able to wear hoodies and trainers to work, and how much the industry has evolved since then. He mentions payments and said he wants to analyze the concept of 'a cashless society'. Mentions China's 'BAT phenomenon', the rapid technological developments in E-commerce and the payments process (mobile wallets, etc) all enabled for the unprecedented boom of some of China's biggest companies. Highlights how the next generations may never own a credit or bank card, will open bank accounts with mobile phone, travel, insurance, everything (including marriage) will be done on phones or digitally. This added efficiency to the banking industry presents opportunities as well as challenges. 90% of the commerce is now done on a digital basis, says the banking industry will naturally have to follow.
However, Pagett mentions a big barrier to banking becoming entirely electronic: high value payments where trust, reliability are 'of the essence', he believes it will be a long time before people will feel comfortable making transactions of millions of dollars on an electronic platform. 'Scalability' another problem. He calls himself a 'skeptic' that still has issues with cyber-security. Even something that it 'virtually impenetrable' still must be 'virtually penetrable'. 'Nothing will ever be 100% secure', Pagett concludes. Banks, and their regulated environments give off an aura of trust, therefore the 'losses' are understood and accepted.
Asks the following Questions: 'What do we do when the lights go out?' Almost a Y2K-esque concern. 'What do we with all of the old batteries? Because they aren't bio-degredable.' Rightfully raises up environmental concerns. A dramatic finish to an entertaining speech.
Hendra Tan, Vice President, CRO Office, Ping An Insurance (Group) Company of China, Ltd., introduces himself and goes back to discussing financial sector's recent trends. Do we still need 'hard currency'? Tan says during his trips to Shenzhen (where he works despite living in Hong Kong) he only needs to use digital platforms like 'Apple' pay. He emphasizes that financial services are becoming 'more and more digital'. Believes in the use of 'Big Data' High corporate debt is a big issue. He says using big data is a good way to find 'warning signals'. Every bank and group like his own (Ping An Insurance) faces these problems. The ability to predict these 'warning signals' allows you to go into 'prevention mode' early on.
He does not believe this is 'innovation', but more 'how to effectively obtain and use information'. What is 'big data'? As long as you can obtain and apply it, it is 'part' of the big data. Mentions Fa Piao (Chinese word for receipts) and being able to receive it digitally allows you to more efficiently keep track of finances.
Big data can also be used to assess and predict customer behavior, a very useful tool for banks and companies. Even 'social media' comments can be good indicators of consumer behavior. Customers will receive 'scores' depending on how they behave on apps. As big data and mobile app data collection becomes more accurate, it will continue to become a more and more useful tool for banks and companies. Allows them to 'KYC' - Know your customer. Tan says it is most important for banks, insurance companies to be able to properly assess risk. Much more accurate than 'questionnaire' algorithms. Big data will make risk analysis for banks and financial institutions more accurate than ever before.
Tan says banks must continue to innovate. He asks the question 'what are the weaknesses of innovation?' He says the biggest and often overlooked aspect of innovation is lack of privacy. When you 'agree' Apple etc. terms and conditions, that access your location, camera, everything. 'Everybody can track everything', Tan concludes.
Wilson Wan continues the discussion. Wan is Chief Executive Officer, Cleverage Capital Limited and a CUHK Alum from '82, surprising because he looks like he would have graduated in the 90's, McGuinness kindly points out, to which he concurs.
Payments are the hottest trends of fintech, especially in China. Ali-pay, Wechat, Applepay, etc. Wan flashes back to the early 90's when we needed physical coupons to buy certain things at value. Until the mid-90's you also needed 'foreign currency certificates' to go shopping in China. Now, China is the innovator of a new lifestyle, in which essentially virtually every financial transaction can be done digitally, particularly in cities like Hangzhou and Shanghai. Wechat had 2.3 billion transactions of 'red-packet' and similar peer-to-peer transactions. You can now access friend/family's bank cards and make transactions with their cards upon their approval, showing that the merging of social media and e-commerce/digital payments has already begun. Wan disputes Pagett's earlier point that innovation can be 'disruptive'. Developing countries have the luxury to innovate without going through the 'hurdles' of disrupting legacy.
China has had an explosion of peer-to-peer lending from 2013-14 thanks to these developments, and the Government only began regulations last year, despite billions of dollars in these loans getting defaulted. Wan argues that this is not 'inefficiency' by the Chinese government, but a 'practical' mindset which enabled companies like Alibaba to thrive. He believes the Chinese government is 'relaxed', they do not over-regulate companies, but allow them to thrive, until those companies begin to have a blatantly negative effect on society. Wan argues that China's lack of regulation makes it a more attractive entrepreneurial destination than even Hong Kong, whose government regulations don't even allow for things like peer-to-peer platforms. Compared to everywhere else, China's financial services and innovation has 'blossomed', and calls China 'the biggest financial trendsetter for at least the next decade'. Highlights the size problem. With Hong Kong's population, it is difficult to innovate on such a scale, but it's possible for Hong Kong companies and financial institutions to innovate for China, who Pagett called 'too big to fail'.
Alibaba and its subsidiary companies have begun efficiently collecting big-data, and even though not using data for loans yet, developing a sustainable risk-analysis model more efficient than that of banks.These could cause problems for traditional banks.
Wan believes that traditional banks still have the advantage of being 'mainstream' financial providers, and can continue to thrive with their own innovations with the help of regulations (the crowd couldn't help but laugh at this remark)