Hong Kong banks can benefit from fintech collaborations

Managers can use technology to boost productivity and innovation capabilities of employees

PUBLISHED : Friday, 15 July, 2016, 8:30pm
UPDATED : Friday, 15 July, 2016, 9:30pm

Bank CEOs face more pressing, public issues than ever before. From Brexit to ongoing regulatory probes, to cost-cutting and compensation debates – the C-suite is crowded with challenges.

As if that weren’t enough pressure, banks are also under new threats of competition.

Financial technology companies are taking on the big banks that dot Hong Kong’s skyline on a myriad of fronts, from financial advice for student loans to peer-to-peer lending to crowd-funding.

Fintech investment in Asia-Pacific more than quadrupled in 2015 to US$4.3 billion. It is now the second biggest region for fintech investment after North America – accounting for 19 per cent of global financing activity and up from just 6 per cent in 2010, according to a recent Accenture study. During the first quarter of 2016 investments totaled US$2.7 billion, representing 51 per cent of the US$5.3 billion invested into fintech companies globally.

Banks and fintechs grow closer as winning customers toughens

The question is: How should bank executives respond to the fintech challenge? Compete or collaborate? Both the banks and fintech companies are reaching a similar conclusion: collaborate.

Banks have much to gain from the massive infusion of VC investment in fintech. By collaborating with these ventures, they have an opportunity to raise their game with technical innovations and get savvier to what is around the bend for financial services.

Accenture research found that among leading banks, only 3 per cent of CEOs and 6 per cent of board directors have tech experience. To fill the knowledge gap with new ideas and to stay in front of disruption, they should embrace fintech.

In fintech’s corner is flexibility and speed, an ability to adapt to consumer needs and offer solutions to niche problems. As a result, some grow rapidly and become idols to other startups. Today there are at least 20 fintech unicorns, or private companies with a valuation of more than US$1 billion. Alipay, is a household name in China. PayPal and Square both launched successful initial public offerings last year and boast sizeable market capitalisations.

Hong Kong struggling to keep pace with regional peers in fintech

But not every startup will become a unicorn. Many struggle to scale-up and are hobbled by cash flow challenges and regulatory complexity. Working with a bank is a way to test their ideas in the real world of financial services, and to gain mentorship and win business.

Ignoring fintech is a choice banks make at their peril. It is not easy for banks to compete for top tech talent and their existing technology staff has its hands full. Banks are burdened with legacy information systems and a mandate to keep pace with new regulatory demands, which takes the lion’s share of tech budgets.

Encouragingly, C-suite bankers in Hong Kong have started rolling up their sleeves to work with fintech ventures. This past week, chief technology officers and senior technology executives from 12 financial institutions met with a bunch of short-listed ventures that are vying to participate in the FinTech Innovation Lab Asia-Pacific.

The Lab, which begins in August, will partner the chosen fintech entrepreneurs with senior-level bank and insurance company executives and leading technology entrepreneurs, to help them fine-tune and develop their technologies and business strategies through a series of workshops, panel discussions, user-group sessions, networking opportunities, one-on-one meetings and presentations.

While the FinTech Innovation Lab is an example of fostering innovation, the industry needs still more collaboration and investment. C-suite executives need to put money to work. Last year, banks participated in less than 10 per cent of all reported fintech deals, totalling about US$5 billion, according to Accenture’s analysis of CB Insights data.

It is time for bank executives to up that investment and embrace the challengers. After all, it is better to foster change than risk having change foisted upon you.

Richard Lumb is group chief executive of Accenture’s financial services operating group