No cash or card? No problem. Just don’t leave home without your phone
Andrew Sheng says technology allowing us to use our mobiles for most financial transactions is opening up Asia to plenty of opportunities – if our mindsets are flexible enough to seize them
Who dominates the phone market dominates the internet. A whole world of information is now available in your hand, replacing your mind as a memory base for instant decision-making.
The reason why traditional bank shares are dropping like a stone is that mobile phone companies and financial technology (fintech) platforms “get it”. Banks and conventional financial institutions are stuck with so much legacy hardware (branches and outdated mainframes) and complex regulation that their CEOs feel besieged by bad news – cyberattacks, privacy leaks (like the Panama Papers), capital requirements and huge fines. No wonder top bank talent is leaving the industry. In Silicon Valley, they get fat bonuses to become “cool”. Meanwhile, regulated bank CEOs are held responsible for everything that goes on in their bank, and have to deal with soul-destroying staff and expenditure cuts, on top of their own pay cuts.
I was at the Singapore Forum this month, moderating a panel on fintech, when an Alibaba strategist mentioned that the current battle for market share is all about “mindset and handset”. The mindset of the internet age is that you do not need to own any assets – you simply share or rent them. The mobile handset is where most people are moving towards doing business, from dating to buying a house, using your fingerprint and retina as digital signatures.
Fintech can deliver payment services at a fraction of the costs of paper-based payment. Increasingly, we spend more on software than on the actual hardware.
The consultancy firm Oliver Wyman has come up with a major report on “modular finance”, which argues that technology has transformed finance into modular parts – modular supply (provision of financial services by specialists); and modular demand (buying new services from such specialists). It begins with a cartoon about a customer buying a house, arranging a mortgage and insurance, selling stocks and wealth products for the down payment and paying for all fees through a mobile phone. In short, the game of finance is being fought by one super-bank to rule them all versus one phone to rule them all.
Fintech aims to change our lifestyles through technology. Its platforms have fewer staff, fewer legacy assets, less regulation and more flexible mindsets. These barbarians at the gate are only stopped by regulations that currently protect the banking franchise. This is not to say that they don’t have defects, such as lack of attention to money laundering, terrorist funding and cyberattacks. When they reach super-scale, they will also become “too big to fail”.
The rapid evolution of fintech means Asia now has the money and technology to transform our antiquated financial systems. The population is young, tech-savvy, mobile and willing to experiment with new services and equipment, which we are creating in Asia. The good news is that if our young start-ups get it right, the world is their market. The bad news is that if our regulatory and government services don’t allow our start-ups to compete, our markets and jobs will be someone else’s lunch.
What is holding back this transformation is still mindsets. Look at how taxi drivers are protesting against Uber. Regional banks are expanding their footprints by buying the franchises of retreating European and American banks. But they have not thought through how to use fintech to cut back their legacy systems, many of which are obsolete.
Barriers are sometimes regulatory mindsets. Asian regulators are more willing to accept the entry of financial institutions from outside the region than from their neighbours. Without regulatory concurrence, many banks and financial institutions do not dare to experiment with new technology.
We now have Asian customers moving to global service providers like Apple, Google and Amazon, if Asian financial service providers do not get their act together. Asian bankers and regulators need to think hard about what customers really want to achieve on a global scale in terms of efficiency, stability and trust.
Fintech and smartphones are not the solution to all our problems, but they will change how the problems are being resolved. The real problem is our mindset.
Andrew Sheng writes on global issues from an Asian perspective