In recent years, disruption to the banking sector has seen an increasing number of partnerships between banks and FinTechs, as banks look to acquire the digital expertise now required for 21st century banking and FinTechs look to tap into the finance knowledge and consumer reach that traditional banks enjoy. More recently, this quest for technological know-how has expanded to included partnerships with more established tech companies such as Google, Microsoft and Amazon, particularly by bigger banks.
Indeed, at the Institute of International Finance (IIF) conference held in June 2019, Goldman Sachs’ chief operating officer, John Waldron, pointed out that for the first time ever the bank was spending more of its budget on ‘changing the bank’ (55%) than ‘running the bank’ (45%), suggesting that change is no longer optional, but necessary.
In order to evolve, however, it’s important for the banking sector as a whole to understand the impact of Fintech disruption to the banking model long term and to factor in the benefits and challenges that they face.
RECOGNISING THE OPPORTUNITIES
Certainly, while Fintech disruption does raise challenges for banks it is not without its benefits. With digitalisation and Artificial Intelligence (AI) broadening and deepening the data collected on customers, banks can not only become more efficient but, importantly, can achieve a more customer-centric approach and improve the customer experience through more targeted engagement and customised banking products. It is this ability to use technology to create a customised story board on each customer which will give banks the ability to offer the most appropriate banking services, as well as a range of related financial products, in the quickest and most convenient way possible to the customer.
Of course, opportunities can not always be mirrored on a global scale. Poor access to the traditional banking system in regions such as Asia Pacific (APAC) means in these countries, FinTech already has a head start. In China, for example, more than 30% of payments are made via Wechat, 45% with Alipay and other online wallets and only 25% of payments are made within the banking system. If you compare China with Silicon Valley, while the technology is less sophisticated, the population as a whole is a lot quicker to embrace technology. In addition, the sheer size of the Chinese population facilitates the development of FinTechs such as Alibaba, who have deep reach and deep pockets. It’s important therefore that banks factor in such challenges when seeking opportunities on a country-by-country basis.
THE ROLE OF REGULATION
Facilitating the collection of data through new forms of digitalisation such as Artificial Intelligence (AI), does have consequences for risk management processes. It’s important that processes are tested to ensure they are strong enough and that the regulatory framework adapts accordingly. One approach would be to apply regulation to FinTechs in line with current and future banking law, while another approach would be to soften banking regulations to facilitate new actors penetrating the banking sector – an approach the US has recently rejected. These are all questions that need to be addressed sooner rather than later in order that there is a level playing field, particularly on investments in anti-money laundering and financial crime prevention.
MORE EDUCATION NEEDED
As new players enter the banking sector, regular and open dialogue with regulators can help ensure that FinTech’s impact on banking is better understood and that regulatory changes are suitable and appropriate for purpose. To develop this, it’s important that FinTechs and banks work together, not only with regulators, but with customers. This collaborative approach underpinned by better education on the advantages and challenges will help to ensure that convenience, low cost solutions and simpler access to banking service are not at the cost of data security, which is a customer priority.
As the banking sector evolves, managing risk and decreasing costs are priorities for banks as their ecosystem expands. As well as becoming more efficient, banks also need to change hearts and minds of those working within the sector. This involves moving away from how a traditional bank operates to an organisation that uses technology to become more agile, while at the same time retaining their personal service ethos. By educating employees to use new technology and bringing people with the right skills on board, banks can re-engineer their organisation in a way that not only manages the challenges of Fintech disruption, but embraces the opportunities. fffffffffffff
GLOBAL BANKING LEADER
Emmanuel is leading our Banking Practice and is head of our Corporate & Investment Banking group. He has more than 20 years’ experience in Capital Market & Trading serving as a banker, a consultant and an auditor. Emmanuel started his career in 1996 as a money market trader in the Treasury Department of Credit Commercial de France (HSBC France). In 1998, he joined Mazars Paris office and was involved since then in Capital Market audit and advice for various clients within the Corporate & Investment Banking industry in France, Europe and the US. Emmanuel is specialised in Fixed Income and Equity Trading (Cash and Derivatives), Arbitrage, Derivative Structuring, Structured Finance, Asset and project financing. As an expert on financial instruments he supports assignments dealing with valuation policies, governance and process for financial instruments, risk measurement methodologies and framework, and risk management. He is also in engagement partner for statutory audit of systemic...
DIRECTOR - FINANCIAL SERVICES
Pierre is a Director within Mazars’ dedicated Hong Kong Financial Services team. He joined Mazars Hong Kong in 2017 after having spent 10 years at Mazars France and Mazars United Kingdom in the Financial Services practice. His experience includes numerous projects in relation to risk management, asset-quality review, stress tests, financial due diligences, expert in the context of arbitration, audit and IFRS advisory across Europe and Asia. Pierre is also an expert in accounting for financial instruments under French GAAP and IFRS, including IFRS 9 implementation. He has a recognised track record of working with retail banks, corporate and investment banks, private equity entities, Central Banks and National Regulators.