Traditional banking is facing some serious threats from the emergence of non-financial companies engaging in banking activities. Alternative non-bank players or FinTechs are beginning to transform the financial sector by creating disruption practices such as providing online banking and offering a wider spectrum of new services, such as mobile payments and crowd-funding, according to a report by Deloitte.
By 2025, the combined total spending power of end-consumers will be approximately US$2.5 trillion in Australia, Hong Kong, Malaysia and Singapore, says the report. Of this, 75% will come from so-called digital natives, referring to people that are digital-savvy.
Findings from the report highlight that to better address the needs of end-clients, banks need to understand that there are varying levels of digital technology adoption. The report examines the top ten global technologies trends that have cascaded down to the different industries and sectors, and seeks to provide banks with insights on how they can address the needs of their digitally evolving end-clients. It is imperative for banks to recognize these new trends.
“Banks are seeing the increased demand of digitalization, but have yet to react in full scale,” says Mohit Mehrotra, an executive director at Deloitte Consulting. “Most banks in Asia adopt a ‘Digital Inside-Out’ strategy, focused on investment in internally-driven digital initiatives to better provide traditional transaction banking solutions. This strategy may not suffice in addressing the clients’ demand for digital functionality and cost efficiency.”
“Coming quickly from behind are the FinTechs that are transforming the financial sector by revamping offerings and solutions in the new digital landscape, thus obtaining first-mover advantages and seizing the opportunities that the banks miss out by being inward looking,” says Mehrotra.
Visa, a key technology partner for banks and a sponsor of the report, says the future growth of banks will hinge upon the ability to partner with these new and different organizations.
Olivia Leong, head of Commercial and Prepaid Payment Solutions for Visa, Asia Pacific, explained that like its bank clients, Visa also sees new partnerships as crucial to future growth in financial services.
“For a number of years now, we have been building relationships with the FinTech community as a way to bring new innovations to our bank clients, merchants and governments. As the shift to digital accelerates and the opportunities become even more exciting and dynamic, we have increased our focus on these partnerships and are strengthening them through greater access to our payment network,” said Leong.
The report highlights examples of how banks can quickly enhance their digital abilities by collaborating with FinTechs. For instance, banks have leveraged FinTechs’ strength in technology- driven software, platform and infrastructure.
“Instead of seeing FinTechs as rivals in the playground, there are great opportunities for collaboration so that both players can co-exist in the same space with a win-win situation,” says Mehrotra. “This collaboration could help banks capitalize on market opportunities by strengthening the digital capabilities on their existing products or solutions.”
