The US$72 billion digital bet
To stay ahead of the competition, banks globally are investing in technology, with special focus on areas such as fintech
With technology increasingly becoming a fixture in our everyday lives, traditional institutions across several industries are feeling the heat of competition as nimbler players look to disrupt their customary revenue streams.
This scenario is even more pressing in the financial services industry where, to stay ahead of the competition, banks globally are investing US$72 billion annually into technology, with special focus on areas such as fintech (financial technology). That’s according to a recent survey from Moody’s Investors Service, which revealed that banks, between 2017-19, on average spent 18.3% of their total operating expenses on technology, highlighting their determination to defend their customer base.
While some fintechs look to take business away from traditional institutions, there are those – including several in Asia – that are looking to help banks grow their franchises and take their services to the next level. And, for digitally focused banks in Asia, there are numerous solutions – from wealth management tools to better use of internal bank data – available. For example, in Singapore, DBS recently partnered up with fintech Quantifeed to develop a robo-advisory service for its clients.
The introduction of virtual banks into the Hong Kong market has likewise highlighted the collaborative atmosphere in the region for fintechs. Tencent, for instance, has partnered up with ICBC to create a new banking proposition for users in Hong Kong.
However, the willingness of fintechs in Asia to work with banks shouldn’t encourage complacency on the part of the banks. One needs to only look at China-based Alibaba to see how appealing a new banking alternative can be. Alibaba has been able to draw customers to its saving accounts service by turning online savings into a game and allowing users to compare their returns with those of others on the platform.
“Sustaining these investments and smartly executing digital strategies will be important to help fend off the threat from fintech firms as they continue to test the boundaries of the banking business, particularly in the simpler retail products and payment services that account for about a third of the investment banks' revenue,” said Michael Rohr, senior vice president at Moody’s Investors Service.
21 Feb 2020