Right now everywhere you look there are articles and commentary extolling the latest advances in Financial Technology or Fintech as its more commonly known. The concept of having the technology and operational infrastructure to service a client anytime, anywhere and through whatever channel the client wants is the new el Dorado for banks.
The challenge for the vast majority of existing banks is that their legacy infrastructure is not up the to task of servicing customers in the 21st century. Most banks are running on multimillion-dollar technology that is old and very expensive to replace with modern architectures. To rise to this challenge banks are creating Fintech innovation hubs to sponsor the next generation of entrepreneurs to help them meet the new demands from their customer base.
I have been an avid watcher the trends in this space. As someone who started their working life as a mainframe programmer in the early 90’s and then worked on some of the earliest client server integration projects I have some understanding of the challenges that the banks face.
It is common to talk about potential innovation in Fintech as being a battle between the Suits & the t-Shirts. I.e. Innovation in this space will either come from inside the banks (“suits”) or outside the banks from one of the hundred’s of start-ups (“t-Shirts”) in the Fintech space.
What about if the real innovation in Fintech comes from somewhere else?
Recently Innotribe released a very interesting paper entitled:
In the report Kapron & Shaugnessy outline how China’s large technology companies, known as the BAT (Baidu, Alibaba and Tencent) are going to potentially turn traditional concepts of Banking on its head. The BAT are wired to changes in global trade patterns and by providing precisely the new services that retail and commercial clients want at an irresistible price point they are perfectly position to disrupt banking as we in the West know it.
This from the Introduction:
With digitalisation, blockchain and FinTech high on the agenda of banks, the disruption of financial services looks like a given. The question, however, is where will the definitive changes come from. Will it be distributed ledger technology, real-time settlement, the highly competitive payment space, the rise of crowdfunding, P2P lending or the new secondary markets for crowd equity projects? What if it was none of these, and yet all of them, under the umbrella of companies totally new to finance: China’s tech giants?
Alipay from Alibaba, the best known disruptor, is ubiquitous in China, handling nearly 80% of all mobile payments in the country. Tencent has a chat application used by over 500 million people for daily communication and for payments and wealth management. Consumers use Baidu not only to search for wealth management products, but also to potentially purchase one of Baidu’s own funds, including a RMB 3 billion big-data based mutual fund that sold out within 3 days of launch in 2014. According to the Financial Times, assets under management at Alibaba’s Yu’e Bao reached RMB 599 billion (USD 96 billion) by the end of 2014, making it China’s largest money-market fund.
Backed by a growing capital base that is never tied up in inventory, the financial platforms of China’s big tech companies are powered by big data, informed by automated feedback loops from customer activity, driven by business experimentation rather than IT, function at an unprecedented scale and operate at a new degree of service integration. All the while they are protected from global competition through China’s use of the omnipresent Great Firewall (GFW), selling to consumers who are captive to the China Internet environment.
The BAT (Baidu, Alibaba and Tencent) are highly scaled internet and mobile platforms with an IT architecture that is coincidentally primed for digital banking. The BAT are now banks. In fact, they are the world’s first true digital banks.
In contrast, western banks are pursuing digital transformation projects that are dependent on a vendor community that may or may not understand the direction of change. These are vendors that banks are taking a chance on without knowing it. They might be capable of anticipating the big disruptors and using that knowledge to futureproof their clients’ platforms and systems. In effect, the bank and vendor community operate within a consensus that, by its nature, remains vulnerable to disruption.
Wow what an introduction. I’ve read this report a couple of times now and I find it compelling reading for those of us working in the digital space who are interested in disruption and innovation. I for one, wasn’t aware of how much the BAT had been advantaged by the Great Firewall of China or GFC as the authors refer to it.
Enjoy the paper & please share.
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