Traditional banking needs to embrace fintech

By Yu Fenghui Source:Global Times Published: 2016/10/31 23:58:40

Illustration: Luo Xuan/GT

Illustration: Luo Xuan/GT


While China's banking sector is still suffering from the advance of Internet finance, there seems to be another round of shocks for the banking sector across the globe.

In mid-September, McKinsey & Co, a global strategic management consulting firm was reported by Bloomberg as saying that "only three to five global full-service banks will survive" changes in the industry.

In addition, according to Business Insider article on October 23, "America's biggest banks are closing hundreds of branches. Bank of America, Citigroup and JPMorgan shut 389 branches since the third quarter of last year."

In fact, according to Reuters, as early as in November 2015, Antony Jenkins, the former head of British bank Barclays, said the financial services sector was approaching the "Uber moment," and suggested that the number of branches and employees in the sector could be reduced by as much as 50 percent over the next decade, and predicted even in a less harsh circumstance that the number would still decline by at least 20 percent.

Following the closing of physical bank branches in the US and a large number of banking layoffs in the US and Europe, it seems the estimates from consulting agencies are becoming a reality.

Financial technology, or fintech as it is known in the US and Europe, is widely considered to have caused one of the greatest impacts on the world's banking sector, particularly in the area of Internet finance, affecting nearly all main business, including payment and settlement, credit assets and investment banking.

In China, traditional banks got involved with fintech comparatively early, which has left the sector less impacted than in other countries. But still, they are lagging behind.

Internet finance has been advancing in two areas. The first is in artificial intelligence (AI). For instance, according to a report by KPMG in October, technological advancement will drive a fundamental shift in the banking sector by 2030 as customers are capable of interacting with a personal digital assistant. The second area lies in digital currency led by blockchain technology, which is anticipated to impact the world's central banks.

Internet finance can take advantage of its mobile availability and high efficiency, allowing customers to complete financial transitions anytime and anywhere, making it difficult for traditional banks to compete. Meanwhile, direct financing activities facilitated by the fintech sector also severely threaten traditional banks' indirect financing.

The emerging trend of ecosystem building in the fintech sector is also likely to marginalize the traditional banking sector.

Take Alipay, the payment platform of Internet giant Alibaba Group Holding, for example. Even though the platform has started to charge users a fee when making transfers from their Alipay accounts to their debit cards, the ecosystem Alipay has created allows various payment and settlement activities needed for purchasing, entertainment and investment. In a sense, as the ecosystem grows, Alipay is likely to expand into a central bank in the Internet which possesses the ability to control the issue of digital currency. Meanwhile, as a large variety of financial transactions and other activities are locked in the ecosystem's "closed loop," traditional banking is undoubtedly marginalized. This is a terrifying future.

Indeed, facing the wave of fintech on the global scale, physical branches closings and layoffs are inevitable. Still, the traditional banking sector is unlikely to diminish easily.

Firing employees is only palliative and the only way forward is for traditional banking to embrace fintech. The future banking is in fintech and traditional banks have to grasp the opportunity of using financial digitalization to elevate efficiency and profitability.

Decades and even hundreds of years of wealth management experience will enable traditional banks to seize the trend of fintech and transform themselves. Currently, some traditional banks are trying to keep up the pace of mobile banking by providing increasingly better user experiences. Their rising market shares won't be a surprise as long as the banks intensify their efforts in promotion.

Traditional banking has to realize that new technology characterized by the Internet, big data, the Internet of Things, cloud computing, sensor technology, robotics, virtual reality, AI and augmented reality is overwhelming. Banks' payment and settlement businesses are increasingly processed on mobile apps, big-data analytical tools are adopted in banks' credit funds, AI technology has helped advance financial services consulting and intermediary services are increasingly brought online. Those who can truly grasp the opportunity in fintech are likely to survive the technological revolution. 

The author is a financial commentator.


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