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Banking leaders sound dire warning: Transform or die

SINGAPORE - Several banking industry leaders on Tuesday (Mar 13) warned that lenders risk being usurped by big technology companies, and becoming merely part of the infrastructure if they do not jostle for space in the financial technology (fintech) landscape.

Singapore skyline as seen from Marina Bay Sands Skypark. TODAY File Photo

Singapore skyline as seen from Marina Bay Sands Skypark. TODAY File Photo

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SINGAPORE - Several banking industry leaders on Tuesday (Mar 13) warned that lenders risk being usurped by big technology companies, and becoming merely part of the infrastructure if they do not jostle for space in the financial technology (fintech) landscape.

“Transform or die” was their message at the Money20/20 conference which brings together global payments and financial services industry players. The three-day event at Marina Bay Sands is being held in Asia for the first time.

Sounding a dire warning to banks, DBS Group CEO Piyush Gupta said it is “very easy to see a world where we (could) just wind up being an infrastructure and being the dump pipe”

“So we need to figure out a way that we can continue to be relevant to the consumer in this paradigm and not just wind up disappearing as a piece of woodwork,” he added.

Separately, Mr Derek White, the global head of consumer and client solutions for banking group BBVA, noted that many banks still have not made the “digital tipping point” into the current “do-it-yourself” world.

In fact, he expects the 20,000 banks worldwide to shrink to just a “few thousands” in the near future, and down to merely “dozens” in time to come.

The battle between “big tech” companies and banks require firms to ask themselves how “smart” the interactions are, and not their volume or frequency, he said. “If companies are not asking that question today, they will die,” he said.

Mr Prateek Roongta, who is the managing director of the Boston Consulting Group, noted that the funding for fintech companies in Asia Pacific has grown 36 times since 2010, with close to US$30 billion in total.

A lot of those companies which started off providing non-financial services found “great opportunity” to launch digital payments, such as Alibaba’s Alipay and Tencent’s WechatPay, he noted. “These (companies) have disrupted the banks in financial services space and banks are losing rapidly,” he said.

He added: “Clearly this is posing a threat to banks in the region. Banks which will not rise up to this challenge really risk losing first the payments accounts, then the transactions and eventually the customer base.”

What could “dislocate” the banking industry, Mr Gupta noted, would be when tech giant Amazon, for example, gets into the sector either on its own or via a tie-up. “They have easy access (to) half a billion people who they can showcase their product to…that’s what we need to be thinking about,” he said. “If you are an Amazon, Facebook, Google or Alibaba, you are already sitting on half a billion of customers.”

He added that for these companies, the cost of customer acquisition is zero, and the capacity to improve the customer experience is “dramatically different from any other kind of fintech”.

Explaining why banks have been “losing” in the battle so far, Mr Sanjeev Mehra, head of global product development at Citi, said banks have become more and more inward-focused over the years, and away from customers.

Meanwhile, customers’ expectations have been transformed rapidly by their day-to-day interactions with mobile applications, he added.

United Overseas Bank managing director Dennis Khoo noted while some banks have a lot of data, they tend to be bureaucratic and siloed.

Still, banks can salvage the situation by, among other things, tapping the trust which they have built up with customers over the years, the banking industry leaders said.

Most fintech companies do not enjoy this level of trust with customers yet, said Mr Khoo. For banking products, “trust is absolutely critical”, he pointed out. Nevertheless, banks will need to guard against large fintech companies who have managed to establish this trust, he noted.

Mr Gupta said the key for banks is to think about how it embeds itself in the “customer journey”. An example is creating a “home-buying journey” by engaging a customer six months before he or she takes up a home loan.

The idea is to make banking “invisible” yet at the same time, build the bank’s brand through the service, he added.

Sharing his bank’s experience in this regard, Mr Gupta said DBS has “just started” on its transformation but it has reached a point where it is no longer “top down but bottom up”. The bank’s staff are giving suggestions and reimagining how to improve their jobs, he said.

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