Are traditional banks bound for the scrap heap?

Tharman Shanmugaratnam: spoke of the Monetary Authority of Singapore’s (MAS) need to balance innovation and trust in the fintech push. Robin/Wikimedia Commons

By Jolene Yeo

Block chain, Bitcoin, crypto-currency technologies—words not unfamiliar to the financial technology connoisseur, but would almost pass off as Greek to the untrained eye. Speaking at the launch of the Singapore Fintech Festival at New York City on 12 April, Tharman Shanmugaratnam, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore (MAS) spoke of MAS’s imperative to balance innovation and trust in the fintech push.

The fintech-bank nexus

With the pace of online financial innovation on the increase, are traditional banking institutions bound for the scrap heap?

This question was fronted during Channel NewsAsia’s Perspective documentary, during a panel discussion with various experts from the financial and banking industries—which are about to experience a phenomenal shift in their modus operandi, thanks to the fintech wave.

In Singapore, the MAS has expressed the need to allow innovation in finance while preserving trust in its financial system. Mr Tharman has stressed that the regulation of fintech firms should not be too onerous such that it suppresses companies’ ability to experiment in the field of fintech. Thus, Singapore will not regulate fintech firms like to does with banks until they reach a meaningful scale that can bring about broader risks to the financial system.

When posed a question as to whether Singapore is competitive enough in the world of fintech, Early Stage Venture Capital Investor Alyse Killleen who was one of four panelists shared her view that Singapore and UK are among the world’s most progressive fintech hubs, with strong governmental support for fintech. The MAS’s strong push to develop the fintech ecosystem is in line with Singapore’s Smart Nation narrative, transforming its economy into a more technology advanced and innovative one.

In the world’s largest markets however, views on the fintech industry are largely diversified.

Professor David Lee of the Lee Kong Chian School of Business, at the Singapore Management University, points out the main distinction between the fintech ecosystem in China vis-à-vis that of the US’s.

While America’s fintech ecosystem is driven largely by aspiring startups fresh out of Silicon Valley, the Chinese fintech ecosystem is fronted by its strong corporate culture, with brands such as Alipay spearheading and even bringing about shape shifting changes to traditional models of financial transactions and retail consumer banking.

Both markets, however, are united by their distrust towards the incumbent financial institutions, which should not come as a surprise given Chinese banks’ inevitable complicity in China’s rampant corruption, as well as the failure of US banks which had once cast the global economy into turmoil.

Three quarters of millennials in the US say that they would prefer to get their financial services from companies like Google and Apple, over traditional banking instruments, while one-third of millennials say that they would switch banking institutions in 90 days, because there is no bank loyalty.

Fintech as a double-edged sword

While such perspectives seem to have painted a contesting relationship between fintech and incumbent banks, experts have also professed the interdependency between fintech and banks. Anju Patwardhan, Global Chief Innovation Officer of Standard Chartered Bank shares her bank’s vision to be “Digital by design”. She acknowledges the ability of fintech to enhance customer services, increase company profits and improve customer services—crucial to meet the ever increasing demands for superior customer services.

Jonathan Allanay, Senior Managing Director of Financial Services in Accenture also sheds insights on the importance of fintech outside the immediate periphery of financial services. Fintech has long been a front-runner in the sectors of retail and consumer banking. This sets the antecedent for consumers to trust in the workings of fintech and thus sets it on the path to success.

Fintech plays a crucial role in the analysis of Big Data, and in connecting ancillary services to consumers, all within a single hand-held device—the smartphone. While the fintech industry may be on its rise, some argue that such a phenomenon is not only fundamentally reliant on the trustworthiness and adequate regulation of banks, but also opens a horizon of opportunities of the banking industry to tap into.

Rather than spelling the demise of banks, fintech’s disruption to what seems to be a stale and lacklustre status quo of the global economic structure may cause a ripple of transformation across financial industries.

Asia’s untapped potential

Of the world’s two billion unbanked people, 900 million of them are in Asia. Asia’ unmet credit market offers a spectrum of opportunities. The Wall Street Journal posits that India is likely to be the next major fintech frontier. With its large population of over 1.2 billion and its growing digital penetration of over 80%, coupled with the situation of a despairing number of bank accounts, it presents a coveted business opportunity for the fintech industry to tap on.