By Claire Heffron
Banks have always had a sturdy hold on the payments industry, but the development of fintech startups brings new threats. Fighting back, many banks have been investing in fintech companies; but are doing this as a protective measure or is there a genuine desire for partnership?
As a disruptive technology, fintech is changing the way people obtain goods and services. This growth in new payment services has been led principally by the internet, but fuelled by the increased infiltration of smartphone technology, mass data storage, and the growth of cultured algorithms and electronic identification methods.
Many Asia-Pacific banks are making innovation their main focus; allocating up to 25% of their IT funds to evolving technologies that will improve operations and services. Former Barclays CEO Anthony Jenkins calls it banking’s, “Uber moment” and believes technological developments could see banks close down and people laid off.
Co-founder of start-up qplum, Gaurav Chakravorty believes banks are already investing ten times more into the tech part of finance than fintech companies themselves. He explains, “unlike fintech companies they are not pushing the envelope on marketing and grey area sort of marketing. However, if there is no real innovation, then it is trivial for banks to gobble up a fintech company”.
Challenges and opportunities
And it is not an easy path to success. GlobeOne announced last year that Eximbank would take its mobile banking solution into Vietnam through a mobile platform which Eximbank had already established. And Apple Pay is struggling to negotiate with its funders having failed to expand into China.
This illustrates the issues of infrastructure and funding at the heart of the fintech industry. And as long as banks maintain their ground-breaking services, they will be able to keep many new companies and services at bay.
And even the larger players are struggling. When Google Wallet launched in 2011, there was much discussion about its impact on payment systems. This proved unfounded and Google Wallet quickly disappeared to be repackaged as Android Pay. Even PayPal is having trouble in the offline payment ecosystem.
But it is not all negative. Payments are the most vulnerable area for digital disruption; making it a key target for fintech companies. Senior Malaysian banker Seri Nazir Razak believes, “bankers should respond to this Uber moment. People actually dislike banks since the global financial crisis.”
“This purely means banks have not gotten more efficient over the years, so it’s right that banks get criticised by ‘Silicon Valley’, which has identified banking as a sector that is very ‘ripe’ to disrupt.”
There is another option. Perhaps the best way to positively disrupt the financial system is transferring to a global payment system that functions outside of the banking segment. Perhaps that alternative is Bitcoin; another thriving market in Asia.
The disruptive digital currency is officially been banned in Thailand but has flourishing financial markets in Singapore and Hong Kong. The CEO of Asian bitcoin exchange Quoine just signed a funding deal worth $20 million, saying the region will control the bitcoin landscape over the coming years.
Digital currencies like Bitcoin will not surpass traditional banking any time in the near future. Perhaps both financial ecosystems can peacefully co-exist. One thing is certain; disruption is here to stay and with proper leadership, capital, and open-minded governments it will change the world we live in.