16 Jan 2018
Stark choice for financial services companies facing new breed of disruptors
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There’s no room for half measures as companies like Alibaba and Tencent tear up the convention and challenge the old order. What will it take to survive the onslaught?
Tim Harrison, an experienced leader of major tech change in companies such as RBS, sought to answer this question at a recent Odgers Berndtson event for Financial Services companies, exploring the impact of technological disruption on their industry.
He provided valuable background on how retail financial services have been sheltered from the forces of competition and innovation that have shaped much of the rest of industry.
Harrison highlighted how many long-established companies are now highly reliant on rapidly-aging technology which will be extremely hard to remediate. Into this mix comes the changing business/technology environment which will, if history is any measure, have a dramatic impact on the business models of the industry.
As he explained: “In a perfect storm, you could see a scenario where banks are forced back into a space around regulated deposit-taking. Exactly the space where they are most reliant on their aging technology, and possibly least well-equipped to remediate.
“At the same time, the door will be open for new deposit-taking banks to emerge and provide low-cost competition, as the relationship between banks and their clients is loosened by the new service providers.”
You don’t have to look far to see the Asian companies making an impact in a financial services world of mobile connectivity, big data analytics, and AI.
China’s most valuable company Tencent is known for its WeChat social media platform with nearly a billion users. More than two-thirds of Chinese people use its two messaging apps, WeChat, and QQ, for a vast array of things. Texting, shopping, flirting, dating, video watching, games, ordering food and taxis, and, importantly, sending small monetary gifts to each other. WeChat Pay is now used in China by about 600 million people.
But they aren’t stopping there, nor at the borders of China, for that matter. Tencent plans artificial intelligence labs in Shenzhen and Seattle, has designs on its own countertop smart speaker and has taken a 5% stake in Tesla Inc.
The world’s largest online marketplace, Alibaba is the dominant online retailer in China through its Tmall and Taobao shopping platforms. Now increasingly entering the bricks and mortar world of retailing, Alibaba has bought a 36% stake in China’s largest hypermarket. Its AliPay online payment system is a fundamental part of Alibaba’s success. It is now accepted in 70 countries worldwide, dwarfing Android or Apple Pay.
Like Tencent, Alibaba is using its clout to look abroad and into other markets. One example is a partnership with Honda on developing services for connected cars, like paying for fuel and making reservations.
Adapt or else
“Unencumbered by legacy, and with a vast local market, companies like Alibaba and Tencent have moved and evolved at a speed that traditional companies can only dream of. They and their Western equivalents are forged on the future, not just embracing change, but setting its pace,” explains Nick Green, Partner at Odgers Berndtson, Hong Kong.
“For business leaders facing this type of competition, and the debate at our event revealed just how big an issue this is, it requires a real shift in thinking. You need to challenge yourself to get on with it sooner rather than later.
“PWC’s report on how to compete in financial services in 2020 and beyond makes it clear, this is no time to dabble in the tools of digital disruption as some kind of side project. And to be truly successful, the desire and impetus for action have to come from the top.”
‘Digital Transformation: Embracing the Change’ took place at the Bankers’ Club Hong Kong. Around 30 people guests from Financial Services companies joined host Nick Green from Odgers Berndtson’s Hong Kong office, as well as Paul Rush and Andie Rees from the Australia and Singapore offices, respectively, to hear from industry experts about the fundamental challenges to the way business has been done for decades.
If you’d like to continue the discussion or attend our events in the future, please don’t hesitate to get in touch with our Hong Kong office.