What's in store for FSIs in 2016: China-style disruption

Caption: 
Mark Wales, consulting partner, Deloitte China

While many financial institutions may be threading in unchartered waters, an Accenture survey of senior industry executives involved in the FinTech Innovation Lab revealed that talent and cultural challenges are the two biggest hurdles preventing incumbents from responding to the digital disruption Fintechs are bringing to the table (see Figure 1). What is clear to respondents to the Accenture survey is that they need to position themselves as adding value to their customers and partners in order to secure their future. They also recognized the siloed operations they’ve built for themselves. It is this dis-aggregated form of business that is opening opportunities to Fintech startups and Internet players.

Figure 1: The challenges associated with digital innovation

The challenges associated with digital innovation

Source: The Future of Fintech and Banking: Digital Disrupted or Reimagined, Accenture

Research findings by the World Economic Forum (WEF) says innovation in FSI is deliberate and predictable with incumbent players most likely to be attacked where the greatest sources of customer friction meet the largest profit pools.

In addition, innovations are having the greatest impact where they employ business models that are platform based, data intensive, and capital light. This is evident in China where digital disruption among FSIs is concentrated among the Internet giants.

Mark Wales, consulting partner at Deloitte China, says in China Fintech disruption is dominated by BAT, an acronym for Baidu, Alibaba and Tencent. This is in stark contrast to the rest of the world disruption tends to be small startups challenging the incumbents.

“When you are in an environment where the three largest Internet players dipping into payments, dipping into financing and loans, and into asset management, at quite an aggressive scale, and doing their typical try and fail approach – that becomes a challenge to the incumbents,” said Wales.

“We’ve seen things like in the last 18 months, the largest asset manager in China grow at one of the Internet providers: RMB600 billion under management after just six months. These firms are quite aggressive, they’re really pushing forward into the Internet and it’s a different form of disruption compared to the US and the UK. These are a big threat [to incumbents]. The big banks in China are watching them, the big banks in Hong Kong are watching them because they have shown the ability to take market share quite quickly and really build quickly off their platform,” he adds.

In contrast, disruption in the FSI market in Hong Kong mirrors the rest of the world with startups taking the lead. Wales says disruption in the SAR is occurring without interference [from the government or regulators]. Fintech disruption in Hong Kong is entrepreneurial with “a good spirit and a good heart.” He observed, though, that most Fintechs in Hong Kong are still new and continue to struggle.

Watch the video interview with Mark Wales as he reveals the Fintech innovators in Hong Kong that will make a breakaway from the rest of the startups to become the next hotbed of Fintech buzz not just in Hong Kong but around the world.

 

The 2015 WEF study titled The Future of Financial Services highlights the importance of streamlined infrastructure taking advantage of emerging platforms and decentralized technologies provide new ways to aggregate and analyze information, improving connectivity and reducing the marginal costs of accessing information and participating in financial activities.

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