The financial services industry is going through a period of extraordinary transformation. Digital technology is bringing a new level of connectivity and power to customers’ fingertips.
Fintechs – businesses that use technology to make banking quicker, safer and more intuitive – have played a part in this transformation. Relations between emerging fintechs and the established banking industry are sometimes portrayed as combative. Some banks worry that fintechs will disrupt the banking industry in the same way that downloads disrupted the music industry.
But in fact, banks and fintechs are entering partnerships, giving banks access to new and exciting technologies, and giving fintechs access to funding and a chance to deploy their ideas and products on a large scale. They have worked together to develop and tweak technologies including:
Mobile banking: Globally, we have seen a substantial shift of transactions from branches and ATMs into mobile banking, along with a decline in cash and cheque transactions: in countries such as the UK, cash now accounts for less than half of transactions
Contactless: Using contactless cards and smartphones to pay for purchases and settle bills has become commonplace, with consumers in China particularly keen to embrace the technology
Data analysis: Banks are using data to analyse customers’ purchasing behaviour and then give them tailored suggestions on their smartphone, anticipating their needs, and helping them save and invest money
Biometrics: As the world becomes increasingly digital, managing log-in passwords has become a challenge for many customers. Biometrics such as voice, fingerprint, face and retina scans offer a convenient alternative that can be significantly more secure. At HSBC we have introduced a voice login that is available for more than 20 million customers, along with touch ID across major markets
These technologies are already giving customers greater control over their financial lives. But continuing innovation promises more big changes in the coming years.
We believe the best way for banks and fintech start-ups to succeed is by working in an ecosystem. They have distinct business models, but they also have complementary strengths and challenges, and can benefit from working together.
Banks can more easily bring innovations to the mass market to offer customers cutting-edge, added-value digital services. Start-up fintechs can collaborate with established firms to address their own lack of market experience or regulatory expertise.
Our approach at HSBC has been to set up a strategic innovation investments team to scout the start-up landscape, identifying companies which provide technology we can use and which are potentially good investments.
We believe that when we act as both investors and customers, we get more value from new companies, and they get more value from their relationship with us. This is critical to nurturing the kind of technological innovation that is necessary to make financial markets and systems more efficient, and to improve the overall customer experience.
The innovations and working models introduced by start-ups or technology giants are not existential threats to traditional financial institutions. They are opportunities to meet customers’ needs better.
Darryl West spoke about the relationship between banks and fintechs at the RISE technology conference in Hong Kong on 11 July 2017. Watch a video of his speech on the HSBC YouTube channel (opens in new window) .