'Uber of banking' sparks radical changes across industries

Financial technology is forcing a change in many of Singapore’s traditional sectors from financial services to consumer retail and investment.

Financial technology, or FinTech, is forcing a change in many of Singapore’s traditional sectors. From financial services to consumer retail and investment, digital disruption is transforming a broad range of businesses. Fundamentally, the principles of financial services — to save, exchange, invest, finance and insure against risk — will remain unchanged. What is certain to change is how users address their needs through such services.

This will trigger a revolution in the way other related businesses within a broader ecosystem operate. Popular FinTech solutions such as Robo-Advisory, blockchain, QR payment mechanisms and crowdfunding, have influenced decision making and how consumers go about their day-to-day lives. The hyper speed adoption of FinTech has also created concerns over its sustainability and whether it will culminate in the “Fourth Industrial Revolution”. If so, what can Singapore businesses do to benefit from this revolution?

Is the FinTech revolution here to stay?
While FinTech was not a buzzword until 2015, it has been incubating for almost a decade. The birth and rise of FinTech can be traced to the global financial crisis, and the resulting erosion of trust. Since then, FinTech has played an important role in the global financial industry as well as people’s lives. According to CB Insights, global FinTech financing activity jumped almost fivefold from about US$4.6 billion in 2013 to US$22.3 billion in 2015, with a notable increase in the Asia-Pacific.

To arrive at an objective and more holistic assessment of the FinTech phenomenon, we examine how FinTech has enabled radical changes across a range of industries:

"Uberising" banking
The banking sector has had its fair share of criticism as being inefficient and inept in service quality. Frustration with the banking system — a breeding ground for financial innovations — fuelled the rise of FinTech, which has led to innovation and disruption in traditional banking services and roles. Today, FinTech is hailed as the “Uber of banking”. Like the transport industry, banks are forced to adapt to radical disruptions and fast-paced changes. This started first with mobile banking. DBS, a leading digital bank, started mobile banking services in 2010. More solutions to improve service quality were introduced as technology developed. In China, banks have managed to design entire retail services around facial recognition and artificial intelligence. When a customer walks in, his or her identity is automatically detected, and the person no longer has to queue for registration and identity checks.

Disrupting traditional businesses
Apart from banking, the trading and insurance industries have also been affected by FinTech. Mobile payment options are the second wave of disruption after e-commerce for retailers. According to Statista, worldwide mobile payment revenue in 2015 was US$450 billion and is expected to expand at a compound annual growth rate of 25% to about US$1 trillion by 2019.

Accelerating change for the fund management sector
Another industry to be impacted by FinTech is fund management. From investment banking to private equity and venture capital managers, FinTech is transforming business models and improving performance through the reduction of operational costs and productivity improvement.

Traditional middle and back office functions are being streamlined to improve the viability of high-volume transactions. The MAS started to support the adoption of FinTech solutions such as Robo-Advisory in June 2017, offering service providers the ability to render automated investment suggestions and build portfolios in less time to meet customer-specific risk appetites and needs.

Attracting millennials
The emerging group of millennial customers, with growing financial wealth and low tolerance for high fees, is a key consumer class today. Having grown up in the age of rapid technological development, they expect instant communication and extensive digitalisation options. Services need to be efficient and economical. Meeting the expectations of this new class of affluent customers and doing so profitably is no small feat. FinTech satisfies this need by combining traditional financial services with high-tech features. For example, FinTech solutions such as data analytics, biometric identification, psychometric testing and mobile applications are being applied to the insurance sector, broadening the range of consumers to whom it is profitable to supply insurance products and enabling the creation of more customised insurance solutions.

Government support for FinTech
From a policy standpoint, government efforts to support Fintech are visibly gaining traction. In June 2015, MAS launched the Financial Sector Technology & Innovation (FSTI) scheme, which would commit S$225 million over five years to support the creation of a vibrant ecosystem for innovation. The scheme can be used for funding and catalysing the development of industry-wide technology infrastructure, such as innovation centres and institution-level projects.

What should Singapore businesses do to benefit from this revolution?

1. Perform a threat and resilience assessment of overall strategy
As firms become increasingly aware of the ripple effect from FinTech disruption, it is important to perform a threat and resilience assessment of their business models and reflect on their operational advantages. For instance:

  • Strategic considerations must be made to determine whether the business should differentiate its offerings from competing FinTech solutions, or embrace disruption through incorporation or collaboration with other FinTech models.
  • Businesses should rationalise operating costs and improve customer experience through FinTech solutions. Service providers need to ask whether their business value propositions are suitable for current and prospective customers.
  • It is important to consider whether business offerings promote regionalisation and scalability as FinTech solutions provide a wider reach and lower the barriers to cross-border solutions (albeit subject to specific regulatory requirements).
  • Operationally, FinTech solutions are providing more avenues for manpower and human capital rationalisation. For example, collaborating with a FinTech provider can streamline the traditional middle and back office functions of a financial institution.
  • Although traditional fund management models cannot ignore compliance, tackling this challenge with machine learning (a type of artificial intelligence) could create an almost ‘zero risk’ environment.

2. Seek out opportunities from disruption and take action
Singapore businesses cannot ‘sit on the fence’ where FinTech disruption is concerned. Collective investments in the vibrant local FinTech ecosystem by financial watchdogs as well as institutional and venture capitalist investors will ensure that Singapore remains a leading Asian financial centre.

Singapore is shaping up to become the blockchain hub of the world. Blockchain is a simpler, faster, cheaper and more trusted way for businesses to engage with one another, and the use of blockchain technology could also signal greater cybersecurity safeguards through enhanced traceability for businesses.

Existing investors could benefit by learning from portfolio companies and being open to technological changes. They should also keep an eye out for potential FinTech investment opportunities or fund FinTech initiatives to grow the pie.

For entrepreneurs, FinTech is certainly an impetus to start a business and raise investment funding. Entrepreneurs should identify collaborative opportunities in public-private partnerships. For example, EDB and IE Singapore may join forces with local large corporations or foreign MNCs to drive further investment and capitalise on infrastructure that supports FinTech.

One of the concerns of FinTech is the mass displacement of jobs. However, FinTech is not centrally about making traditional roles redundant. Instead, FinTech creates opportunities for the business to enhance customer relationships by providing a more acute and insightful human touch. Human interaction is needed to bring the winning touch to the end consumer.

Industries that develop and adopt FinTech will indirectly create more roles. FinTech forces people to continually upgrade themselves and adapt to changes. The ‘SkillsFuture’ initiative driven by the Singapore government will help Singaporeans to expand their skill sets to meet the new requirements of FinTech.

Businesses need to view FinTech disruption as an opportunity more than a threat, adopt an adaptive mindset, and get comfortable with being ‘uncomfortable’. They also need to take calculated risks to reap the benefits of FinTech and seize the myriad opportunities that it has opened up.

This article was written by Dennis Lee, Alvin Mun and Liu Zhiyuan of our Risk Advisory division. It was featured in the Business Times on 21 September 2017.