Who dominates the phone dominates the Internet. The whole world of information is now available in your hand, replacing your own mind as a memory base for instant decision-making.
The reason why traditional bank shares are dropping like a stone is that mobile phone companies and financial technology (fintech) platforms “get it.” Banks and conventional financial institutions are stuck with so much legacy hardware (branches and outdated mainframes) and complex regulation that their CEOs feel besieged by bad news -- cyberattacks, privacy leakages (like the recent Panama leak), capital requirements and huge fines.
No wonder top bank talent is leaving the industry. In Silicon Valley they get fat bonuses to become “cool” without regulations. Regulated bank CEOs are held personally responsible for everything that goes on in their bank, having to deal with soul-destroying staff and expenditure cuts, on top of their own pay cuts.
I was at the Singapore Forum this month moderating a panel on fintech when the Alibaba strategist mentioned that the current battle for market share is all about “mindset and handset.” The mindset of the Internet age is that you do not need to own any assets – you simply share or rent them from those who have excess capacity.
The mobile handset is where most of the world’s population is moving towards doing business, from dating to buying a house, phone, using your fingerprint and retina as digital signature.
Finance today is an information business and fintech can deliver payment services at 1-2 cents per transaction compared with $10-12 per paper-based payment. Increasingly, we spend more on apps and software than on the actual hardware.
Did you know that the fastest adopters of technology in the world are porn, gambling and politics, in that order?
The financial consultants Oliver Wyman have come up with a major report on “Modular Finance,” which argues that technology has transformed finance into modular parts – modular supply (provision of financial services by specialists); modular demand (buying new services from such specialists).
Oliver Wyman’s report begins with a cartoon about a customer buying a house, arranging a mortgage and insurance, selling stocks and wealth products for the downpayment and paying for all fees through a single mobile phone. Equipped with the latest encryption, digital signatures and right apps, the mobile phone has empowered the customer to everything what used to take several visits and weeks to the bank, the lawyer, real estate agent and even land registry to complete the transaction.
In short, the game of finance is being fought by one super-bank to rule them all (Goldmans?) or one phone to rule them all.
The global supermarket model (one brand to rule them all) is having a serious re-think about being labelled G-SIFIs (global systemically important financial regulations), requiring special regulatory attention and additional capital and liquidity requirements. Increasingly, these universal banks do not need to own and supply all services in-house -- they simply outsource the back-office or even key services to trusted specialists.
On the other hand, fintech aims to change our lifestyles through different types of technology. First, frictionless and seamless inter-operability integrates businesses like logistics with payments, such as Alibaba, making it easier to buy, pay and deliver in one pass. Second, big data analytics, which Amazon uses suggest to you what to buy next and understand how customers are changing. Third, blockchain and distributed ledger technology, which makes systems more secure. Fourth, artificial intelligence, such as robo-advisers on investments. Fifth, data secrecy and unique identity codes that ensures privacy and confidentiality.
Fintech platforms have less staff, less legacy assets, less regulation and more flexible mindsets. These barbarians at the gate are only stopped by regulations that current protect the banking franchise. This is not to say that they don’t have defects, such as lack of attention to anti-money laundering, terrorist funding and cyberattacks. When they reach super-scale, they are also too big to fail.
The rapid evolution of fintech means that Asia now has the money and the technology to transform our antiquated financial systems into the 21st century.
The Asian population is young, tech-savvy, mobile and willing to experiment with new services and equipment, which we are creating in Asia. The good news is that if our young startups get it right, the world is their market. The bad news is that if our regulatory and government support services don‘t allow our startups to compete, our markets and jobs will be someone else’s lunch.
What is holding back this transformation to fintech Asia is still mindsets. Look at how Jakarta taxi drivers are protesting against Uber. Regional banks are expanding their footprints by buying the franchises of retreating European and American banks in investment and private banking.
But they and their regulators have not thought through how to use fintech to cut back their legacy systems, many of which are obsolete and operating under-scale, because many regulators still insist on each bank owning and running their own hardware and branches. To be fair, not all regulators think that way.
Barriers to fintech are sometimes regulatory mindsets. Asian regulators are more willing to accept the entry of financial institutions from outside the region than from their neighbors. Without regulatory concurrence, many banks and financial institutions do not dare to experiment with new technology.
We now have Asian customers moving to global service providers like Apple, Google and Amazon, if Asian financial service providers do not get their act together. Competition is good -- look at how Sri Lanka is negotiating with Google to provide balloon-suspended cheap high-speed Wi-Fi coverage.
Asian bankers and regulators need to think hard about what Asian customers really want to achieve global scale in terms of efficiency, stability and trust.
Fintech and mobile handsets are not the solution to all our problems, but they will change how the problems are resolved. The real problem is our mindset. Less than 20 percent of the iPhone comprises hardware and labor costs. The real profit is in software, which is all about knowledge and mindsets.
That belongs to the realm of politics and education, which is another story.
By Andrew Sheng
Andrew Sheng writes on global issues from an Asian perspective. – Ed.
(Asia News Network)