AI set to shape fi­nan­cial ser­vices

China Daily (Hong Kong) - - COMMENT -

As the Chi­nese main­land en­gi­neers a tran­si­tion from an ex­port-dom­i­nated econ­omy to one driven by do­mes­tic con­sump­tion, the de­vel­op­ment of its cap­i­tal mar­kets is crit­i­cal. Sig­nif­i­cant progress has al­ready been achieved, with a slew of mea­sures en­acted to ease ac­cess re­stric­tions to its cap­i­tal mar­kets.

Ini­tia­tives such as the re­cently launched Bond Con­nect, fol­low­ing hard on the heels of a se­ries of steps such as the Hong Kong-Shang­hai and Hong Kong-Shen­zhen Stock Con­nects, are aimed at bol­ster­ing the main­land’s cap­i­tal mar­kets. It is no co­in­ci­dence that Hong Kong has led the world in pro­ceeds raised from ini­tial pub­lic of­fer­ings dur­ing five of the past eight years, and that Shang­hai and Shen­zhen rank sec­ond and third this year to date in terms of IPO funds raised. Th­ese per­for­mances are valid in­di­ca­tors of the greater cre­ation of wealth on the main­land. In turn, they un­der­score the huge op­por­tu­ni­ties for the wealth man­age­ment in­dus­try in Hong Kong to man­age the ex­pected sig­nif­i­cant in­flows from global in­vestors ea­ger to tap the nu­mer­ous op­por­tu­ni­ties of­fered by the main­land in par­al­lel with the ris­ing do­mes­tic de­mand for wealth­man­age­ment ser­vices.

All of those de­vel­op­ments also come as the main­land and Hong Kong lead the charge in in­no­va­tion and tech­nol­ogy, at a time when en­ter­prises and sec­tors in those economies have al­ready started to re­de­fine the way en­tire in­dus­tries op­er­ate.

Nowhere has this dis­rup­tion been more ev­i­dent than in the fi­nan­cial ser­vices in­dus­try. The fi­nan­cial in­dus­try is to­day the sec­ond-most tech­nol­ogy-in­ten­sive in­dus­try — sec­ond only to the tech in­dus­try it­self. Tech­nol­ogy has al­ready had a pro­found im­pact on fi­nan­cial ser­vices. And the trend is only set to in­ten­sify — IT spend­ing by bank­ing and se­cu­ri­ties firms in the Asia-Pa­cific will total $67.1 bil­lion this year, a 5.4 per­cent in­crease from a year ear­lier, ac­cord­ing to Gart­ner.

Some ma­jor in­dus­try play­ers — in­clud­ing pri­vate banks, who are quicker in rec­og­niz­ing the trans­for­ma­tive po­ten­tial of tech­nol­ogy — have al­ready teamed up with fin­tech com­pa­nies as they looked to har­ness tech­nol­ogy to en­hance the client ex­pe­ri­ence and de­velop a greater un­der­stand­ing of their clients through an­a­lyt­ics, all the while look­ing at ways tech­nol­ogy can help in­crease pro­duc­tiv­ity to bet­ter serve the ever-evolv­ing needs of clients. At times, th­ese part­ner­ships have trans­lated into new prod­ucts and ser­vices.

Robo-ad­vis­ers are one such in­no­va­tion pro­vid­ing au­to­mated, al­go­rith­m­driven fi­nan­cial plan­ning ser­vices used to en­hance in­vest­ment de­ci­sions by the wealth-man­age­ment in­dus­try, at­tract­ing and en­abling the bet­ter man­age­ment of bil­lions of dol­lars in as­sets glob­ally.

Ac­cord­ing to a sur­vey by Pro­fes­sional Wealth Man­age­ment, more than 80 per­cent of global and re­gional pri­vate banks sur­veyed be­lieve the abil­ity to com­mu­ni­cate and en­gage bet­ter with end-in­vestors will be the most pow­er­ful im­pact of dig­i­tal in­no­va­tions over time. In­deed, robo-ad­vis­ers and other dig­i­tal tools can help sys­tem­at­i­cally mon­i­tor port­fo­lio qual­ity and promptly of­fer alerts and rec­om­men­da­tions when a port­fo­lio strays from pre-set goals, and at the same time free up bank staff from time-con­sum­ing tasks such as big-data anal­y­sis, let­ting them pro­vide bet­ter and more ef­fi­cient client ad­vi­sory ser­vices with in­creased mo­bil­ity.

So­cial ac­cep­tance of dig­i­tal in­no­va­tions is cer­tainly in­creas­ing, too. Clients have re­peat­edly ex­pressed their de­sire to use chat apps, such as What­sApp and WeChat, for com­mu­ni­ca­tion with their ad­vis­ers and to re­ceive prod­uct and in­vest­ment rec­om­men­da­tions in this way. Th­ese so­cial me­dia plat­forms are used by mil­lions of peo­ple and are the pre­ferred chan­nel for mil­len­ni­als.

This is just the be­gin­ning of the jour­ney. Not only in fi­nan­cial ser­vices but across in­dus­try in gen­eral, ar­ti­fi­cial in­tel­li­gence (AI) has yet to un­leash its full dis­rup­tive force. Ac­cord­ing to some cur­rent es­ti­mates, AI could cre­ate an eco­nomic value of about $1.8 tril­lion to $3 tril­lion a year by 2030 in the re­gion, with fi­nan­cial ser­vices, health­care, man­u­fac­tur­ing, re­tail and trans­port sec­tors en­vi­sioned as spear­head­ing the AI rev­o­lu­tion in Asia.

As AI gains ground, both the pub­lic and pri­vate sec­tors in Hong Kong and the main­land need to em­brace it, and re­sist the temp­ta­tion to fight its ad­vance. Reg­u­la­tors and gov­ern­ments, in par­tic­u­lar, need to strike a bal­ance be­tween fa­cil­i­tat­ing AI’s de­vel­op­ment and de­ploy­ment and man­ag­ing its down­side risks.

Be­yond bet­ter wealth man­age­ment, banks also have a crit­i­cal role to play in help­ing clients nav­i­gate th­ese changes in tech­nol­ogy by con­nect­ing them to the in­no­va­tion ecosys­tem. This closer re­la­tion­ship to sources of in­no­va­tion will ul­ti­mately go a long way to­ward help­ing banks and clients solve their prob­lems as tech­nol­ogy dis­rup­tion con­tin­ues to im­pact their busi­nesses.

Th­ese tech­nol­ogy ad­vances and in­dus­try ini­tia­tives come at a time when the na­tion forges ahead with plans to cre­ate a Greater Bay Area — in one as­pect Hong Kong and the main­land’s own re­sponse to Sil­i­con Val­ley — which will bring to­gether the in­no­va­tion hubs of Hong Kong, Shen­zhen and other ma­jor cities in Guang­dong to ul­ti­mately cre­ate a re­gional su­per-hub ca­pa­ble of at­tract­ing the world’s lead­ing tech­nol­ogy com­pa­nies.

Here, too, Hong Kong and its fi­nan­cial ser­vices sec­tor stand to ben­e­fit im­mensely by be­ing in a po­si­tion to pro­vide the global in­vest­ment com­mu­nity with the means to gain ex­po­sure to th­ese vibrant in­no­va­tion and tech­nol­ogy cen­ters through a com­bi­na­tion of tra­di­tional in­vest­ment in tech­nol­ogy en­ter­prises as well as in a wealth-man­age­ment role — not only to the Greater Bay Area but to all of China. In­deed the Hong Kong fi­nan­cial ser­vices sec­tor trans­formed by AI can serve as a cat­a­lyst, spark­ing tech­nol­ogy in­no­va­tion across China.

The au­thor is chair­woman and head of Greater China at UBS Wealth Man­age­ment.

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