The ‘Fintech’ revolution
Startups give big banks a run for their money
Startup financial technology companies are starting to cause major disruption to global banking systems as the behemoths of yesteryear try to adapt and change the way they operate.
“We have limited channels bridging supply and demand, banking technology is not nimble enough,” admits Amran Hassan, the head of corporate development and innovation at Malaysia’s largest banking group, Maybank.
“Our customers are changing and wanting everything immediately and customised for their iPads instead of waiting for the branch to open at 9am. ... We are stuck with our legacy systems.”
Mr Amran made the comments at the recent World Capital Markets Symposium, during a panel discussion that explored the ways in which businesses, particularly financial service providers, can leverage new technological innovations.
Among the panellists was Chris Brycki, the founder and CEO of Stockspot in Australia, which has become the country’s fastest growing online automated investment adviser and fund manager.
Mr Brycki, who himself was a banker with UBS before quitting to pursue new ideas, said he saw ways to take advantage of the opportunities available through online platforms.
Most of the panelists said the inability of banks to adjust to new realities, particularly the needs of small and medium-sized enterprises (SMEs) and startup companies, had created opportunities for alternative financiers such as peerto-peer (P2P) lenders and equity crowdfunding platforms.
“The investors that we deal with are no longer content with ultra-low yields [due to low interest rates],” said Leo Shimada, the co-founder and CEO of Crowdo a Singapore-based P2P lender and crowdfunding provider.
“On the business side, SMEs, which account for so much of growth in Asean markets, are unhappy with always being told ‘no’ by traditional financing venues, so there has been a buildup of demand for alternative financing.
“When we get activated in a market, we see our business grow overnight. This is the success that we enjoy because we are satisfying an unmet market demand.”
Banks also have been struggling to meet changing consumer needs, which have evolved into an on-demand model.
“The internet today empowers consumers to enjoy what they want, when they want, where they want,” said panelist Azran Osman-Rani, the CEO of iflix Malaysia and former CEO of the low-cost carrier (LCC) AirAsia X.
“In the case of LCCs, it allows us to cherry-pick the services that we want for the best price. In the case of entertainment … it gives us the ability to deliver immediately.”
Mr Brycki said that the experiences of other industries with respect to technology were highly instructive to those engaged in the new field of Fintech — the combination of finance and technology.
Fintech applications are now empowering customers to make informed choices while improving access to funding and investment, financial and crowdfunding experts said.
Evans Osano,a World Bank expert on technical assistance projects, said technology had enabled banks and lending institutions to provide finance to markets previously underserved or missed out by traditional lenders.
“We have seen seven times growth in deposits with technology-driven financial institutions. Starting off with 3 million accounts, we’ve grown to over 20 million,” he said of the growing use of digital banking in Kenya.
“Traditional banks are also partnering with technology companies to ride on the ease of access and reach out to more customers, much more than their existing distribution base allows.”
Technology also enables easier funding for small to medium businesses, pointed out Mouna Aouri Langendorf, the founder and chief momentum officer of Woomentum.
“Fintech platforms have made it easier for entrepreneurs to raise funds, with their ability to scale and reach out to more communities. Entrepreneurs raise 80% of their funds from their own network and technology helps them do that.”
Ms Langendorf’s organisation practises a reward-based system to raise capital, which will evolve into equity crowdfunding and P2P lending platforms soon.
Giving the power to customers to make choices allows them to be more self-directed investors, said Theresa Burton, deputy chief executive and COO of the Trillion Fund.
“Wealth is not a skill set; everyone has the right to participate and learn,” she said. “Education is a key part of our mandate, reaching out to customers with a friendly interface and plain English.”
People in the past, she said, were excluded due to high entry costs, but now online platforms allow more customers to invest with as little as 50 pounds. Customers have the choice now to use a combination of investment tools from “robo-advisers” to P2P lending facilities.
“A lot of our work involves educating people on the risks, weaknesses and benefits of robo-advisers. And this marks the difference between Fintech and traditional businesses,” added Mr Brycki, of Stockspot.
He said his company followed the “adopter curve” to promote Fintech applications as the majority of customers are people who have referred their friends and families to the business. This is a trend that he believes will drive the increase in Fintech use among investors.
“Traditional banks are partnering with technology companies to ride on the ease of access and reach out to more customers, much more than their existing distribution base allows”
EVANS OSANO World Bank specialist