Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Stock-market-news/  Big banks will need to explore FinTech space: Mohit Mehrotra
BackBack

Big banks will need to explore FinTech space: Mohit Mehrotra

Deloitte Consulting's executive director on how countries like India and Indonesia are the perfect breeding grounds for FinTech firms

Mehrotra says banks in Asia do lag many of the North American and European banks in their respective FinTech-related activities.Premium
Mehrotra says banks in Asia do lag many of the North American and European banks in their respective FinTech-related activities.

Singapore: A slew of new technology-driven start-ups are beginning to offer financial products dubbed “FinTech", a segment that attracted $12 billion of investment in 2014, according to research firm CB Insights.

FinTech is set to disrupt traditional banking. “There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking," said Jamie Dimon, chairman of JPMorgan Chase and Co. in a recent letter to shareholders.

Where does Asia stand in the FinTech space?

Banks in Asia lag North American and European banks in FinTech, said Mohit Mehrotra, an executive director at Deloitte Consulting. Asia has a huge potential for FinTech, and countries like India and Indonesia, with their low financial services penetration and large unbanked and underserved populations, are perfect breeding grounds for FinTech companies, Mehrotra said in an interview.

Edited excerpts:

Have banks in Asia woken up to the threat posed by alternative financial firms or FinTechs, which are today beginning to offer a slew of new services such as mobile payments and crowd-funding?

Banks in Asia are at different stages of their understanding and recognition of FinTechs. This is a reflection of the markets they operate in and the challenges and opportunities they view. For example, there are banks that have launched FinTech funds and accelerators to tap into the ecosystem, or exploring potential collaborations with FinTechs. On the other hand, there are banks who are still wary of the business models that FinTechs offer and believe the opportunities and threats FinTechs pose are not in the near or medium term. Broadly, banks in Asia do lag many of the North American and European banks in their respective FinTech-related activities.

Which banking businesses are most under threat from FinTech start-ups? Can FinTech become the first choice for financial services such as crowdfunding and peer-to-peer lending?

Historically, FinTechs have made greater impact on the consumer and SME (small and medium enterprise) segments. Many of the FinTech plays are either around enabling or disrupting the fee income solutions—payments, wealth and asset solutions.

When it comes to Asia, even financial centres such as Singapore and Hong Kong are hardly mentioned in the FinTech space? Why has the continent in general fallen behind in this space? How do you see the FinTech space in Asia evolving?

We must understand that the FinTech revolution began from the West and picked up momentum in the aftermath of the financial crisis. Cities like London rode this wave with government support by proactively encouraging FinTechs to incubate and base their operations there. Asia has a huge potential for FinTechs.

Countries like India and Indonesia, with their low financial services penetration and large unbanked and underserved populations, are perfect breeding grounds with several white spaces for FinTechs to play an important role. Singapore and HK tend to look to a model with favourable and encouraging policies that drive natural choice for FinTechs with regional aspirations to base themselves in these countries.

Governments across the region are trying to seize this trend, as we saw recently in Korea where the regulator is set to allow banks to fund FinTech firms and has also decided to allow non-financial companies to establish Internet-based banks.

Going forward, how do you see Asia’s large banks, which have tremendous clout within their respective countries reacting to FinTechs? Will they take them on and compete, or with their huge machineries, try and curb these start-ups, or realize their best chance is to collaborate?

I think the big banks need to explore the FinTech space. There are several reasons for this, which some of the big banks are beginning to acknowledge.

Big banks, by nature of their legacy set-ups, find it increasingly difficult for forging new digital-enabled business models that FinTechs specialize in.

Add to this the regulatory and capital constraints that they operate in. I believe big banks can have two types of digital strategies—digital inside-out and digital outside-in. Digital inside-out is what most banks are focused on today which are primarily internally-driven initiatives to digitize traditional financial institutions products and solutions, enhance UX (user experience) and CX (customer experience), increase productivity. On the other hand, digital outside-in constitutes direct or indirect digital initiatives by financial institutions which are externally driven through partnerships with FinTechs. Collaboration with FinTechs offers big banks a great option to build out their digital outside-in strategies.

In countries such as India and Indonesia, FinTech start-ups can play a major role in reaching out to the unbanked, but how successful will FinTechs be in these countries when it comes to working around the existing regulatory structures? Are regulators such as the Reserve Bank of India (RBI) equipped to address this new segment? Do they understand these new technologies?

We think regulators have begun to better acknowledge the space that FinTechs occupy. However, in the same breath, it is safe to say that regulators are at different points in their understanding of the various businesses some of these FinTechs specialize in.

For example, China is now starting to regulate the P2P (peer-to-peer) finance market; RBI in India has raised concerns over Bitcoins, while in Korea the regulators are actively encouraging the traditional banks to invest in FinTechs.

In the long run, as this space further develops and the number of FinTechs increase, regulators will need to actively consider including them in their regulatory agenda.

How long will it take for Asia to produce large FinTech firms such as Lending Club, OnDeck, Prosper and Zopa?

There is no doubt that Asia has lagged the West. However, going forward, with the right catalysts in place as mentioned earlier, we see no reason why Asia cannot be a hotbed of FinTech growth and activity. We are already seeing some leaders emerge from Asia. For example, CreditEase from China is the fastest-growing P2P platform in the world and has surpassed Lending Club. We believe there are more to follow from Asia.

What are the key global technology trends that appear to have the greatest impact on the financial services industry now, and in the future?

A number of trends, initially developed and spearheaded by the technology sector, are now cascading down to other industries and sectors.

For the banking sector, these trends have resulted in an evolution and, sometimes disruption of its IT (information technology) capabilities, business operations and business models. We have identified 10 key global technology trends that appear to have the greatest impact on the financial services industry now and in the future.

These are CIO (chief information officer) as venture capitalist, cognitive analytics, digital engagement, industrialized crowdsourcing, wearables, technical debt reversal, social activation, cloud orchestration, in-memory revolution and real-time DevOps.

The global technology trends are gradually gaining prevalence in all of these Asia Pacific countries. However, there are some industries which are much quicker in jumping on the digital bandwagon and adopting the technology trends.

For example, the consumer business, life sciences and healthcare, and technology, media and telecommunications industries are perceived to be developing digital capabilities a lot more quickly than the others. This can be attributed to combined factors of change in end-consumer expectations and cost pressures, as well as the nature of the industries.

You are of the view that, going forward, the role of CIOs will be equivalent to that of a venture capitalist—that they need such a mindset. Can you explain what you mean by this?

The chief information officers have traditionally focused on core delivery and operations such as the purchase of enterprise software and optimization of processes for efficiency.

With the emergence of disruptive forces such as crowdsourcing, big data and mobility, CIOs will need to develop a new mindset and enhance their capabilities in dealing with change. As a start, CIOs will need to manage their IT portfolio by actively monitoring its performance and responding to volatile and dynamic market conditions.

They will also need to be open to decisions to exit, reinvest or divest. By borrowing from the playbook of today’s leading venture capitalists, they will be better equipped to reshape how they run the business of IT.

In a recent report, you said that the digitally-savvy generations are expected to be key drivers of economic growth in Australia, Hong Kong, Malaysia and Singapore by 2025, and that this segment will have a combined spending power of close to $2 trillion. What do banks need to do to be relevant to these consumers?

The tremendous opportunity and potential presented by the digital natives, alongside the rapid pace of adoption of various technological trends by businesses and governments, are key drivers that prove to be vital for banks to acknowledge and capture.

It may not be sufficient for banks to continue improving what they are doing as their clients are increasingly catering to technological demands of the digital natives.

Banks will need to realign their digital strategy and consider the adoption of digital outside-in strategies to ride this digital revolution.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 15 May 2015, 01:19 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App