The chief executive of Hong Kong’s de-facto central bank does not see financial technologies (FinTech) rendering banks or the conventional financial industry obsolete.
Norman Chan, chief executive of the Hong Kong Monetary Authority (HKMA), gained a sweeping crash course on new financial technologies during a visit to the neighboring municipality of Shenzhen in China. The visit was a part of Chan’s endeavor to ‘keep abreast’ of new developments in the space in China, a country widely seen as the world’s largest FinTech market. Some 500 million people, over 40% of China’s population, have adopted FinTech payment platforms such as Alipay and Wepay for payments and money transfers in the country. During the visit, the HKMA also signed a FinTech pact with Shenzhen’s government, a bilateral co-operation to promote FinTech adoption and activity between the two cities.
Upon his return, Chan penned an opinion blog while pointing to “benefitting a lot from this one-day visit and gaining an in-depth understanding of the rapid development of FinTech on the Mainland…”.
However, the central bank official is of the opinion that traditional banks, while seeing significant challenges, will not be disrupted in any significant way by financial technologies.
The speed at which fintech has developed has led some to think that if the trend continues, it will completely change the conventional banking and financial industries, or even render them obsolete. I have repeatedly given this question some serious thought and came to a view that while the conventional financial industry is currently facing unprecedented challenges, it will not be turned upside down or become obsolete as a result of fintech for two main reasons.
Those two reasons, he opines, are the ‘financially strong’ conventional banks with ‘abundant resources’, which have seen them pour resources into developing their own solutions. Chan picked out two technologies in particular that are seeing significant investments in R&D from financial institutions, biometric IDs and distributed ledger, or blockchain technology. Banks are expected to maintain their competitiveness, either by developing their own solutions internally or tapping third parties. Still, Chain sees a small handful of banks running the risk of losing customers when they are unable to keep up with advancements in technology.
The second reason, Chan says, is the banks’ ability to protect customers’ deposits. ‘When our society demands protection, the government is obliged to regulate,” the central banker writes. He then goes on to claim that the convenience and speed of Fintech solutions could see consumers ‘making hasty decisions that may result in a material loss when investment products are sold with the use of fintech.”
TechFin < FinTech?
Chan acknowledged the growing prominence of technology firms entering the financial services sector (TechFin, as he calls it). Without naming them outright, the central banker pointed to a dominant e-commerce firm that established a payment platform (AliPay) and a social messaging platform that went on a similar path and ‘established a bank specializing in microfinance’ as well as a payment platform (WePay).
Still, Chan claims - following “much deliberation” that the TechFin sector is unlikely to replace traditional banking altogether. “[T] they cannot, and should not, shrug off the society’s demands for protection for depositors and investors as the substance of financial transactions remains the same no matter how advanced the technology is,” Chain stated.
Chan’s comments come in a week when Swedish FinTech firm Klarna became the first of its kind to gain a full banking license, enabling it to start functioning as a bank to over 60 million users across Europe. In contrast to Chan’s views, the former CEO of British banking giant Barclays has predicted a future wherein financial technologies will usher in an ‘Uber moment’ in the banking industry, one which would see the banking sector shed 50% of its workforce within 2025.
Ultimately, Chain sees the competition between traditional banks and new FinTech players to help in the overall advancement of the financial sector.
Competition brings efficiency and advancement, which will benefit consumers and investors alike.
Featured image from Shutterstock.