Digital disruption

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Digital disruption and the rise of Fintechs create opportunities and challenges in transaction banking

Deloitte report

23 March 2015: The digital challenge faced by banks is currently intensifying and the emergence of alternative non-bank players, or Fintechs, is creating both opportunities and challenges.

A Deloitte report ‘Digital Transaction Banking: Opportunities and Challenges’, highlights how Fintechs are beginning to transform the financial sector by creating the capability for traditional banks to offer new services, while also potentially disrupting them with competitive propositions such as alternative payments mechanisms or crowd-funding.

Richard Miller, Payments Director with Deloitte says: “Banks know the demands of digitisation are increasing, but according to our research most banks in S.E. Asia and Australia are responding with internally-driven initiatives.”

“We are concerned that given the complexity and speed of change, an ‘Inside-Out’ strategy focused on investment in internally-driven digital initiatives to improve traditional transaction banking and payments solutions will fall short of customer needs. Embracing an ‘Outside-In’ approach, where a bank looks to partners that can help fill the gaps, and augment current digital capabilities quickly, is more likely to meet the rapidly growing number of clients with sophisticated demands for digital functionality and cost efficiency.”

The ‘Digital Transaction Banking: Opportunities and Challenges’ report projects that by 2025, the total consumer spending power of around USD2.5 trillion in Australia, Hong Kong, Malaysia and Singapore, will primarily1 come from digital natives (Gen Y and Z) and the digitally-savvy (Gen X). As these clients continue to increase in importance, being on the front foot to meet their needs now has competitive implications for banks which will extend to the businesses and governments banks serve.

Findings from the report also highlight that banks need to better understand the changing needs of their clients as well as the variety of technologies that are helping to drive these changes. It examines the top ten global technology trends2 and how they are affecting different industries and sectors. With specific examples of the trends the report seeks to provide banks with insights as to how to address the needs of their digitally evolving clients.

“Fintechs are transforming the financial sector by creating products or services that are disrupting the incumbents’ advantage by addressing specific needs better or enabling customers to do more with less,” says Miller. “When banks collaborate with fintechs by leveraging their strength in technology-driven software, platforms and infrastructure, they can quickly grow their digital abilities.

“Instead of seeing fintechs as rivals, there are great opportunities for collaboration that can differentiate the capabilities of the incumbents. But to do so, banks will need to be open, agile and collaborative,” Miller said.

According to Visa, a key technology partner for banks across the region and sponsor of the Deloitte report, the future growth of banks hinges on the ability to partner with these new and different organisations.

Olivia Leong, Head of ‎Commercial and Prepaid Payment Solutions for Visa, Asia Pacific, explained that along with its bank clients, Visa also sees new partnerships as crucial to future growth in financial services. “For a number of years now, we have been building relationships with the Fintech community as a way to bring new innovations to our bank clients, merchants and governments.

“As the shift to digital accelerates and the opportunities become even more exciting and dynamic, we have increased our focus on these partnerships and are strengthening them through greater access to our payment network,” said Leong.

To read the full report, please click here.

1 75% of total spending power
2 CIO as venture capitalist; wearables; digital engagement; industrialised crowdsourcing; cognitive analytics; cloud; social; real-time devops; in-memory revolution; technical debt reversal - Source: Deloitte Tech Trends

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