Our primary goal is to help you to understand FinTech and to become more confident and persuasive in your ability to analyze and make recommendations to executives within the finance industry regarding how to react to these changes. This FIRST MOOC ON FINTECH IN ASIA-PACIFIC offered by HKUST presents the views of several professors from the top business school in Asia as well as perspectives from industry professionals. HKUST has been ranked for many years as the number one EMBA program in the world, as the number one Finance program in Asia, and as the top MBA program in Asia by multiple independent rating and review journals and surveys. This course offers the combined strengths of HKUST in Business, Finance, and Technology as one the world's leading academic institutions on an important area of technology and business innovations. For students from outside Asia, this also gives an insight into changes happening in the most advanced FinTech markets of the world, since Asia leads worldwide in FinTech adoption and creative innovations. This course (FinTech Foundations and Overview) is part of the HKUST FinTech specialization, there will be 3 other courses in the specialization including FinTech Security & Regulation (RegTech), FinTech Risk Management, FinTech Innovative Disruption: Implications for Society.
4.2: Why is FinTech a Threat?
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From the course by The Hong Kong University of Science and Technology
FinTech Foundations and Overview
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From the lesson
FinTech Implications for Established Business
Building on our understanding of FinTech market applications and FinTech technologies, we move in this module to examine the implications of FinTech changes and challenges for existing financial services companies, and we look at current and future trends in FinTech world-wide. This module concludes, after the final quiz, with a final course project in which students will present their recommendations for senior managers of a large, established Asia-Pacific bank to take advantage of and respond to FinTech challenges and opportunities.
Meet the Instructors
Theodore Henry King CLARKAssociate Professor
Information Systems, Business Statistics and Operations Management Department
Welcome back to our course on FinTech foundations and overview.
In this session, we're going to be talking about implications for businesses.
And specifically, why is FinTech a threat
to existing financial service firms, like banks or insurance companies?
As we think about why is FinTech a threat, it brings to mind a quote from Bill Gates.
Who said, we will always need banking, but we may not always need banks.
So we don't necessarily need the institutions that we're used
to dealing with.
And this becomes very evident and painfully evident
if you're in a country with rapid adoption of FinTech, such as China.
Early on, when we talked about FinTech for dinosaurs and
we said, why are banks paying attention to this?
Wernicke said the rise of FinTech is sometimes associated with
the rise of China, why?
Because China has over 60% FinTech adoption rates.
China has the world's largest money market fund,
owned by Alibaba, a tech company.
China has WeBank, and WeChat and WeWallets,
WePayment wallets, from Tencent, another tech firm,
that links and has become the primary interface to finance for
many people across the nation of China.
More people are using Alipay or WePay or
WeChat wallets, or some type of FinTech,
than are using traditional banking services.
This is amazing, and this is a revolution.
Now, what's interesting about that is,
you're not going to get people to go back from using Apple Pay or
Alipay or WeBank, back to their traditional bank.
They're not giving up the convenience, the ease of use, the power,
the flexibility that they've gained with this new technology.
In western countries, like the US or Europe, we see slower adoption.
Because the banking infrastructure and capabilities are better.
And so the banks are less likely to be leapfrogged nearly as quickly.
But we see adoption, we see about a third of Europe and
US moving into some form of Fintech application.
And those consumers are not going to be easy to get back into
the old way of doing things.
And so if you're a bank, you've got to adapt, join,
or you're going to be threatened, your survival will be threatened.
You cannot ignore these new technological capabilities.
Much the same as banks found when dealing with Capital One and
their innovations in the US.
You cannot run a credit card business the old way,
when Capital One is using data analytics and data mining.
They will cause you to face bankruptcy if you still ignore tech and
do things the old way.
Which said, we can't really look at risk any better than we are,
we'll just look at a credit report.
Capital One does not just look at a credit report.
Nor do their competitors who have survived in the consumer finance industry.
Now today, most banks either are good at data analytics, or
they're part of a group of banks serviced by a firm that's good in data analytics.
And so they're able to rival Capital One's capabilities.
It's not like Capital One is alone, they're not.
An so, it's not like banks are going to go out of business any more than they're out
of business because the world's first internet bank developed a branchless
banking system.
No, banks have online checking accounts, banks have capabilities.
New tech comes out, banks adapt.
But it is a threat when it moves too fast, when it becomes disruptive.
If the banks don't have time to respond, they may lose the customer.
And when Capital One got people to switch from Citibank or Bank of America or
other banks to their Capital One card, getting them back is hard.
because Capital One got you to switch by giving you a technology
innovation that said, we'll cut your price in half.
You can't do that again, you could say, well, okay, okay, but
if you switch back from Capital One, we'll give you the same price.
Well, you can do that, banks are doing that.
And that helps them retain their customer and that stems the loss.
But getting them back for
the same deal is not as easy as getting a customer to switch to save money.
And so it's harder to regain a customer once lost,
this is why FinTech is a threat.
FinTech is a threat because Alibaba, or Ant Financial, a subsidiary of Alibaba,
or WeBank, a subsidiary of Tencent in China, have gotten customers to switch.
They've gotten customers to switch to new services,
because of convenience, ease of use, trust, for a variety of reasons.
And it's going to be hard to get those people back, once you lose them,
you've lost a relationship.
And they may be happy with their new system.
And so getting customers on to new tech can make for
a real challenge to get them back.
Now, for banks, for traditional banks,
traditional insurance companies, they have time.
FinTech is still young, but there are thousands of FinTech startups out there.
They're looking to take your customers.
And when those customers leave, they may be much harder to regain.
You might be able to gain them back and more by buying one of these start-ups.
And you may have enough capital to do that.
That is an option, but
there is a bigger threat that you might be missing if you're an established bank.
And that is that, in the past, if you go back 10 years ago or
15 years ago, and you look at banks versus tech firms,
banks dominated the financial markets.
Banks had a capital asset value that was 50% or
higher more than all the tech firms in aggregate.
Today, the tech firms' valuations,
stock market values, cash values,
exceed the large banks.
The banks have been through a difficult ten, years and
the technology firms have been through an amazing ten years.
When you put those two factors together,
tech firms have more access to capital than banks.
That makes them very viable competitors to banks, and
this is a bigger threat than bankers may realize.
Tech firms may be the banks of the future, or may buy banks in the future.
When Alibaba wanted to get licensed and regulated,
all they had to was buy a midsize bank, or partner with a midsize bank.
So you can buy banks as a tech company, you can also buy tech as a bank.
But you probably can't afford to buy Alibaba or Tencent,
no matter which bank you are in China, this would be hard.
You might be able to find new pioneering, innovative ways,
you might be able to win back the hearts and minds of consumers.
But you got a tough road to hoe, because people love Apple.
They love their phones, they love their providers.
They don't necessarily like their cable company or their cellphone companies,
but they do like many of the tech firms.
And so you're going to have an uphill battle to get the loyalty back.
And they're willing to trust these technology firms in ways that
they may not trust banks.
Because the past ten years have been a little hard on banker credibility and
trust.
And so why is FinTech a threat, because people like tech.
Because their hearts are shifted to tech.
Because tech has a lot of access to capital.
Because these new apps are convenient.
Because these new technologies are faster and better.
This is a threat like banks have never before faced
in the history of banking and technology.
It's not because the tech firms are so good at finance.
It's because they're so good at tech and consumers like tech, and
tech is profitable and powerful.
That is going to put banks at risk, and with thousands of small companies,
you don't need them all to win, you just need a few to win.
Now, let me wrap up by saying, is Fintech a threat?
Well, I would draw an analogy to e-commerce, is e-commerce a threat?
Many people looked in the heyday of e-commerce, the dotcom boom and
the following bust.
And they were focused maybe in the finance market on valuations and
how crazy valuations seemed at the peak of the boom.
Of course, for some of the winners,
values are higher now than they were at the peak of the dotcom boom.
And so there will be some winners that are big winners, but
there was a lot of junk out there, there was a lot of noise.
Same with FinTech, there's a lot of junk and a lot of noise,
there's going to be a lot of failures.
There are going to be a lot of things on the side of the road that just didn't
pan out.
Now that's a little risky if you're an entrepreneur, but that's the nature of
a startup, that's going to be the nature of any new disruptive ideas.
I mean,
there were hundreds of car companies in the early part of the last century.
Three survived to today in the United States, that's not very many.
Lots of people said, cars are a big deal, but we've only got a couple survivors.
And we're not even sure all three of those are going to survive for the next 20,
30 years.
But tech matters, and when we think about e-commerce,
we're now facing the impending bankruptcy potentially of Sears,
and the struggling of in and out of financial difficulty.
Toys R Us liquidation, Walmart growth slowing greatly,
Amazon capturing more and more market share.
There is no question that e-commerce has hit retailing hard.
There's no question that technology has hit the pharmaceutical industry hard.
Companies that have gotten good at biotechs or
biologics are making much more than companies that are thinking
in a traditional mode about biotech or the low tech of pharmacies.
You can't do business the old way.
Technology has transformed medicine,
has transformed retailing, is transforming the auto industry.
And if you're in banking and you think you can avoid that, think again.
You're going to adapt or struggle for
survival, and so it matters.
That's my pitch to banks, why is FinTech a threat.
Couple of reasons, but it is a threat, and
you need to adapt or dissolve, thank you.
[MUSIC]
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