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 No.1 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 "FinTech Foundations and Overview" 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 learners 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.
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
40 ratings
The Hong Kong University of Science and Technology
40 ratings
Course 1 of 4 in the Specialization FinTech: Finance Industry Transformation and Regulation
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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