A new report from HSBC has argued that the common narrative - which portrays traditional banks as lumbering dinosaurs ripe for extinction by a combination of insurgent FinTech startups and tech giants - is false.

Its new Banking in the Future report admitted that this is an attractive analysis, because it pits different types of organisations against one another in a winner takes all scenario. “But change is far more likely to come about through partnerships between the established banks and the technology sector.”

The ‘banks-as-dinosaurs’ argument rests on the assumption that financial services companies have ignored technology’s potential to provide cheaper, faster and more convenient services as the world around them has been transformed – something the report stated was “highly questionable”.

The past decade has seen banks invest billions of dollars in growth and digital transformation, although HSBC accepted “there is still a lot more room for improvement”, so banks are increasingly reaching out to FinTech startups to leverage innovative thinking and agile ways of developing new services and customer-oriented value propositions.

“Often the relationship is more collaborative than combative,” the paper stated. “While the FinTech sector has not gone through significant consolidation yet – mainly due to ample venture capital and other funding opportunities still available at large hubs in London, New York, Hong Kong and Singapore – many founders and CEOs of these startups are now looking to partner with the larger banks rather than compete against them.”

In the UK, HSBC partnered with Nexus to apply machine learning to automate mortgage processes, while across its global network, the bank now has 1,600 robotics devices which processed 11.5 million transactions in 2018 – a ten-fold annual increase.

The changing environment and competitor landscape may mean that traditional banks will need to compete differently as well, providing banking services into an ecosystem of ‘experience providers’ - including tech giants for example - while still maintaining customer engagement across proliferating touchpoints, the report stated.

Casting the net wider than FinTech partnerships, the report suggested that in the future banks will move to more service-based models, not be bound to specific customer propositions such as mortgages, loans, savings and investment.

“Selling financial services will come closer to the transactions and interactions that matter to customers – in certain circumstances this will actually become invisible to consumers, working in the background, as they learn to trust their bank more with automated provisions,” the report read, adding that the rapid adoption of technologies like 5G and the Internet of Things will reinforce and accelerate this trend, as richer personal data will be communicated and calculated more quickly and closer to the source.

Josh Bottomley, global head of digital, data and development at HSBC, pointed out that 87 per cent of its global retail banking transactions are now digital. “We are investing heavily in technology across the group to meet customers’ expectations, manage risks even more effectively, and at the same time, make our business more efficient.

In the first half of 2019, the bank made a global investment of $2.2 billion, up 17 per cent compared with the first half of 2018, on near and medium-term initiatives to grow the business and enhance digital capabilities.

Among the predictions was a forecast on the impact of blockchain and crypto assets challenging the role and traditional notions of money, as well as the functioning of banks and central banks.

“It is difficult to envision the wide adoption of native cryptocurrencies - that lack any asset-backing and issuer - due to the monetary risks and potential legal consequences,” it concluded.

Share Story: