Wholesale banks - slow to move?
I was @sgfintechfest in November, 2019. Although the focus for me was on finding new opportunities to invest and continue to bring change to the banks, I wanted to share thoughts on what I saw (all big banks are working towards bringing big-tech in).
- A lot of the Fintech festival was retail focused. And it makes sense. In the emerging economies, large populations are deprived of basic banking facilities. That along with some mega-trends (cheap data, penetration of smart phones, young population, more people getting pushed into the workforce) is making sure that majority of financial institutions respond to the immediate need, the low hanging fruit. Hence, Payments, Lending (SME, MSME, individuals), Trade finance and many other areas pertaining to solving daily problems for people/small businesses and their daily needs are getting bulk of attention.
- I saw every big and small Asian bank, Fintech players etc claiming to offer services, or ways to facilitate these services. Chinese banks seemed to project the image that they are highly aspirational of driving growth for their users through new technology.
- Many Fintech startups, big and small are bent on making use of DLT (Distributed Ledger Tech.) across use cases. IBM not at all a startup, had immense focus on DLT, their pop-up was a whole lot about the technology. This itself can tell you how important it is perceived across business and across class of businesses.
- If I am correct, I didn't witness purely wholesale banks showcasing any capability - everyone who showed up either had a retail play, or for that matter had a B2B play and was targeting other big retail banks and wholesale banks.
My mind wanders to ask the question - Are Wholesale Banks slow to move? There is enough evidence to suggest the contrary. American Banks, Asian Banks and European banks have made efforts to collaborate through their accelerator/incubator programs; becoming clients to startups and also by making strategic investments in some. Goldman Sachs is quite aggressive in making investments in startups that can add to top line, better client experience among other things (as seen in the charts below; Source: CBInsights)
The 3 charts suggest there is immense focus on Payments and settlements. 2nd largest focus area comes to Capital Markets, which is more of a wholesale banking subject. However, there still is a feeling that pressure on cost base driven by regulatory demands, shrinking Institutional wallets and shift to Passive, Consolidation, Electronification, and Unbundling has exacted wholesale banks to focus on rationalisation of cost more than investing on using technology to building new revenue streams, and/or strengthen existing revenue streams.
There is an inherent challenge when it comes to focusing on rationalisation around cost - it is entirely internally focused. That would, by default, mean internal divisions must come together to - collaborate, share data, create sandboxes, and must also think above their personal gains. Human behaviour is the main latent driver of any large scale change. This is one of the Achilles heel moment that banks focusing on middle office and back office rationalizations must face. Such projects don't tend to get too much media attention - middle office is not exactly 'cool' for a lot of media it seems. Implementing sweeping changes faces big resistance from legacy technology surviving on patches. + Human Behaviour (as mentioned above).
From this edition to the next one at SFF, I wish to see more wholesale banks showcasing tech advancements and how they are transforming business using big-tech.