Platform companies and online marketplaces are the biggest competition faced by banks today, an industry expert from IBM said. If they plan on surviving, players need to look beyond banking to keep profits afloat.
Likhit Wagle, IBM’s general manager for Global Banking and Financial Markets for Asia Pacific, said the likes of Alibaba and Lazada stand as the biggest disruptors in financial services as they could potentially box out banks for payments.
“The really significant issue the banking industry is facing is it is going through substantial disruption, mainly due to what I would call the platform companies,” Mr. Wagle said. “If you look at Alibaba and Tencent, they have substantial financial services businesses.”
Just recently, Chinese billionaire Jack Ma’s Alibaba Group rolled out its Alipay platform, with its asset base already bigger than global banks like New York’s Goldman Sachs.
Today’s platforms, tomorrow’s banks
More than seeing financial technology companies as the threat, Mr. Wagle said banks should take the chance to tap their digital solutions and collaborate to innovate banking products.
E-commerce has been gutting out the need for banks, Mr. Wagle said, as platform firms now offer their own mobile wallets to process payments and shipments.
The edge of these online companies is offering “instant fulfillment” to its customers, particularly as they are able to meet a wide array of needs and services sought by a consumer.
“If you take somebody like Alibaba, when you get up in the morning, you do not turn around and say I want to use my credit card,” Mr. Wagle said. “You get up and you might have to buy a pair of shoes or pay something. What platforms like Alibaba are able to do is satisfy all of those needs in a single platform, including the financial services element.”
Mr. Wagle noted that this could be a pivotal moment for traditional firms.
“If they are able to do that, customers will not come off their platform and onto their bank,” he said. “This is not just business that’s going to disappear from the banks — this could actually take away all of their business.”
Going beyond banking
To keep up, banks should consider embracing artificial intelligence to improve cross-selling and offer ancillary products to clients, which can be tailor-fit to the needs of a consumer through data analytics.
Tapping cloud computing and blockchain could also cut as much as 40% of information technology costs for banks, while also improving security and efficiency.
Mr. Wagle said the Philippines is very much ready to pursue this track given a rapidly-growing economy, wide Internet usage, and a tech-savvy population armed with smartphones.
Efforts towards digitizing government payments, as well as offering a national ID system would do a lot towards boosting efforts to bring more transactions online.
But more than being able to adapt, he says, the local industry will need to adapt to survive.
“It has to happen very fast,” he said, or else the country runs the risk of lagging behind its peers in the region.