The banking industry’s response to Covid-19
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Conducting normal operations is one of many challenges businesses are facing at present. Fortunately, firms such as Canada-based challenger bank NorthOne are providing free banking services to small- and medium-sized enterprises (SMEs) and restaurants during the crisis.
Says NorthOne co-founder and CEO Eytan Bensoussan: “Small business owners across the country are having incredibly hard conversations right now around the kitchen table and desperately trying to figure out how to keep the lights on through this crisis. The last thing they need to worry about is finding a branch or paying bank fees.”
But the loss of revenue due to the various lockdowns and stay-at-home orders issued in many countries is even more challenging. While governments haggle over publicly sourced solutions for small businesses, a group of UK fintechs in the lending business — Trade Ledger, Wisefunding and NorthRow — have teamed up to offer a turnkey origination and underwriting platform to enable banks and lenders to digitally fund SMEs.
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A shift to a cashless economy
Physical money currently acts as a vector for the virus’s spread, whereas technology makes payments possible and safe. Governments and start-ups across Africa are implementing measures to shift payment transactions to mobile money and away from cash, as recommended by the World Health Organisation. In Kenya, the pioneer of mobile money, the payments industry has collaborated to ensure that digital payments can be made across the board, especially by the most vulnerable.
For a three-month period, digital transactions below 1,000 Kenya shillings ($10) will be free.
Ghana too has instituted measures to drive digital payments and combat the virus. The Central Bank of Ghana has directed mobile money providers to waive fees on transactions of 100 Ghana cedis ($18) or less and has allowed for the opening of mobile money accounts using existing subscriber registrations with mobile operators. SA fintech start-ups are encouraging the use of contactless payments through point-of-sale devices.
How fintechs fulfil financial security obligations
Transaction security and data security stay on the agenda of fintech. In the pandemic, online requirements become more urgent, and transaction security and data security must be ensured to avoid risk exposure and financial security incidents.
Fintechs should strengthen the review of information released on their platforms and the maintenance of platform security to prevent fraud through internet and telecommunications facilities. Regulators state that a large number of financial services have been processed online during the pandemic. As a result, fintechs need to review more services and face higher pressure.
Apart from protecting customers’ personal financial information, fintechs also need to strengthen identification of information released on financial platforms to avoid social panic caused by false information, and ensure high financial security.
Meanwhile, consumers, manufacturing industry, SMEs and private enterprises are under financial pressure due to the pandemic. Fintechs should review and verify platform information more strictly to avoid financial fraud committed by releasing malicious or false information.
Additionally, fintechs should adopt security measures such as access control and encryption to prevent data leakage, loss and unauthorised use. They should strengthen management of user authentication and access control processes and allow users to access data or systems only after passing authentication. Employees’ access to sensitive information and their database operation permission are restricted to prevent financial data from being used by unauthorised users, which could disturb the social order.
International banks: accelerated digital transformation of traditional banks
JPMorgan Chase & Co has started to build a digital bank since it launched mobile banking in 2012. With the mantra “mobile first, digital everything”, it has implemented measures including delivering leading digital experience, deploying ecosystems, innovating digital products, and developing technical organisations and capabilities.
JPMorgan Chase invests close to $10bn in digital transformation each year. About 25% of its 220,000 employees have technical/data background. Its efforts have yielded positive results: In 2017, its total revenue doubled compared with that of 10 years ago, and profit increased threefold. In the second quarter of 2018, the number of active digital users was about
47-million, increasing by 19% from 2015.
Large banks take the lead in technological innovation. In 2019, JPMorgan Chase’s technical budget was $11.4bn, ranking number one in the industry, with a year-on-year increase of 5.6%
In addition, JPMorgan Chase’s digital transformation has won recognition from the capital market, with its share price rising steadily by 170% compared with 2008. Now its market value ranks first in the US banking industry.
Direct banking: building an agile and open platform bank has achieved remarkable results
ING bank, for example, aims to deliver a differentiating experience for customers. It conducted three digital transformation strategies in different regions of Europe in 2014. Its digital initiatives include agile organisational restructuring and making full use of fintech and open innovation to improve its digital capabilities.
After digital transformation, ING’s customer experience has been greatly improved. Its retail banking ranked number one in terms of the net promoter score (NPS) in multiple countries. The revenue and profit increased by 14% and 21% respectively.
Celent, a US consulting firm, predicts that the US banking industry has invested over $100bn in technology in 2019. New technology R&D accounts for 37% of the IT expenditure. The proportion will increase to 40% in 2020 and to 50% in 2022.
Large banks take the lead in technological innovation. In 2019, JPMorgan Chase’s technical budget was $11.4bn, ranking number one in the industry, with a year-on-year increase of 5.6%. About half was spent on disruptive technical applications internally, and the other half was mainly used for system and data maintenance.
Bank of America, ranking number two in technical budget, spent $10bn on technology in 2019, 30% of which went to technical innovation. Wells Fargo and Citigroup, in third and fourth place, with a $9bn and $8bn technical budget in 2019.
1. Promote comprehensive digital transformation
Many banks take smart or intelligent banking as their digital strategic objectives. China Construction Bank (CCB) regards fintech as one of its three strategies, develops collaborative, evolutionary smart finance internally, and expands an open and shared smart ecosystem externally.
China Merchants Bank (CMB) has proposed a phased strategy of “towards operating mode 3.0”, aiming to realise digital transformation of retail finance 3.0 and reshape the wholesale business mode. Ping An Bank has fully promoted artificial intelligence (AI) banking construction.
WeBank is the first private bank in China, with a registered capital of CNY4.2bn
2. Build open banking
The digital transformation of commercial banks requires establishing extensive connections with external partners. CMB has built an open IT architecture with “cloud + API” and released 130 APIs in the first half of 2019. Shanghai Pudong Development Bank (SPDB) has explored API banking. China CITIC Bank’s open bank project has attracted 21 partners.
3. Reshape the technical architecture
The traditional slicing architecture fails to support digital banking development. Commercial banks are reshaping their technical architecture. Industrial and Commercial Bank of China (ICBC) is transforming towards an IT architecture driven by dual cores (CORE service system and open ecosystem), constructing enterprise-class fintech platforms such as AI, biometrics, blockchain, and IoT in building an integrated collaborative R&D platform.
CMB has established a unified digital platform for enterprises. Industrial Bank is promoting the construction of basic financial service platforms involving AI, big data, and blockchain, while deploying cloud native architecture, distributed architecture, and Mesh App and Service Architecture (MASA). SPDB is constructing a comprehensive operations support platform.
4. Deploy integrated online and offline finance
To achieve the mid- and long-term internet finance development plan, China Minsheng Bank has developed the FIREFLY PaaS mobile finance R&D platform, which fully supports mobile banking 5.0, WeChat banking, direct banking, and Daily Life App. This allows for personalised services and enhanced financial service experience.
5. Strengthen the development of fintech professionals
Postal Savings Bank of China has formulated a two-year plan for building a technical team: the number of technical professionals at the head office will double by 2019 and the number of technical professionals across the bank will double by 2020. The Bank of Communications (BOCOM) has initiated three major projects: FinTech Management Trainee, FinTech 10000, and Training and Transformation of Existing Professionals.
WeBank is the first private bank in China, with a registered capital of 4.2-billion yuan. Different from traditional banks, WeBank integrates digital and internet-based thinking in strategic planning, corporate culture, professional development, organisational architecture, and technical innovation. It has built a CORE banking system that supports huge and high-concurrency transactions.
WeBank has developed a disruptive credit analysis system and proposed the concept of digital financial inclusion that supports sustainable growth and healthy profitability by leveraging its technical strength and R&D resources as well as Tencent’s ecosystem. Moreover, cutting-edge technologies such as cloud computing, micro-services, open-source technologies, open-source databases, powerful embedded analysis, and AI are integrated to support its forward-looking banking system architecture, which improves operational efficiency, reduces costs, and boosts growth.
Up to now, WeBank has more than 100-million customers, serving close to 1-million SMEs. By the end of 2018, the average amount of Welidai micro-loans for individual customers was only 8,100 yuan. Among these customers, 79% had a vocational degree or lower, 75% were non-white-collar workers, and 92% had a loan balance of less than 50,000 yuan. Among SME customers, 65% had no corporate loan records and 36% had no personal operating loan records before.
Wealth management product innovation
During the pandemic, 17 banks such as Bank of China, Agricultural Bank of China, ICBC, CCB, and BOCOM, issued 51 wealth management-related products. Some of these products were intended for affected areas or industries of pandemic prevention and control; some were provided for specific groups such as soldiers and doctors engaged in pandemic prevention and control. They offered more profits for investors by exempting or reducing banks’ management fees, to quickly raise funds and allocate them to affected areas or related industries.
The Monetary Authority of Singapore (MAS) recently announced a $125m support package to sustain and strengthen capabilities in the financial services and fintech sectors amid the current economic slump. The support package will help to position financial institutions (FIs) and fintech firms for stronger growth when the threat of Covid-19 recedes and economic activity normalises.
The support package, funded by the Financial Sector Development Fund, has three main components:
- supporting workforce training and manpower costs;
- strengthening digitalisation and operational resilience; and
- enhancing fintech firms’ access to digital platforms and tools.
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This article was paid for by Huawei Enterprise.
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