Author: iot101
Published by IoT Think Tank
Please cite the source and origin
—— [Introduction] ——
Innovative bankers have begun to seek and implement transformations such as platform shaping, mining data gold mines, collaborative innovation, and reshaping employee skills, marking the beginning of a comeback. The banking industry will not be disrupted; instead, it can thrive in the new era by leveraging advantages that some internet companies do not possess.
Imagine how terrifying the impact would be when an 18-wheeler truck loaded with goods comes rushing towards you on the highway?
Traditional industries, represented by the banking sector, have felt such pressure in recent years—they fear that new competitors will burst into their territory like a speeding truck, using the “disruptive innovation” sword of the internet to challenge their traditional businesses from different angles, dismantle their value chains, erode their markets, and ultimately sweep them out.
Indeed, internet financial giants like Ant Financial and JD Finance, along with innovative models such as P2P lending, equity crowdfunding, and internet insurance, have caused traditional bankers to feel worried and anxious. However, as the saying goes, “disaster can be a blessing in disguise”; the fierce competition from cross-industry challengers has also spurred their top-down and outside-in awakening and transformation. The banking industry continues to move forward, but the way banks operate and even the entities executing banking services are changing. Traditional bankers, constantly impacted, educated, and guided by emerging internet companies, have realized that they must establish a new digital order and rules for the industry through a painful yet necessary process.
On August 3, 2018, at the “2018 IBM Financial Innovators Conference,” IBM released the industry research report “2017 Global Executive Survey – The Comeback of Traditional Enterprises” and the expert insight report “Innovate Boldly, Ride the Waves – Traditional Banks Begin Their Comeback.” The report pointed out that innovative bankers have begun to seek and implement transformations such as platform shaping, mining data gold mines, collaborative innovation, and reshaping employee skills, marking the beginning of a comeback. The banking industry will not be disrupted; instead, it can thrive in the new era by leveraging advantages that some internet companies do not possess.
Guo Rensheng, Vice President of IBM and General Manager of the Financial Industry Department in China
The Alluring Platform Model
Which company does not want to become Amazon or Alibaba? They connect supply and demand directly through their platforms, effectively creating value by reducing intermediaries and establishing industry monopolies. On average, platform orchestrators experience faster revenue growth and higher profits than other business models.
In the financial industry, internet innovation companies have also had a certain degree of impact and shock on traditional banks through their platforms. For example, when Ant Financial was established in 2014, Jack Ma’s statement, “If banks do not change, we will change banking,” caused a stir in the industry. Later, Alipay left many who initially scoffed at it speechless. Besides Alibaba, Tencent and Baidu have also entered the mobile payment market.
Why do emerging internet companies run so fast compared to traditional banks? How did they quickly scale up? How do they rapidly iterate their products and services based on market demand? A crucial factor is the cultural difference. Internet companies can take on significant risks and face lighter burdens on the edge of regulatory compliance, while banks aim to be “century-old stores.”
Conversely, this is also an advantage for traditional banks. The uniqueness of the financial sector means that financial platforms cannot merely connect supply and demand; more importantly, they must be able to operate sustainably, manage risks, and create value. When it comes to providing comprehensive financial services, banks’ own funding advantages and risk management capabilities are unmatched by emerging fintech companies. The journey of P2P platforms in China from prosperity to massive failures is the best proof of this. As the state strengthens risk control over internet finance (for example, requiring third-party payment companies to deposit customer reserve funds with the People’s Bank), the business advantages of banks become even more pronounced.
Openness and Willingness to Let Go are Key to Building Platforms
Technology is neutral; since internet innovation companies can utilize platforms, traditional banks can also implement digital platform strategies to initiate transformation. On platforms, traditional advantages will be broken down; traditional advantages mainly stem from the value created by technology and patents, while platform operators must advocate a spirit of reciprocity—customers and business networks on the platform create value together and benefit together.
Chen Wen, Partner of IBM Greater China Global Business Services and General Manager of the Financial Services Industry, stated: “Openness and willingness to let go are the fundamental starting points for building platforms. In the process of openness and willingness to let go, a competitive ecosystem will ultimately form, so platformization is a change in mindset, and willingness to let go is the most important keyword.”
Chen Wen, Partner of IBM Greater China Global Business Services and General Manager of the Financial Services Industry
Openness means integrating competitors into one’s value proposition, while willingness to let go means relinquishing a certain degree of customer control in exchange for greater benefits.
Six major Canadian banks (Bank of Montreal, Canadian Imperial Bank of Commerce, Desjardins Group, Royal Bank of Canada, Scotiabank, and TD Bank) jointly established a digital identity verification service on a blockchain platform. Each bank contributed customer identity attributes that must be retained to comply with “Know Your Customer” regulations. Customers can verify their identities with new service entities (such as utilities or landlords). Banks charge transaction fees to suppliers participating in the platform; suppliers can save time and costs in processing new customers; and customers can easily complete operations through mobile applications. This is a prime example of achieving win-win through the spirit of platform openness!
In 2017, nine European banks jointly established a joint venture we.trade, with IBM providing technology and operational services to build an open cross-border trade platform. Financial giants like Deutsche Bank, HSBC, and Rabobank are testing blockchain-driven bank transfers. This special test is a continuous cross-border, multi-bank, interoperability remittance project. Throughout the work week, ten companies conducted transactions on the we.trade platform, utilizing four different banks from five countries. The participant list includes well-known brands like Santander, Societe Generale, and KBC, with transactions spanning eleven European countries, including France, the Netherlands, Sweden, the UK, Spain, and Germany.
Cooperation can also be achieved between banks and internet companies. On November 27 last year, the Industrial and Commercial Bank of China and JD Finance held a joint press conference in Beijing to announce the launch of “ICBC Xiaobai” digital bank, the first bank in the domestic banking industry to be opened on an internet platform; on August 1 of this year, Minsheng Bank reached a strategic cooperation agreement with China Mobile IoT to establish an IoT financial strategy, applying China Mobile’s eSIM technology in smart payment terminals, and integrating the cloud platform oneNET and IoT card management platform CCMP with Minsheng Bank’s business data platform to further optimize the management of IoT devices and card data, jointly promoting the development of IoT applications and big data in the financial industry.
In other words, for consumers, the external manifestation of the platform has not changed, but the underlying value chain has been restructured, resulting in more specialized and detailed divisions of labor. Through platform strategies, banks will no longer have a “zero-sum competition” relationship with each other, with internet companies, or with other cross-industry competitors; instead, they can leverage their respective advantages to engage in collaborative innovation and mutual growth.
New Tools for Mining Data Oil
Even under the impact of products like Alipay, traditional banks have not become weak groups because they possess data treasures that internet companies do not have. Look at the four major state-owned banks; which one does not have millions of corporate clients? Which one does not have hundreds of millions of depositors? As information intermediaries, banks have deep insights into the financial data and operational status of each enterprise and the credit status of each depositor through years of interaction with customers. This data itself is an endless wealth, but in the past, it was like crude oil buried deep underground, unprocessed and unrefined, failing to realize its true value.
Why couldn’t traditional banks meet the vast financial needs of many industries in the real economy before? Because many demands could not be effectively and cost-efficiently assessed for risk by traditional banks. In other words, banks possess data oil but lack the tools to extract and refine it. Now, with the emergence of many new digital technologies, such as artificial intelligence, blockchain, IoT, and cloud computing, banks can combine years of accumulated industry expertise and experience to mine insights from the data.
For example, a tire company receives fixed orders from major clients every year and has reliable delivery cycle contracts; however, it lacks sufficient funds to organize tire production in advance, so it urgently needs financing. However, due to banks’ lack of effective and low-cost means to manage risks, such supply chain financing needs have been difficult to obtain from banks, causing them to miss many opportunities. Now, through technologies like blockchain and IoT, banks can effectively verify the authenticity of orders and monitor the execution process through data analysis, making risks manageable. Therefore, under the new circumstances, banks can effectively conduct such low-risk financial businesses by adopting new technological means.
In the Future, Banks May “Disappear”…
As times change, the business forms of banks are also gradually evolving.
In childhood, banks had high counters, with us outside and tellers inside; later, banks became narrow cards, with us outside and money inside ATMs; now, banks are thin mobile phones, with us outside and money in apps; in the future, banks may disappear, seamlessly embedding themselves into various life scenarios, providing financial services quietly as we fly, buy movie tickets, travel, eat, and seek medical care.
Guo Rensheng, Vice President of IBM and General Manager of the Financial Industry Department in China, stated in a speech: “The financial industry is facing new challenges; their customers have different needs than before, requiring more personalized and scenario-based services.”
However, new challenges also mean new opportunities. Traditional bankers need to strengthen their advantages to respond agilely, which requires a shift in mindset, changes in operational methods, and a transformation of traditional banking application architectures.
Xingye Bank’s holding subsidiary, Xingye Shujin, continues to carry out technological innovation. The company has two major development paths: one is to continue developing, building on the technology output of the bank-to-bank platform, to strengthen financial cloud services, providing comprehensive financial industry cloud services for small and medium-sized banks, non-bank financial institutions, and small and medium-sized enterprises; the other is to break through innovation, creating an open banking platform, conducting micro-innovations through open interfaces, and becoming a connector between “banking end” and “client end.” Xingye Shujin has also launched internet-based digital banking cloud services, integrating mobile banking, direct banking, and other internet banking functions, capturing the internet entry points of partner banks and building an industry-specific internet financial platform.
In summary, technology is changing, but the essence of financial business has not changed; the way financial business is conducted has changed, but the essence of customer demands has not changed. Banks have a tremendous opportunity to leverage new technologies to integrate finance into every aspect of people’s lives. If digital transformation is about expressing all business activities through digital means, then digital reshaping is about constructing new business models, collaborative systems, and value chains.
The banking industry is on the broad road from digital transformation to digital reshaping.
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