In what will continue to be a rapidly changing, constantly innovating banking and finance environment, almost every type of activity, from the way customers interact with their banks to how trade finance is settled, is being reimagined.
Paul McSheaffrey, KPMG partner and head of banking and capital markets in Hong Kong, notes that innovation across the banking and finance sectors is being driven by several factors. Firstly, there is the need to comply with stringent regulations and increasing pressure on revenues.
At the same time, consumers are looking for financial services that integrate with the way they live their lives. He says the goal for financial institutions, which operate in an environment that demands the highest standards of security and regulatory compliance, is to achieve more with less, while maintaining effectiveness and efficiency.
“It used to be a case of trying to solve problems with people, but increasingly, we are seeing banks and financial institutions turning to technology to solve their problems,” McSheaffrey says. An encouraging sign is Hong Kong regulators are becoming more comfortable with cloud-based regulatory and compliance platforms, could also open the way for more innovative solutions. “Cloud-based solutions can make a big difference by reducing costs and improving efficiencies,” says McSheaffrey.
He also points out that, while development of related technology is a global movement, Hong Kong, with one of the highest concentrations of banking institutions in the world, is well-positioned to play a leading role in developing technology solutions that meet diverse regional needs.
Recently, a group of leading Hong Kong banks collaborated to introduce a proof-of-concept blockchain platform for use with trade finance operations. These include lending, issuing letters of credit, factoring, export credit and insurance. In automating most processes, blockchain technology increases efficiency by reducing paperwork, while eliminating the possibility of fraudulent activities.
McSheaffrey says that, in response to consumer demand, Hong Kong has recently seen a significant increase in electronic and smartphone payment options, peer-to-peer payments and biometric authentication. He believes that, ultimately, the pace and range of such innovations will propel Hong Kong towards becoming a cashless society.
However, all innovations need to be fit-for-purpose instead of being simply quick-to-market. He adds that, while demand for electronic wallet payments and digital banking are usually associated with the younger generation, the convenience of such applications is not lost on older customers. “Providing the technologies offer a secure and simple way to manage finances, older people are just as keen as millennials to use digital financial services,” McSheaffrey says.
As customer expectations grow in tandem with rapid advances in technology, Nicholas Lee, Visa’s head of products for Hong Kong and Macau, believes Hong Kong can expect to see a further surge in innovation. With one of the highest levels of mobile phone penetration in the world, its sophisticated technology infrastructure and digitally savvy residents, Hong Kong has the prime ingredients to further sharpen its edge.
“Hong Kong as a global ‘brand’, its experience of being an international financial centre and people skills provide a unique combination to drive innovation,” says Lee, who adds there has been considerable progress in areas including electronic payments.
“Just a couple of years ago, making an electronic payment was a cumbersome effort involving multiple pass codes, which caused a lot of friction,” Lee says. Continuing success will be defined by the ability of banks and financial services providers to make a difference for customers by helping them find the best outcomes in their day-to-day lives. One example, according to Lee, would be to help Hong Kong become a cashless society.
He believes tourists and business people visiting Hong Kong from the mainland, where cashless purchases have risen dramatically, is another positive driver that will steer Hong Kong towards going cashless. However, for this to happen, the local banking and finance sector needs to overcome an ingrained cash culture and concerns about cybersecurity. Surveys show that about 23 per cent of Hong Kong residents still prefer to use cash to settle transactions. “Developing the technology is relatively easy compared with changing the mindset,” Lee says.
To help overcome cybersecurity concerns, companies such as Visa have developed digital accounts that can be safely used for making purchases, including with mobile devices. Visa’s Token Service helps to minimise fraud as it replaces the 16-digit card number with a unique series of 16-digit numbers (known as a “token”), which authorises payment without exposing a card holder’s sensitive information such as account numbers and expiration dates.
Lee says there has been a notable shift in the way banks and credit card firms are introducing new products and services. The focus of innovation has shifted from products to customer-centric experiences. “These days innovation is about trying to solve a customer’s pain-points,” Lee says. Examples of these are solutions that track spending and interactive tools that help customers analyse their spending habits and personalise their money management skills.
However, to keep pace with customer expectations and fully utilise the full scope of technology now available, collaboration between companies both in and outside the financial sector is necessary. “Co-creation is the name of the game,” says Lee.
“Organisations cannot afford to spend a year developing a new product or service when others are introducing new products and services within three to six months.” He cites the Visa Developer platform as a good example of collaboration. This allows software application developers to access the firm’s payment technologies and test data, and is designed to foster collaboration and co-creation.
