New technology companies looking to break into the financial services sector are bringing fresh competition for banks – prompting a new era of digital innovation. But how can banks take advantage of this innovation and stay ahead of the competition?
With the financial services industry undergoing a period of rapid digitalisation, specialist technology companies are joining the fray – stoking the fires of competition and innovation. It’s a development that is forcing banks to adapt – using new digital efficiencies to press home their core advantages.
Certainly, the arrival of new players in the transaction services market is prompting banks to prioritise innovation. But they should be wary of playing technology companies at their own game. Rather, for banks to be successful, they must find ways of innovating that play to their existing strengths, such as their long-held financial expertise, deep customer relationships, and trusted reputations.
By amplifying these advantages with digital efficiencies, banks can create highly competitive products that will keep them at the forefront of the financial services sector, even in the face of stiff competition.
Innovating to bring out core strengths
Indeed, this approach can already be seen in the latest wave of innovation, with tools such as the Bank Payment Obligation (BPO), which combines traditional bank mediation with enhanced digital capabilities such as automated data generation and compatibility with straight-through processing.
Asia is particularly well placed to drive adoption of this tool. With the majority of Asian corporates still settling trades via letters of credit, importers and exporters alike will find that they can realise considerable efficiencies by settling some of their transactions via BPOs instead.
Virtual accounts – another recent innovation – are equally notable for their use of core bank strengths. These enable corporates to pool their funds in a single account, which can then be divided into almost any number of sub-accounts. These function much like real accounts – with their own account numbers, permissions, and funds – but the money they contain is really a notional allocation from the central parent account.
As such, banks continue to provide almost identical cash management services, but corporates have vastly improved visibility and control over their accounts.
Treasury centralisation is already receiving a great deal of press at the moment, with many Asian locations such as Shanghai, Hong Kong, and Singapore looking to attract business by offering tax incentives for those establishing regional treasury centres in their jurisdictions.
And for those Asian corporates looking to expand into new regions such as Europe, centralising treasury processes through virtual accounts can provide similar efficiencies. For instance, accounts for new offices, departments, and subsidiaries can be opened and closed with unprecedented ease through an online platform, rather than through face-to-face meetings with the bank.
Looking to the future
Meanwhile, both these innovations can help banks as they look to harness the potential of big data. The BPO and virtual accounts both generate granular data automatically, and this can be analysed with other information to identify opportunities for refining everything from routine internal processes to sales targeting and risk assessment.
These are all developments banks can build upon, intensifying their existing strengths with sophisticated technology and simple interfaces to improve the level of service they provide – and consolidating their client relationships as they do so.
Nevertheless, this is only the beginning of the road – and more innovation must come for banks to stay ahead of the competition. Yet if they can continue to innovate intelligently – compounding their existing advantages with greater speed, efficiency, and convenience – they can pave the way for an exciting future.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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Holger Frank is Head of Financial Institutions Group and Head of Global Transaction Banking for the Asia Pacific Region at UniCredit. Having joined the firm in 1991, his previous positions include covering large corporate customers, working in the Corporate Development department, and executing a number of M&A transactions for UniCredit’s own shareholdings.