Banks don’t hold the future of banking: Akamai exec
By Dzof Azmi May 13, 2015
- Who does? Those who are young, agile and unencumbered by regulations
- Innovation more likely to come from the tech sector, not the financial
“THE banks of today don’t really understand their customers.”
So says John Ellis (pic), the director of Enterprise Security (Asia Pacific & Japan) at Akamai Technologies Inc, who was recently in Kuala Lumpur to speak at the 3rd Annual Technology & Innovation – The Future of Banking & Financial Services conference.
If it seems unusual that a security expert should be exploring the new exciting world of financial services technology (fintech), it’s because Ellis has garnered more than a decade’s worth of experience with institutions such as Barclays, Standard Chartered and ANZ Bank.
Of course Akamai has a role as a specialist in providing cloud services to create a secure, performing and mobile environment.
“The Internet is the place we do business,” says Ellis. “Our vision is the see the Internet be a platform for business growth.”
And what a business fintech promises to be. Accenture estimates the industry generated US$12 billion worth of investment in 2014, all vying for a piece of the global financial service market worth US$4.7 trillion a year.
In Asian markets, more than 80% of respondents surveyed were willing to shift to financial institutions that offer a compelling digital proposition.
However, Ellis believes there is a problem. “Banks are horrible at innovating.
“They talk about a customer-centric view, customer-centric experience, but the problem is that there is too much governance, too much legacy, and a lot of ineffectiveness in being able to realise that vision.”
Ellis is not alone in thinking this. A recent study by PWC (click here for a PDF) indicated that although 61% of bank executives worldwide say that a customer-centric business model is ‘very important,’ only 17% of those surveyed feel ‘very prepared’ for such a change.
“Give me the Microsoft Money or Quicken experience,” he says, referring to the ability to track spending at a glance on any mobile device. “I want my children to develop financial literacy; I also want to be able to improve my financial literacy.”
But at the moment this sort of innovation is more likely to come from the tech sector, not the financial.
The 2007 financial meltdown inculcated caution in financial institutions, and with it a slew of regulatory policies. Intended to protect customers from losing their money, these constraints are also quoted as a reason why banks in the region are being held back.
“I hear this a lot from banking folk here,” says Ellis. “ ‘Yeah we can’t do it, because the regulator says we can't do it’.”
But tech players hold an advantage. “If you’re a non-bank player, you don’t have that level of regulation ... so you can be more innovative.”
Established banks are well aware of the oncoming threat. According to The Economist, Jamie Dimon, chairman of JPMorgan Chase, wrote a letter to shareholders saying, “Silicon Valley is coming ... . There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.”
Akamai’s Ellis says that these disruptive companies are already highlighting the way forward, leaving traditional banks in the shadows. Accenture estimates that competition from non-banks could erode one-third of traditional bank revenues by 2020.
“I hear ... CEOs (chief executive officers) in the region saying, ‘We look to people like online retailers as to where we should be going,’ simply because that’s where they see the competition coming from.”
However, Ellis says they should welcome and not chase away the swarm of hungry, agile tech firms. “You become the beekeeper. You want to harness all this disruption and make some honey from it.”
As an example, he talks about crowdfunding, a segment that has blossomed because conventional banks are not willing to give loans to unproven ideas. But financial institutions could be flexible and look to partner.
“Let’s say only 50% of the capital is raised by the actual investors on the crowdfunding platform, the bank could come in and basically turn around and provide the remaining 50%,” he adds.
In fact, banks with their deep pockets should take the opportunity to help fintech companies develop better products. Ellis points to labs set up by Commonwealth Bank and National Australia Bank in the Sydney FinTech hub.
“Let’s encourage all these tech firms to come in and innovate on our platform. Open up our platform and create an ecosystem on which they can actually innovate,” he says.
Balance needs to be struck
Meanwhile, there is a need for banks and regulators in Asia need to understand each other better.
“Regulators here, as a consequence of culture and the way they operate ... they definitely understand risk, but they don’t necessarily understand how to proceed with communicating that risk back to the regulators,” says Ellis.
He says they need to strike the balance between protecting the consumer and encouraging innovation, and banks should be able to discuss issues openly with regulators.
Ultimately, Ellis is optimistic about the benefits that digital banking could bring to the masses in the region. It is estimated that in emerging Asia – China, India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam – currently only a third have used digital banking, and that by 2020, worldwide urban migration will create a billion new banked customers.
“The world is changing and there is so much opportunity to be really innovative and harness that change, for the benefit of humanity,” says Ellis.
Dzof Azmi has been writing for print and television for a decade and is grateful to have covered a diverse range of topics such as IT, crime, Malaysian society and the travails of his favourite football club.
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