Insight & Analysis

Back to the future banking

Published: May 2017

Banks are increasingly focused on developing new technology, but should they be maximising the technology that they already have to better serve their corporate clients today?

Whether they are seen as disruptors or facilitators, one thing is for sure: the rise of fintech has caused a seismic shift in the banking landscape.

No longer can banks survive and thrive by simply providing basic financial services such as deposit taking, loans and payments, all underpinned by an outdated technological architecture. Indeed, fintechs have proved that non-incumbent players can offer these services more efficiently and at a lower cost.

As a result, looking to the future has become a top priority for the world’s banks looking to retain their position in this digital age. But this focus on the future doesn’t come without its challenges; most notably banks must ensure that they do not lose sight of their customers’ needs today.

Use what you have

This is certainly the view of Michael Hogan, Managing Director and Regional Head of Transaction Banking, EMEA at MUFG’s core banking unit who has witnessed first-hand the changes happening across the banking ecosystem.

“The growth of fintech means that everyone in this industry is entering uncharted territory,” he says. “Yet despite all the changes that are happening, one thing hasn’t changed: banks must still provide the most relevant solutions they can for the clients they serve.”

To do this, Hogan is seeing many banks beginning to consider what they really stand for and changing their business models and adapting the services they provide, focusing heavily on innovation. The danger of this, however, is that in doing so banks will neglect to maximise the value proposition of the products they have already developed.

“We shouldn’t simply push for newer and better technology, therefore reinventing the wheel each time,” says Hogan. “Some efforts must be focused on getting more from existing processes and technologies.”

Indeed, whilst the focus on cutting-edge technology is exciting, history has dictated that it is not always the most sophisticated technology that is the most successful. “Like the implementation of VHS over Betamax (arguably, the more sophisticated technology), success will be measured not by the technology itself, but by the technology most widely adopted,” he says.

Solving issues

Despite his view that banks should not look to continually reinvent the wheel, Hogan is an avid believer that new technology can add value to both banks and corporate treasurers.

Indeed, in his two years since joining MUFG, Hogan has witnessed the bank’s heavy investment in fintech, including setting up a dedicated Digital Innovation Division, exploring digitalising cheque issuance in Singapore using blockchain, joining various consortiums such as R3 and establishing a fintech accelerator programme.

But one area where Hogan sees a particular benefit is in the regulatory space. This is because banks are now required, much like a large food or retail business, to have end-to-end responsibility for the transactions they handle. “Regulatory compliance remains a key focus for banks,” he says. “In my view, technology has the potential to ease the regulatory burden.”

He cites the blockchain as being “a very good example” of how banks could have greater end-to-end visibility over their activities. “A very simple analogy is to think of blockchain like the tail on a kite. With each process step or interaction, a ribbon is added to a kite’s tail, providing a digital audit trail of exactly where the transaction has emanated from, something regulators are demanding banks do more rigorously. This transparency will be useful for both banks, their clients and the regulators”, he adds.

Ultimately though, in respect of his earlier comments regarding banks not reinventing the wheel, Hogan stresses that “any regtech solutions must be carefully implemented and in many cases as an extension of existing processes… it’s less a case of the technology replacing but more supporting and improving what’s already there”.

Making progress

For banks to achieve their digital ambitions, Hogan believes that there are a number of things that have to happen. First and perhaps most crucial is that banks must go ‘back to the future’. “By this, I mean that banks need to understand their DNA and (re)define what they stand for,” he says. “Then, using the technologies already in place plus the new innovations, provide better and more relevant solutions to clients.”

Hogan also believes that fintech companies and banks need to be on the same side. “There is a mutual benefit to be gained by working together to best serve clients,” he says. “Fintechs are arguably the more agile, innovative beasts, but banks bring the long-held relationship and expertise, the assets and the scale. As we all enter a new world, we have much to learn from each other.”

Ultimately, though, Hogan believes that banks will continue to survive and thrive as long as they remember to put the customer first.

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