Banking on Digital: The Race to Transformation
September 22, 2021
By Nicole Sawyer, Senior Editor, Bloomberg Live
The rise of consumer digital preferences, sophisticated cyber-attacks and increased fintech competition is fueling an eruption of digital disruption in legacy banking systems not seen in decades. Traditional financial institutions will never go back to business as usual.
In “Banking on Digital: The Race to Transformation,” we examined how financial leaders are embracing change through agile adoption. How will banks evolve to compete for the digital customer and big-tech talent? What does it take to successfully deploy new collaboration tools to foster connection with colleagues in a hybrid workplace? From utilizing the cloud to navigate data integration, create seamless workflows or improve security measures, we explored how technology is empowering business innovation and strengthening the human connection.
Nadya Hijazi, HSBC Global Head of Wholesale Digital Channels
Alison Lange Engel, Greycroft Venture Partner
Ted Mabrey, Palantir Global Head of Commercial
Sri Shivananda, Paypal Executive Vice President & Chief Technology Officer
Rob Thomas, IBM Senior Vice President of Global Markets
Emily Chang, Bloomberg TV Anchor and Executive Producer
Julie Chariell, Senior Analyst, Fintech and Payments Bloomberg Intelligence
Click HERE to view the video of the full discussion.
Here’s what they had to say:
In the first part of the event, we heard from Sri Shivananda, Paypal Executive Vice President & Chief Technology Officer, Nadya Hijazi, HSBC Global Head of Wholesale Digital Channels, and Alison Lange Engel, Greycroft Venture Partner, who discussed the race to financial digitization with Bloomberg’s Julie Chariell. The implications of this shift are numerous and well-documented. Still, questions remain: As banks become tech companies, what are the challenges to compete for global talent and how has hiring changed as more employees can work from anywhere? What are the regulatory risks? How has the surge in Fintech’s transformed the game forever?
Sri Shivananda, Paypal Executive Vice President & Chief Technology Officer, spoke about the increasing popularity of one-stop digital payment shops and the “super apps,” a mobile application that integrates features from several different apps into a single, closed ecosystem that can be utilized for financial transactions. One-stop shops have become especially important in the pandemic, first in the form of digital giving and then in shopping habits. For digital payment institutions to be successful, Shivananda stated, they must not only be “relevant to wherever people live in the world, but they must also be “contextually relevant”– what kind of payments people prefer to use.
A possible answer to these demands are super apps, because they offer a “hyper-personalized” experience. Super apps, which first gained traction in Asia with AliPay and WeChat, offer an “end-to-end” user experience. “Mobile adoption has scaled over the last decade. As that has happened, we’ve seen a user start off with some number of apps, leading to a level of app fatigue. The data says that there are about 40 applications for any user today. At PayPal, our mission is to build financial inclusion, and democratize financial services. We want to allow everyone everywhere to manage and move money safely, conveniently, at a low-cost. We launched a new version of our app, an all-in-one personalized app that serves the traditional utilities of moving and managing money like we’ve always done but adds on top direct deposit, shopping, high yield savings, deals, rewards, bill pay, crypto, charitable giving, raising funds, etc. The intent is to be able to help our consumers manage their financial life in one destination with a platform they can trust.”
Like one-stop payment methods and super apps, neo-payments are another platform being utilized by financial institutions to keep up with consumer and merchant demands for technological innovation. Neo-payment services are attractive because they often charge low or no fees and benefit from lower regulations. Nadya Hijazi, HSBC Global Head of Wholesale Digital Channels, offered her insights on how banks like HSBC can compete.
“When you want to be a bank, when you want to operate at the scale we’re talking about, you need a lot of infrastructure. You need a lot of regulatory skill, credit risk, and balance sheet management. And the problem with all of those things is they need product expertise. They need that kind of expertise that exists in the more well-established organizations, and they need a lot of investment. If you look at the investments that the traditional places put into that infrastructure to link into real-time payments, to provide the types of services that really are needed by the customers, you’ve got ongoing costs around that. A lot of these neobanks and neo-organizations don’t necessarily have those kinds of budgets and investments that they can make on an ongoing basis.”
There is an opportunity, Hijazi suggested, for traditional banks to “evolve their current model” through APIs. Financial institutions can succeed by using APIs to enable “consumable services” and payment services that deliver less friction for the user. For instance, HSBC offered APIs to merchants in Asia that can be directly added into the WeChat environment, “so they don’t have to leave the super app environment,” rather, HSBC is embedded into the app itself. “People were looking for that real-time experience because they’re all running their businesses on mobile apps and internet banking platforms,” Hijazi added. This is especially critical for businesses that want to move beyond their local marketplace and scale globally.
Many of those businesses include startups. Alison Lange Engel, Greycroft Venture Partner, told us about the advantages of being a smaller company in a digital banking world. Like larger financial institutions, there is still a “race to deliver the single best user experience,” Engel said. Yet there are particular benefits of working at a smaller scale. First, they are not “wedded to legacy products or legacy ways of pricing and packaging.” Second, “a lot of mobile-first, digital-first products are inherently product and user centric.” Third, “there’s a community component that startups I think are excellent at, that traditional brands have less of a go-to-market strategy for. That community is a huge part of what drives the organic growth in these new products and the viral aspect of the products themselves. And so when you can have more than 50 percent of your new users coming through a non-paid marketing channel, it’s a huge advantage to growth. You can scale a business pretty quickly without having to spend as much on the marketing side, assuming you get the product-market fit.” Startups “have different ways of tapping into new social media channels, leveraging influencers — they can kind of ride the wave of consumer behavior and sentiment.” This functions, Engel said, on two levels: it builds a brand, and it cultivates a lot of users for a fairly low cost.
Second, Ted Mabrey, Palantir Global Head of Commercial spoke with Bloomberg’s Emily Chang on all things analytics. As the financial industry races to compete in a data-driven world, how do you move beyond storing the data and effectively turn rich data sets into actionable insights?
Mabrey explored one strategy for turning data into insights: working backwards. “One of the key things that we learned, and frankly, learned, the hard way is that you really need to start with the decisions and not the data. Our experience is that when you start with data it almost makes the problem impossible to solve. How can I wrangle this massive complexity? How can I turn that into insight? But then, most importantly, how do I turn insight into action? And while that looks like the final mile, we actually found that that final mile was not one more step — it was an ocean to cross. So right into the core architecture of the technology is working backwards from decisions.”
The next steps come in two parts. First, “How can I work backwards from decisions to find the decision architecture of the institutions that we’re trying to serve?” Then, organizations can “create the software infrastructure that allows those decisions to scale over time to happen in more coordinated ways across functions to create an asset that you can learn from.” This “provides the foundation to actually apply AI in meaningful ways for large institutions, but it really comes back to flipping the paradigm on its head: this is not a data problem. This is a decision problem,” Mabrey explained.
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