Yesterday (August 8, 2018) I attended the Philippine Investment Conference 2018 at Shangri-La at the Fort organized by The Philippine CFA Society. One of the most memorable moments was when the president of Union Bank, Edwin Bautista, made comments about non-banks companies that used mobile app to offer banking services, during a panel discussion, which was also attended by Anthony Thomas of Globe Mynt.
Mr. Bautista sounded quite agitated when he expressed the concern of traditional banks about companies like Globe Mynt and Grab which offer customers services that allow them to purchase a variety of goods as well as sending money to others using money stored with these companies. His sentiment was: "they will eat our lunch!"
(In the featured photo, Mr. Bautista of Union Bank is seated second from the left, and Mr. Thomas is at the far right.)
Traditional banks have the right to be concerned. As one speaker at the same conference, Mr. Paul Schulte, observed, in several countries like China and Japan, customers could use their mobile phone to complete all sorts of financial transactions, from shopping to investing. Yet these companies are not as heavily regulated as banks.
What should be the response of traditional banks? Their first stop will probably to the regulators, like taxi associations going to the government when under threat by cab hailing services provided through mobile app. However, if that's the only thing that they will do, traditional banks will not stop the pain. For them to meet this challenge properly, I have two advices for them.
(Photo above : Undersecretary of Finance talks about the tax reform package at the Philippine Investment Conference 2018)
One, play to your strength. While people are willing to deposit a few hundred pesos to a telco account, not many will let a telco or a social media platform keep 10,000 pesos or more. Use their trust of banks to facilitate transaction of high value items, but make it easier than before. Think real estate crowd funding. Be the realtymogul.com or fundrise.com of the Philippines.
Two, do something that you should have done before but did not just because you did not have to. Make bond issuing and trading more accessible, for example. Traditional banks did not push for this because the people that have the know-how and resources to do it (investment banks) and you could make more money by selling bonds at P500,000 a pop instead of P50,000.
With new technology like block chain, high value items can be traded in small parcels safely, with relatively low cost and very little friction. Banks can generate income by collecting fees from high volume of transactions, instead of getting paid from a few big transactions. You may have less chance to rub shoulders with the super-rich, but the upside is, you Do Not have to rub shoulders with the super-rich. Default risk is more dispersed, and the pool of funding source will become bigger as many middle income savers can now have more options to invest.
Technology will not go away. Work with it, and make it work for you.
(The author Chiu Ying Wong is a CFA charterholder. She is currently running a start-up called iOpenhub Inc., the latest project of which is a mobile app that allows individuals and teams to design and play their own treasure hunt with more fun. She has no direct investment in fintech companies.)