This month, the Financial Times reported that Alibaba’s online fund, Yu’e Bao, had acquired Rmb 500bn ($81bn) deposits and more than 81 million investing customers – nine months after launching. The online e-commerce portal, which is already the largest mobile payments player in China, has just become one of the world’s largest money market funds, at record speed.
The scale and pace of this change is phenomenal, and it is in part due to the underlying structures of Chinese retail banking and deposit markets. However, it is a salutary warning for banks around the world about how new ways of doing things can change markets very quickly. Chinese banks and regulators are now scrambling to respond to a new wave of digital innovation, just as the digital disruptors, WeChat, Tencent and others, are growing their own digital financial products.
This all raises a key question for established banks – are they complacent about digital disruption?
Let’s see what some leaders are saying and doing:
Last year in May, Ian Narev, CEO of Commonwealth Bank of Australia, identified niche innovators as well as global technology companies as potential threats to banks value chains. However, CBA has invested significantly in upgrading core technology, and is rolling out an array of new digital apps, from Kaching, a digital wallet and payment app with more than 1 million downloads, to their own merchant payment platforms to enrich shoppers’ buying experiences. At their latest results announcement, CBA highlighted that these investments are paying off.
In June last year, Peter Sands, CEO of Standard Chartered, wrote in the Financial Times that “Banking is heading towards its Spotify moment.” Standard Chartered has a strategic aim to become the “digital main bank” for customers, and its investment in Breeze, a digital customer platform, shows its intent to innovate new customer solutions.
In December, Francisco González, CEO of BBVA, also wrote in the Financial Times, “Banks need to take on Amazon and Google or die.” Not only has BBVA invested heavily in its own technology and innovation, it has set up innovation centers in Madrid, Mexico, Colombia and San Jose. Meanwhile, BBVA Ventures, which recently bought U.S. innovator, Simple, has stakes in a number of start-ups and growing financial innovators around the world.
At J.P. Morgan’s Investor Day, CEO Jamie Dimon identified Silicon Valley firms as a threat alongside their traditional competitors, shadow banks and expanding Chinese banks. He said, “When I go to Silicon Valley… they all want to eat our lunch.” Over the last years, Chase has built the leading online financial services site with top-rated mobile banking functionality. However, Chase won’t rest on its laurels and is continuing to roll out new innovations to drive customer connection, including a digital wallet and enhancing the loyalty rewards platform.
The fact is, many banks see and understand the impact of digital on their customers and markets, and when it comes to innovation, are putting their money where their mouths are. The questions then are not about complacency, but about these visionary banks’ ability to compete with the new breed of innovators over the long term. And what happens to those that do not share the vision?