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Sharing economy and the future of fintech

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A decade on from the advent of the sharing economy, the concept is undergoing a re-invention of sorts. 

Today’s sharing economy is also changing the global financial system, which is currently anchored by traditional banks but fast being disrupted by fintech players.   

Observers say if traditional banks want to keep up with the surge of fintech players, they will have to refine their customers’ digital experience. 

“They have to engineer the digital experience they offer to make these emotional connections, which, ultimately, could translate into sticky interactions and more profitable customers,” said Ho Kok Yong, Financial Services Industry Leader at Deloitte Southeast Asia.

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“Specifically, banks’ ‘pull’ approach to digital service could be standing in the way of creating emotionally engaging digital interactions,” Mr Ho added.

He noted that fintech players have shown a better way to digitally engage consumers through a “push” strategy that includes sending them intelligent, tailored insights based on their spending behaviours or notifying them about discounts or loyalty offers at nearby retailers. 

“Although many banks have made the important step of making the login process easier by having mobile devices remember information in a secure manner, they should think about how they can invoke more push strategies to better engage their consumers,” he said. 

According to PwC, banks still have a traditional advantage in that “by and large, consumers still trust traditional banks.

“Banking is fundamentally a trust business,” said Sam Kok Weng, Financial Services Leader at PwC Singapore.

To respond to newer fintech players, banks face challenges because they are complex organisations and risk management and controls have necessitated that the full value chain to deliver services cut across many departments, such as strategy, frontline or front office, IT and operations.

“This has affected their nimbleness to respond to the needs of specific customers, and challenger banks and services seek to step into the void,” said Mr Sam.

Several fintech trends are starting to develop that will impact banks and other businesses. 

One of these is the blurring of boundaries between different industries and fintech. 

Deloitte observes that across Southeast Asia, different players are entering the fintech space using a variety of models. 

For instance, mobile wallets that were initially developed for use in ride-sharing applications are now being extended for use in other point-of-sale retail payment applications. 

Fintech is also focusing on increasing financial inclusion to the unbanked or underbanked population, as well as health and wellness in the form of InsurTech (insurance-technology) companies that link financial incentives to health outcomes.

Deloitte’s Mr Ho said the future evolution of these business models will depend not only on their commercial viability within individual markets, but also on regulation. 

“Specifically, regulators will need to strike the right balance between providing sufficient structural incentives to build confidence and encourage the mass adoption of these new models, and establishing the appropriate risk controls to safeguard both consumers and merchants,” he said. 

But banks are changing as well.

PwC’s Mr Sam noted that many banks have responded by narrowing or defining their customers group, changing the culture to quickly innovate and implement changes with a renewed "burning platform" mentality, and - in the short term - relooking at push factors such as pricing to retain customers or attract them from other traditional banks.

“What we have seen is that banks are much more willing to go into partnerships with other businesses or platforms so they stay in the game,” said Mr Sam. 

These include white labelling of products, using the data of other businesses as the basis for credit decisions, creating a seamless end-to-end offering to these other businesses by offering payments and credits to close new transactions in these other platforms.

For retail banking, it could involve innovating to be more customer centric in the new digital economy; moving to be a technology and risk management provider to platforms; and being relevant specifically to customers with comprehensive needs without multi-service providers, or exit this segment. 

For their part, businesses may also leverage the benefits of fintech to grow their revenues and interactions with customers.

PwC’s Mr Sam believes that organisations could go into partnership for distribution or service capability, as well as learn from fintech’s customer centricity. 

They could also commoditise technology by taking a leaf from fintech developments.

“Organisations and individuals can focus on customers needs and pain points and originate user solutions. Fundamentally, this is design thinking - think deeply about the problem one would like to solve and develop solutions and experience that are not easily replicated,” said Mr Sam.

In Deloitte’s perspective, organisations could adopt an ecosystem view to form a holistic assessment of the future trajectories of fintech. 

“The ability to form effective partnerships and collaborations with a cohesive network of players has been a key success factor for many fintech platforms within the Southeast Asia region, as they are able to collect data across various touchpoints to form a complete view of their customer journey, and develop the appropriate programmes to lock in customer loyalty,” said Mr Ho.

Looking ahead, the overarching challenge for the fintech industry is likely to be interoperability. 

“The proliferation of different platforms, each with their own set of systems, has resulted in a number of competing standards in the marketplace. To achieve interoperability, it is important to underscore the crucial role of forward-looking regulation and industry partnerships in establishing industry-wide standards as dominant models of collaboration begin to emerge,” said Mr Ho.

This article is part of a series in collaboration with CPA Australia to share knowledge on accounting, business and finance issues.