Exclusive Interview with Hetal Popat for NAB Confex 2019
For the last few years we have seen technology disrupt various industries and it has become imperative for businesses to evolve with this rapidly changing technology landscape, Do you agree that legacy systems are ready for further disruption in the Banking Industry?
I would go further and contend that it is legacy customer propositions and resulting business models that have been disrupted in other industries, not just technology. These are equally ready for disruption in banking. Legacy systems are part of the driver but legacy culture (mindset from colleagues and customers) and processes are equally important drivers. Banks are able to address these, and many such as HSBC are working successfully to change from within, but this does require top of house leadership to effect.
Financial Technology, nowadays better known under the term ‘fintech‘ are on a rise globally, in your opinion will FinTech’s have an edge over banks in the near future or will partnering with FinTech’s benefit the banks?
There will be successful examples of both competition and cooperation between banks/fintechs in the near future. We are seeing some fintechs develop sufficiently strong brands and propositions to be able to compete directly against banks for customer share of mind, however, this is the exception rather than the norm. Therefore we are likely to continue to see partnerships emerge so that fintechs can leverage the brand, trust, scale and breadth of offer that banks benefit from; in return, banks will benefit from the culture, technology and cost advantages that fintechs bring.
As a firm, HSBC is investing in and working with fintech start-ups where we think they can help. We have allocated USD200 million to invest in fintech and enterprise start-ups. Through these investments, HSBC is helping younger companies to better shape their products at scale and to expand their markets while providing more established partners with strategic guidance on market opportunities and trends.
Open Banking or Open APIs are gaining traction, how do you see open baking affect a bank and how will open banking benefit a customer?
Open banking will fundamentally transform how customers interact with banks by enabling a suite of apps which are tailored to different customer needs. Over time, we expect this to supplement existing bank apps and potentially substitute for them in many cases. Customers will benefit in many different ways as their banking data is shared with them in ways that make it more useful and apply it to other use cases. This will enable entirely new propositions which unlock customer value, in the same way, that geolocation APIs enable cab-hailing apps.
What do you see as the most critical security concerns with Open API’s?
Open API’s need to be deployed with an end-to-end trust framework in mind which should start and finish with the customer, otherwise they will not succeed in the market. This framework needs to consider technical security controls (certificates, encryption, verification processes, device level controls), customer authentication processes (customer journeys, authentication factors), and customer complaints and redress management. The approach that has been taken in the UK has considered all three of these pillars and is an approach worth replicating in other markets.
On a global perspective, do you see a bright future for open banking security?
Open banking is inherently subject to the same threat vectors as other internet gateway services in financial services. In our view, industry security is best served by global standards which are designed to combat global threats and protect our customers. This enables consistency of approach and a rich supplier base to support the wider industry.
What do you see as the long-term impact of AI in the banking industry?
AI has the potential to be used in every single segment of financial services and HSBC is already using it for a number of applications including to protect our customers by scanning vast amounts of data to spot suspicious trends which might indicate a financial crime. It can help wealth advisors, back office staff and operations, traders, corporate finance. There are huge opportunities, particularly how AI technology aligns with mobile, cloud computing and data analytics. The convergence of these trends and the potential integration offer great opportunities to the industry which we must take.
Do you feel that the Blockchain environment is improving for banking and fintech players?
Blockchain continues to be an exciting technology that offers the promise of materially changing cost structures in a number of important customer services. HSBC has been particularly active in applying blockchain to trade finance use cases and sees real potential for customer benefit in that domain. There are many others where we similarly expect customer benefits to accrue over time. It is important to separate blockchain as technology from traded cryptocurrencies, where the latter have attracted some bad actors. HSBC does not trade cryptocurrencies nor do we process payments denominated in virtual or cryptocurrencies.
What are the main areas of synergy or collaboration between Banks and FinTechs?
Bank-fintech collaboration is occurring within HSBC across the firm. We see synergy in use cases as diverse as customer propositions, regulatory technology, data management, security, and marketing campaign management. Our approach is to focus on the benefits of each specific application and assess whether it helps us improve our customer or internal service vs alternatives from established suppliers or in-house development.
The major technology players, Google, Apple, Facebook and Amazon also known as GAFA are transforming the digital banking landscape. What are your thoughts on GAFA in banking?
As ever, the customer will decide which propositions succeed or fail. The GAFA firms have had a major impact on all industries they have touched, and banking will be no different. They have demonstrated an ability to innovate and apply design-led thinking to customer problems which are really important. As long as this flows through into good customer outcomes we should embrace the challenge.
What are your parting thoughts on the future of banking in the region?
I look forward to learning much more about regional innovation and trends during the New Age Banking conference and welcome the opportunity to share experiences for collective benefit.
Hetal Popat, Programme Director & Head, Open Banking & PSD2 at HSBC UK will be speaking at #NABConfex New Age Banking Confex 2019.
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