How ecosystems in Asia are threatening Western banks

After the financial crisis, Western banks where paralysed with lawsuits, fines and regulatory requirements. The lack of innovation paved the way for a new industry (fintech), focusing on data and clients that lost trust in large banks and their intransparent and complex financial products. Challenger banks from Asia are about to export their digital and client-focused business models, eating traditional banks’ lunch.

The convergence of e-commerce, social media and financial services

Firms must increasingly address digital-savvy clients that do not have a brick and mortar bank, credit card and cash, since they have a mobile bank, pay with QR codes and use non-bank payment providers. An open approach and technology skills are especially important for firms that want to keep up with the high pace of mobile payment solutions with an annual growth rate of over 60 percent for the next three years.

We live in a sharing economy where sharing information and knowledge, with business partners, friends, social communities among others with little privacy concerns became the new normal. In the fourth industrial revolution, social behavior and the liberalization of public policy converge with technological trends like artificial intelligence, crowdfunding or blockchain (see infographic that illustrates some key trends).

Ecosystem dynamics

Since everything is connected, new market entrants outside financial services benefit from their agility and technological capabilities as well as network effects and hyperconnectivity to expand scale and scope to offer financial services. They have created a system that transcend organizational boundaries and performs without sector borders because all actors contribute to the value constellation of the ecosystem.

The principle is simple; growing ecosystems with many players generate complete data from various businesses, interactions, and social activities of their platform users that in turn feed the ecosystem. Developing the opportunities from such data-driven business models that rely primarily upon artificial intelligence as a tool to predict client needs based on their behaviour is the direction to go.

The rise of China's digital ecosystems

The many initiatives of China’s government to leverage technologies such as artificial intelligence and Singapore’s fintech innovation hub have accumulated knowledge and resources required to cope with the digital transformation. E-commerce and Internet giants from Asia are on the fast track to materialize the social behaviour of people using their mobile devices for everything they do; exchange information, receive recommendation and interact with the social community, while shopping and paying online.

While large Western banks have nurtured a client base of a few millions during their history of often over hundred years, fintechs in Asia have created ecosystems with hundreds of millions of consumers (mainly domestic). Alibaba, Tencent, Baidu and Rakuten have built up cross-sector ecosystems in less than a decade and act as vital incubators for innovation and growth. Alibaba Group with its affiliate Ant Financial has been increasingly penetrating consumption scenarios in daily life with more than 500 million clients, delivering a client experience from health to wealth.

It is time to learn from Asia  

The new era of multi-industry ecosystems that touches every aspect of our lives has just begun.

If investment banks in New York, commercial banks in London and private banks in Switzerland do not adapt quickly to the new collaborative environment and open up their business models, they will lose competitive edge and increasingly see their clients shifting to emerging mobile banks and digital platform providers, offering financial services conveniently and at low cost.

Learning from the Silicon Valley ecosystem is still an option, however, future leaders should rather study the business models of challenger banks in Asia and implement an ecosystem mindset for their digital transformation strategy.