The rising tide of innovation is lifting both fintechs and big banks

Published: 26 October 2020

HSBC Private Banking's Lilly Huang and Kushal Mashru, Global Head of Technology Third Party Management, describe how the integration of fintechs into the ecosystems of big banks provides clear benefits to customers.

We're always hesitant to use the word 'disruption' to describe financial technology (fintech) companies. It implies some negative forces and disturbance. In fact, disruption plays a very critical role in how banks innovate.

There's no doubt that fintech disruption, or rather penetration, across some market segments is happening at an accelerated pace. We all benefit from the competition, including big banks like HSBC. While big banks and fintechs compete for market share, the big winners are consumers, investors, corporates and other customers who benefit greatly from vastly improved customer experiences, automation, better intelligence, ease of use, lower cost and more alternatives.

Furthermore, the pace of innovation has led to most of the big banks integrating fintech companies into their ecosystems through investment, acquisitions, partnerships and procurement. The interdependencies between fintech companies and banks are becoming more and more pervasive. The four most active big banks have each made more than 50 fintech investments in the past seven years. At HSBC, we have invested in more than 25 niche tech or fintech companies, all of which are technology partners and vendors.

As HSBC's Group Chief Operating Officer John Hinshaw says, the bank actively explores opportunities to partner with early-stage and established technology companies to innovate and enhance our service to customers.

In addition to our investments, HSBC currently has more than 63 separate fintechs or start-up techs going through a formal innovation lifecycle, including running proofs of concepts, pilots and, if successful, migration into live production environments.

Alan Peacock, HSBC's Global Head of IT Infrastructure Delivery says that there's always been a close relationship with our strategic partners, and we co-innovate regularly together. We are good at identifying great start-up partners we want to collaborate with and help grow. In his view, the ability for start-ups to partner with a global bank at our scale can really help them to create a proven platform that meets the needs of large clients.

Certain fintech companies have taken share from the incumbents, in part because they can develop products and get to market faster than big banks. For example, challenger banks like Chime, Revolut, Monzo and N26 have been gaining momentum. At the same time, big banks have accelerated their own pace of innovation and are improving the customer experience. This development is driving a shift for the big banks from cost and product leadership to business agility and speed to market.

For example, in February 2017 HSBC developed PayMe in Hong Kong, a mobile payment service designed to compete with WeChat. As of May 2020, the service had more than two million active users, out of a total Hong Kong population of 7.3 million. Ultimately, the speed with which banks can build new capabilities and partnerships will determine their success.

HSBC's partnership with Zoom Communications is another great illustration of a big bank's collaboration with a technology company. HSBC was one of the first major global banks to work with Zoom. It was deployed to almost 300,000 employees globally, over a period of three weeks at the start of the COVID-19 pandemic.

Eric Yuan, founder and CEO of Zoom, said on a recent HSBC webinar, "Moving forward, most importantly, we have to stay focused on the customer experience. It all boils down to the company's culture to deliver happiness to our users. We're very similar to HSBC. Like you, we take care of our customers, if we keep doing that, no matter what kind of new challenges we face, we will be all right."

The journey of innovation involves the whole ecosystem from start-ups to large banks. Technology companies, customers, regulators, and of course banks are working together, sometimes competing, but over time producing an ever-improving customer experience. PayPal, once an innovative, young, promising fintech in the early to mid-2000s, is now worth billions and continues to grow organically, expand geographically, and spend billions on acquisitions. Who's next?

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