11 May 2016

Fintech can help banks with stiffer compliance

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First published in Business Times on 23 June 2017

For a match, swipe right.

That used to apply only to online matchmaking apps such as Tinder, but banks can tap this similar method for its clients to network in a new way, as they apply more financial technology (fintech) for a competitive edge.

HSBC has one such example with its latest service known as Connections Hub. It offers Singapore clients here a chance to interact with potential overseas partners who are already part of the international bank's network.

HSBC's business customers in Singapore, Canada, mainland China, Hong Kong, India, Mexico, the UK and the US can now sign up for the new service. The digital platform, said HSBC, allows the bank's customers to make use of HSBC's global network to connect with trusted buyers and sellers around the world. HSBC's customers create a business profile to represent their brand, and an automated search engine will fish out potential buyers and sellers. Users can then send a private message to their target business partners via the platform.

The service in itself is meant to make relationship building among banking customers more efficient through the use of technology.

And indeed, while Asian banks in Singapore typically host annual informal meals among clients - usually around Chinese New Year - to help clients network, technology can help customers reach out to potential partners in a different location and timezone, but with a common goal to make more money.

But what's also interesting is that banks are now leveraging off the heightened regulatory scrutiny to ensure that HSBC customers are matching up to other HSBC customers that have also been under the same regulatory radar. Indeed, HSBC had noted that this "exclusive global networking platform" brings together customers that have gone through the same due diligence checks and vetting.

Compliance costs would vary from bank to bank, but suffice to say, they have been a headache for banks, and are not expected to go away.

OCBC's CEO Samuel Tsien said late last year that compliance-related expenses have risen by 35 per cent in each of the past three years. The bank also expects this as the "guiding pace" for growth in such expenses in the coming years.

Even as there are brightening prospects for the global economy - with several analysts ruling out a trade war at this point - cautious banks are chasing up top-tier corporate customers that are either large and diversified, or backed by healthy sovereigns. That competition is likely to make it difficult for banks to pass on all of the compliance costs to their customers at this point.

But such a service from HSBC may raise the value that customers would get from sticking with the bank. If a bank can't cut regulatory costs fully for more profit - though some banks are said to be shedding compliance staff already - it would have to grow by boosting the top line.

Some observers would even argue that having clients matchmake themselves may keep clients out of internal turf wars among local units of a global bank, as bankers from the same bank can also fight over the same global client that has businesses in many parts of the world.

The escalating compliance costs also explain the pressing need for fintech to be applied by banks in the area of regulation. Citi recently concluded in Singapore its global demo day challenge for fintechs, with an aim of finding fintechs that "promote integrity, accountability and transparency in the public sector and beyond".

The awards went to fintechs that mainly offered stronger security and identity features, as well as those that offered ways to detect financial crime through anomalous behaviour sussed out through data analysis.

To be sure, fintech firms have also used digital platforms to try to profit from matchmaking services. For example, Finquest offers a subscription service in Singapore and Hong Kong to matchmake private equity investors and M&A advisers with mid-sized Asian companies.

But the difference lies in that Finquest does not do due diligence on the companies. Investors can engage M&A advisers such as lawyers and bankers from several boutique firms to ensure that the deals are sound.

If done right, a networking service from a global bank such as HSBC can trump such fintech services that do not wash out friction and inefficiency posed by stiffer due diligence.

HSBC said this service could especially help SMEs in Singapore expand their markets beyond their home turf, citing numbers that showed last year some 37,000 internationally focused Singapore companies - 80 per cent of them SMEs - approached IE Singapore for help in understanding overseas markets and to connect to the right business partners.

What's to be said then is that even in the flurry of bad news for financial firms - nearly 10 years after the crisis - they still have some fighting spirit left in them. It also explains why fintechs would increasingly chummy up to banks. Banks are likely now to be acquiring their technology, rather than compete directly against fintech firms, which while nimble, still lack scale.

No doubt, fintechs can still challenge banks, but they would be foolhardy to write them off today.

To learn more about the HSBC Connections Hub please click here.

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This article was published in Business Times on 23 June 2017.

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