Bank-fintech alliance a win-win, says HSBC

Lenders can learn from disruptive tech whilst aiding its champions comply with regulations.

Traditional banks should work with fintech startups to drive innovation, according to HSBC, as the sector continues to be disrupted by a wave of new technology spanning digital payments, robo-advisors, blockchain, and more.

Banks and investment groups were estimated to have spent $652b last year to pursue technological innovation, according to Gartner.

But most of these “innovative” steps are more incremental rather than disruptive, Shayan Hazir, chief digital officer for the Association of Southeast Asian Nations at HSBC Singapore, told Asian Banking & Finance.

“Financial services haven’t had their vanguard moment — that big moment of change,” he said in an interview. “We see less of the radical and disruptive, and partly that is because of the need to maintain the sanctity of the financial system.”

He said emerging technologies mean there is room for both traditional lenders and disruptors to co-exist.

“If you think about open banking, if you think about embedded finance, if you think about platform banking, these are all models that didn't really exist even 10 years ago,” Hazir said. “What these different business models for financial services are creating are spaces… for the benefit of consumers.”

Hazir, who is also called “chief collaboration officer” at Europe’s No. 1 bank, acknowledged the competition between traditional banks and fintech companies. “If you are not in healthy competition, you're probably in the wrong industry,” he said.

But they are primed to help each other, Hazir said, noting that banks could learn from fintech companies’ disruptive mindset, whilst helping them comply with industry standards.

He said traditional bankers’ skills have been sharpened around governance and regulation through the years to ensure financial stability. “We maintain the sanctity of the financial system, so that will always take precedence over any area where we feel that those guardrails aren't strong enough,” he added.

This is not to say that fintech companies don’t have strong safeguards, Hazir said. “But it’s really critical that fintech companies are able to tap on advisory support in these aspects.”

Banks, meanwhile, should embed innovation more deeply into their infrastructure.

‘Skin in the game’
“Ideas always win in startups and fintech, and it's really important that the industry should be ideas-led,” Hazir said. “Then, you can go through the process of filtering them and making sure that they’re safe and developing in the right direction.”

The problem is not coming up with ideas; it is getting these connected to the rest of the organisation, he pointed out.

Hazir said a bank should allot 20% of its resources in things that are radical and disruptive. “You should be thinking about emerging technologies… [and] about new client paradigms.”

But the industry should first understand the ethics of a particular technology — generative AI, for instance — and ensure customers are protected before rolling out solutions. 

“Generative solutions can be prime to hallucinations, or later on, there could be copyright challenges in terms of how the large language models are built,” he said. “We want to make sure that we understand the risks in detail,” he added.

Traditional banks and fintech companies could pursue this in a safe environment for experimentation, Hazir said, citing as an example the Monetary Authority of Singapore’s efforts to enhance financial market liquidity through asset tokenization.

HSBC participated in the initiative and has been partnering with fintech Marketnode since 2020 to co-develop a digital market infrastructure spanning credit, funds and structured products. The bank has since invested in the Singapore-based startup

“What we’ve done is create an opportunity — an opportunity for us to not only have our own capability to evolve our product and services, but also for our customers, because we have direct access to this very progressive fintech in the space,” Hazir said. “So that's an example where you might not have the product immediately, but you're tracking a trend.”

By having “skin in the game,” lenders like HSBC could create new types of products rather than just enhancing old ones.

“You then develop a new capability that will then start… a shift in the way we create products and services in the bank, you know, as opposed to the traditional digital products that we have,” he added.