The Art of Transformation: Hug Fintech

Ziyuan Chen

February 2017

1. From “large amount of data” to “big data”

Without a doubt, the banking has its inherent strength, it has accumulate a large number of customers and already got a lot of data during a long time. The problem that is much of data just be recorded, they only show the accountant value, that is wasting of data resources. Therefore, how to use and analysis data to discover opportunity is core point of transformation from holding large amount of data to using big data.

1.1 Data analysis

The core point of commercial bank are customer attracting and risk management. How to keep balance between these two point? Big data analyzing could help bank to find relative customer, at the same time, it could also help bank to discover potential risk. Big data analyzing could make some previous random event change to predictable event, that could be increase efficiency and decrease cost.

On the other hand, the banking should focus on how to using the big data to discover potential customer and discover relative business, also could change and improve client relations. At the same time, the banking could take advantage of data mining to discover and fill a market void.

1.2 Establish platform

Previously, bank as an intermediary agent in the market to provide loan and other services, however, with the development of internet and technology, the “financial disintermediation” has generated, many customers do not need intermediary agent. Instead of the model of person to person. The banking should consider about that to change the role of intermediary agent to the role of building platform. The banking could take advantage of its large amount of data to build a platform to provide person to person service (P2P).

The Euro has already applied the Payment Service Directive II (PSD2) last year. It ask banking should provide the customer data to the third party payment platform. In my opinion, that is not only share data to the third party , but also is an opportunity to share data between each bank. The banking has excellent customer basis and ability of risk management, therefore, it could be build the platform to provide P2P service, such as P2P loan. Some emerging P2P platforms generated during last few years, they were attracted many customers, however, because of supervision loopholes and the bad ability of risk management, there are many defaults happened in these platforms. Therefore, if the banking could take advantages of its strength to build a P2P platform, it must be better than emerging platforms, at the same time, it could be attracts many customers.

In a few words, the banking should activate data and take advantage of financial technology to improve the ability of data analysis, transform from holding large amount of data to using big data to make value.

2. From “Pareto principle” to “Long tail effect”

The traditional banking abide by Pareto principle, it was focus on minority customers to make lots of value. During a long time, this way could make value maximization and cost minimization, therefore, many banks ignore the small and micro finance. However, the development of technology create an new environment, the part of “long tail” should be the main point in this era.

2.1 Potential market

Previously, the bank service cover one region must by the bank branch, business hall. The branch building and bank card business need to expand human and other resources. Take account of the cost and value, many banks do not build branch in some underdevelopment areas. Many underdevelopment areas without bank services during a long time. The following chart shows the number of bank accounts per 1,000 people based on data from 2014.

It is easy to found that many areas are short of bank service. According to the report from the UN, in these areas, much of people do not have bank card or bank account, but many people has telephone even smart telephone. Therefore, the banking could develop the financial technology and digital currency technology, to provide the basic payment and transferring service in these area. It will fill a big blank of the market on the premise that cost minimization.

2.2 Small and micro finance

Loan issuing is the main business of bank, some relative works such as credit check and risk management need many cost and resources. In order to make value maximization, the bank has ignore many small and micro financial business, but the new financial technology such as block chain could help bank to decrease the cost and short the check time.

The block chain technology could short the working time, at the same time, it could also help bank to decrease the cost and do the risk management better than before. Therefore, the bank could improve its effectiveness and consider about more small and micro finance items. Even the value and earning of every item is very small, but many a little makes a mickle, that is also a big potential market.

3. From “physical branch” to “network branch”

A lot of physical branch of bank , business hall and ATM, cover many areas is a traditional advantage of banking. The bank put in many resources to maintain these branches, however, they seems not to adapt to the new situation.

The Euro has applied PSD2 in last year, there will be more and more third party platforms provide payment and transferring services to customers, that must be affect the retail business of bank. Furthermore, the mobile and online payment and transferring are more convenience than bank card, and many younger people are familiar with network environment. More and more people prefer to using mobile and online service, instead of go to bank business hall. Because of the strict regulation, many technology companies or social network site, they may do not want to step into more financial business, they just want to provide payment and transferring services, customers must to attach their bank account to their social account. That could make an institution, the bank also need to expand cost to manage accounts , but the cash and capital will run off the bank into the third parties and the third party will get more customer data than bank, the bank only could provide some basic backstage supporter service.

In my opinion, the banking should decrease the number of physical branch and increase the number of network branch. Using financial technology to open and improve mobile and online services. Actually, the bank’s POS machine almost cover all market, the bank just need to do some improvement to prefect the mobile and online payment and transferring services, that is easier than other third party platforms. Furthermore, the bank should improve and prefect the online service, make them more convenience than before.

In conclusion, the development of technology is a challenge to the banking, it is also the opportunity to banking. The banking should take advantage of it to do the transformation to improve and prefect bank business and services, it will keep up in the future.