‘Disruptive’ Chinese innovation is a signpost to the future, says Innotribe panel
Echoing comments made during Monday’s plenary session by Piyush Gupta, chief executive of DBS Group (Daily News at Sibos, 13 October), Haydn Shaughnessy, co-founder, The Disruption House, said disruptive innovation in banking and payments was overwhelmingly coming from China. Established global banks had better watch out or they may soon not have a future, he said on Monday during the Killer platforms: the Chinese road to platform disruption session. “I’m not saying you’re doomed, but it is difficult to see what your future is,” he said. “You [banks] are in a race to become the platform. If you don’t do that, then it’s hard to see what you’re going to do.”
Shaughnessy said Chinese companies such as Baidu, Alibaba and Tencent were reaching saturation level in the Chinese market and this is driving them to expand their business into other areas, including banking and payments. This rise represents a serious threat to established banks, which will either be forced to redefine the way they do business, or find themselves in danger of extinction.
Taking action against that threat will require much process change and effort to reform or replace legacy technologies. But Shaughnessy said banks were complacent in not thinking enough about how they will do this. Entrepreneurial innovation favours newer platforms; for example, Chinese platforms such as Alibaba and others are well set up to provide a low cost global platform for smaller businesses. To make matters more challenging for global banks, this movement towards smaller, more agile newer businesses and newer platforms is gaining momentum from governments mandating electronic payments.
“We’re already seeing SAP and AribaPay in Singapore accepting and processing working capital,” he said. “They are about to open APIs to other financial service providers. Soon, we’ll get FX services and currency management. We already have it on Ripple, which has taught us you can do this online. It’s not going to take Amazon and Alibaba long to figure out how to do it.” Alibaba processes 80,000 transactions per second at its peak.
The difference in culture between the way IT operates in China and in Silicon Valley may also be a crucial factor in the success of the new breed of financial service providers, said Shaughnessy. The Chinese firms create their offerings using tools available to most businesses online – but they do it by asserting the control of the business over its IT.
“The business is king,” he said. “They don’t give the IT department too much power. The internal developer community just has to respond to the business.” This is an “entirely different world” from Silicon Valley, where developers call the shots. “At some banks, there’s a turf war between IT, business, comms and other parts of the business. There’s no place for that in China.”
Fellow panellist Zennon Kapron, director at Kapronasia, outlined the evolution of Chinese service providers. Tencent is expanding beyond its base in gaming into banking and taxis; Alibaba began with e-commerce, but is now moving into payments and taxis; the Baidu search engine has begun using big data to launch asset management services; and Alibaba makes credit decisions based on a consumer’s financial history.
“When I moved to China 11 years ago, I started using mobile payments,” he said. “Now, I have a Chinese mobile, I pay my landlord in France using AliPay. I invest in financial products using the Baidu search engine. Nowhere else in the world do we see this integration of technology and finance like we do in China.”
At the beginning of the session, audience members were asked to vote on where they felt disruption in financial services was coming from. In the initial vote, the figures were split with around one-third voting for the West (defined as the US and Europe) and about 48 per cent voting for China. At the end of the session, the audience was asked to vote again on the same question. This time, two-thirds voted for China, while less than 10 per cent voted for the West.