Connectivity, rather than established customer relationships, is the key to the future growth of financial services and inclusivity in emerging markets.
Speaking at the Huawei Intelligent Finance Summit in Shanghai this week, Jason Cao, President of Global Financial Services Business Unit, Huawei Enterprise Business Group, outlined the company’s future strategy for the financial services sector. He believes financial institutions such as banks and insurance providers need to evolve into digital ecosystem based enterprises in order to meet the future needs of small and medium size enterprises and unlock the next wave of new customers in emerging markets.
Cao unveiled three strategic initiatives for financial services digital transformation:
- embrace cloud native technology and build optimal cloud-based infrastructure with agile platforms to enable future technology innovation and drive integration of data and intelligence;
- increase digitalisation through technology upgrades and accelerate trusted data transfer to drive digital inclusion and increase sector interconnection;
- aggregate ecosystem partners to build a cross-industry ecosystem and enable a greater range of scenario specific financial services.
Fifteen new joint solutions with financial services companies, the majority in China, were announced during the two day summit, demonstrating the progress being made.
Cao believes that demand for inclusive financial services in emerging markets is huge and that financial inclusion is a much broader concept than people realise. “When we talk about financial inclusion we think about reaching the unbanked population, but the fact is that, in any given region at a certain stage some people’s financial needs are met but not all of the needs are met. So the broad trend is that we must provide more and better financial services to people. Financial services development is uneven across different regions and people’s needs also differ depending on the stage of development of the market.”
According to Cao, many small and micro businesses still have significant unmet needs which cannot be met simply by giving them access to mobile phones. “We need to look into the business scenarios, gather data related to their scenarios and leverage a range of different technologies in order to satisfy their demands, so that banks and financial institutions can better serve them.”
Asset financing is vital for the development of improved financial services in emerging markets. Small enterprises can use goods as mortgage collateral to get loans from banks. At present this is very difficult as the banks can’t be sure that the goods will still be there the next day and have no cost effective ways to verify the quality and value of the assets being offered over time.
A good example is the Chinese market where there are about 70 Trillion Yuan of goods assets, but only 5 Trillion Yuan is currently used as mortgage collateral. This means huge numbers of businesses have inventory and need capital from banks, but are not able to get it because the banks have no way to make the asset valuations and monitor how this changes over time. Huawei is working on projects to solve this problem.
Huawei was one of the pioneers in the use of mobile technology for financial inclusion, having worked on M-Pesa since 2012. The initial goal of M-Pesa was simply to serve consumers with basic banking and cash services, in the belief that the business would gradually increase into the SME sector as it accumulated experience in serving businesses with financial solutions.
As the market for financial services has grown in Africa it has become clear that a single mobile banking app is no longer able to meet the multiple needs of all consumers. Huawei is therefore developing more advanced "super-banking" apps to enable businesses and consumers to take advantage of the most advanced financial services business models.
It is wrong to think of banks and mobile operators as rivals in the delivery of financial inclusion. Telecom operators have an advantage in connectivity because they have their networks and can reach customers. Banks, however, are also actively participating in financial inclusion. Banks can easily connect with customers. As Cao says: “Right now we are seeing that connectivity matters more than ownership. Whoever reaches the most customers wins. Banks do not have telecom networks, but they still also reach out to customers.”
To illustrate this Cao uses the example of diners at a restaurant. Telecom operators cannot deploy sites in every restaurant but banks can take advantage of the merchant networks they have. Every customer in a restaurant needs to pay their bill so that can be a touch point for customers. Right now financial institutions are coming up with different business models to better connect with customers.