Have you ever thought that your business is able to automatically obtain financing support when you get a substantial purchase order from your customer or when your company have to replenish the inventory during peak season? While you completed an online shopping, you are offered a pre-approved instalment loan by a Financial Institution but why not your business.
Traditional Corporate Banking market
Every business basically needs banking function to support their business, simply from an account opening to financing. Corporate Banking is one of the core functions and also is the main income source in traditional Corporate Bank. Traditionally, Corporate Bank act as an intermediary in business world to facilitate doing business. Banks collect deposit and lend to borrower through internal credit analysis, banks issue credit documents to guarantee the supplier to be paid in a business or process international payments, etc. Since the banks taking depositors cash for doing business, banks are highly regulated everywhere to avoid any turbulence to economy due to banking operation. In Asia, licensed bank in Hong Kong is regulated by Hong Kong Monetary Authority while Singapore is regulated by Money Authority of Singapore. Other than locally regulated, banks are also being regulated by international professional standard that applied by authority.
Since Corporate Bank are highly regulated, incumbent banks must follow the rule governed by local authority on various well known three letter jargon like KYC (Know Your Customer), AML (Anti-Money Laundering), CDD (Customer Due Diligence), etc. Therefore, before obtaining Corporate Banking services, you have to go through a ton of paper work to ensure that you are the right customer that can fulfil the requirement in those three letter jargons.
Hong Kong is a very open financial market in worldwide with easy access to corporate banks. The abovementioned regulations are not a problem to large corporate with substantial resources to handle the enquiry or to meet the requirement from corporate banks. Unfortunately, when it comes to small enterprises/SME, the traditional corporate banking requirement can be very tedious and time consuming. Hence, large corporate is more favourable to Corporate Bank due to higher efficiency and information transparency. For example, general speaking, SME is relatively difficult to obtaining financial support from corporate banks without tangible security given financial strength and potential economic benefit of SME is not preferable to bank compare with large corporates. With only limited resources on hand in banks, facing the same regulations on large corporate and small enterprises/SME, corporate banks incline to provide financial support to large corporate which make more sense in terms of business perspective.
FinTech and Incumbent Bank
Along with the recovery from the Financial Tsunami in 2008, FinTech challengers benefit from the doubt by user on the trust system in banking industry. New digital entrants first have impact on retail banking segment such as payments and digital currency. For now, FinTechs are expanding into commercial and corporate banking.
Back to 2008, there is limited bank believe that Fintech is challenger to traditional banking industry. However, in 2018, challengers are not only coming from FinTech company but also BigTech Led challenger. The banks aware that revenues are being shared by the Fintech challengers in recent years and increase their investment in technology to defend their market share as shown by their IT expenditure.
Nonetheless, FinTech or BigTech Led challenger are also very active to innovate new business model and acquire market share by their user experience driven product. In the last decade, FinTech on Retail Banking is the fastest developing FinTech sector among all areas. The challengers target the most valuable profit pools in banking. The fast development of FinTech application in retail banking is benefit from the increasing popularity of smart phone and content delivery speed. Digital Currency, Investment, Personal Lending and Payment are representative categories that developing in a very fast pace in FinTech segment. Comparatively, FinTech on Corporate Banking only show up in last five years mostly on Lending and RegTech given that solution for Corporate Banking have to overcome more hurdles including corporate client’s product customisation according to corporate business background and the number of target users market is much less than individual market.
Most of the core banking system were invested back to 50s. The legacy core banking system were purchased or co-developed with vendor in the past in order to support the application of a single product. These product driven systems created a complex web in banks which are not interoperable, not even mention integration. We have seen the FinTech or BigTech Led challengers able to create an integrated system. For example, Tencent created an integrated system from business to personal services. FinTech company may not be able to create a powerful integrated system like BigTech Led challenger. However, FinTech challenger can create user experience driven system to fulfill corporate client’s needs. For a single application, FinTech challenger is able to create an integrated system from terminal to backend to serve the purpose. Lending Club and Funding Circle provide business loan to SME; FinMonster provide Corporate Lending marketplace; Fund Park and Qupital provide receivable financing, etc. All of these BigTech Led or FinTech challengers are actively to share the profit pool of banks. We expect the BigTech Led challenger will continuous expand their market share and product offering while some of the FinTech challenger will co-operate with incumbent bank or individually develop an independent ecosystem in single sector. We highly believe that existing trend of Corporate Banking market will further improve in the products with better user experience.