Change at hand
While the 2008 financial crisis is often cited as a game-changer for the banking industry, many other evolutionary forces are causing the industry to alter the way it conducts business.
According to industry experts, these forces include increasing involvement from Chinese banks on the global stage, the globalisation of the renminbi, the evolution of financial technology and payment methods, and more stringent regulations.
May Tan, chief executive and executive director for Standard Chartered Bank (Hong Kong), is one of the panelists at this year's HKIB Annual Banking Conference, where she will be discussing the "paradigm shift" in banking. She explains that as China opens up its economy, the Chinese banking system is embarking on financial reform.
She says this is good news for China as a whole, as not only are Chinese firms and banks looking overseas, but foreign banks are also looking with interest at the Chinese market and the globalisation of the yuan.
This opening up of China's current account and potentially its capital accounts further down the road will signify a sea change for the financial world of banks, regulators and investors. This will benefit Hong Kong's banking sector as it offers new opportunities for growth.
"With its geographical advantage, Hong Kong is sitting at the neck of the hourglass capturing all these opportunities," Tan says. "Its proximity to China and its role as a gateway to China will enable the city to capture a lot of opportunities in the region."
These opportunities include being able to offer a wide range of renminbi products, such as trade settlement, foreign exchange, cross-border sweeping and cross-border lending. On the investment front, the market is preparing for the launch of the SH-HK Stock Connect - cross-border stock trading between the Hong Kong and Shanghai stock markets - which Tan says is "a scheme coveted by many other stock exchanges".
Chinese banks are learning fast and tapping into the Hong Kong market. "This will inevitably increase competition and exert pressure on smaller local banks in Hong Kong, which have limited resources to deploy to stay ahead of the game," Tan says.
For Hong Kong to seize these new opportunities, it is important the sector stays abreast of all the latest technologies, regulatory changes and rules, while providing timely updates within their own franchises and with their clients. "It's also crucial for banks to stay close to their clients to better understand their needs," Tan says.
Technology is transforming the way clients and customers bank. Customers are always on the lookout for convenient one-stop solutions, and adoption rates of such digital solutions have been high in the past two years. This helps explain why the market is experiencing a proliferation of e-commerce providers in China.
As such, what is expected from financial services providers has changed radically. Ignoring these expectations and changes is detrimental to a banking business, Tan explains.
Some examples of the digital tools adopted by banks include big data analytics and mobile banking. "Banks have a crucial role to play in driving widespread adoption and the cost of inaction for banks would be severe," Tan says. "If a bank doesn't offer convenience to its clients, others will, and banks risk becoming increasingly irrelevant in the emerging tech-savvy space.
"For instance, in regard to payment innovation, banks that don't embrace this will miss out on one of the potentially most transformative innovations in the retail financial services space for decades."
Tan adds that regaining trust and rebuilding the industry's reputation following the global financial crisis continues to be a priority for financial institutions.
Meanwhile, from a compliance and regulatory standpoint, regulators and the public will continue to expect tighter scrutiny and higher standards of conduct from the banking industry. Financial institutions and regulators will be expected to join forces and step up efforts in areas such as investor education.