Thoughts on Innovation in the Financial Industry in the Time of COVID-19
Written by Rebecca Shao, Managing Director & Head of Asia at The Floor
The outbreak of COVID-19 (or Coronavirus) has caused a huge social, economic, and business impact and has changed everyone’s lives.
Survival is key to individuals and businesses at a distressful time like this. Beyond that, history has taught us investment in innovation may be the way to overcome the most abnormal situations and be rewarded in the long run. We observe some better-positioned finance industry players in China responding to the situation at an incredible speed and fighting the epidemic with the weapon of innovation.
“Black Swan” Times in History
Bankers are no strangers to economics and financial markets theories, but those textbook theories are mostly about finance under normal conditions. When economic activities enter “abnormal” conditions, people’s rationality and patience begin to diminish, free markets fail, and the status of the government strengthens.
Despite the desperation in those abnormal times, history has also shown that abnormal or extreme times often brew the most explosive power for financial innovation, or sometimes even the reconstruction of global and national economic orders.
Some of those “black swan” times that we are familiar with:
- The First World War caused a sharp collapse of the Gold Standard, spurring the establishment of a credit-currency monetary system.
- The Second World War gave birth to the Bretton Woods system, establishing a system of payment based on the dollar and making US dollars the world currency.
- 1929 The Great Depression led to the Roosevelt New Deal which fundamentally and permanently changed the U.S. federal government by expanding its size and scope—especially its role in the economy.
- Global Financial Crisis in 2008 caused the capital market to reshuffle and numerous bills were passed by global regulators to control banking systemic risks. It also directly led to the generation of encrypted digital currencies, which stimulated the growth of the digital economy and led to proliferation of blockchain adoption. During the crisis, a new breed of financial institutions – fintechs emerged and banks woke up to rapid innovation and transformation.
During the past decade, we have experienced more synergy between finance and technology. Now more than ever, the financial industry is embracing technology. In the following text, I will look at how financial institutions and fintechs in China are responding to Coronavirus.
Speeding Up Digital Transformation
To financial institutions in China, Coronavirus is a touchstone for their strength in technology. Banks that previously invested strategically in technology and infrastructure are in a better position to quickly adopt remote working, online services, and to adjust their risk management systems. The digital transformation and upgrade of the financial industry will no doubt accelerate at an unprecedented speed and further widen the industry gap.
In the insurance industry, CPIC Life Insurance realized a complete online collaborative office of nearly 800,000 insurance agents and more than 40,000 employees. This goal was achieved with the help of Alibaba’s DingTalk in merely 20 days – almost an impossible mission due to its large scale and limited time.
The pandemic has created a rigid demand for online contactless financial services, which is an edge for internet banks. With a unique “internet gene”, and a technology team accounting for over 40% of their workforce; Chinese internet banks are rapidly renewing their technologies, connecting R&D processes seamlessly, and collaborating efficiently within the organization and with external platforms and companies. They are responding to Coronavirus with more intelligent marketing, customer services, and operations.
Pushing New Digital Products and Service Innovation
In Hong Kong, in-preparation digital banks are racing to push their product launch and marketing events.
In late March, ZA Bank officially launched its mobile app and became the first virtual bank opening for business, three months after its pilot launch in December 2019. The bank, backed by mainland-based online insurer Zhong An Online P&C Insurance, is answering the increased demand for contactless financial services during the epidemic. It rolls out its flagship savings product – ZA Time Deposit Product which offers an interest rate for deposits at least 3x better than prevailing banks.
Standard chartered-backed virtual bank, Mox, unveiled its brand name and product features in early March. Features of the virtual bank include an all-in-one card for all purchases and cash withdrawals. For its product strategy, Mox will focus on collaboration to equip customers with the financial management tools, and to make banking fun with an array of banking and lifestyle benefits.
Joining the race is Airstar Bank, the virtual bank backed by Chinese electronics company Xiaomi and independent investment bank AMTD, launching its pilot at the end of March. Like ZA Bank, it boasts of attractive deposit and lending rates.
Refactoring Customer-Centric Practices
Consumers (especially the Gen-Z) and SMEs in China are facing tremendous challenges with the epidemic, with the slow resumption of businesses, increasing unemployment rate, and dropping income. Chinese banks are taking on greater social responsibilities and care for their customers. In order to reduce the pressure on SMEs in severely affected areas, banks like WeBank, a Chinese neobank founded by Tencent among others, have introduced the “differential preferential” policy for affected users. The policy introduced customized measures such as deferred repayment, reduction of penalty interest, waiving handling fees, and adjusted their post-loan management process accordingly.
In the meantime, some internet banks continue to leverage their technological capabilities by launching customized “anti-epidemic loan” products to provide differentiated financing products and services to different industries impacted by the epidemic. These products can intelligently perform risk identification & pricing, and automated approval.
Some FinTech players took it a step further and rolled out online intelligent customer service robots to provide 24/7 uninterrupted and non-waiting customer service. Not only does it ensure the inquiry and processing of self-service businesses, and meet the user’s service needs, but it also provides the epidemic prevention knowledge to relieve the anxiety of nervous customers with greater care.
At a time with great social and economic distress, and uncertainty, it is natural to focus on “do things right” – to take a step back, slow down and manage the risks. However, it is equally, if not more important, for courageous business leaders to take on the counter-intuitive approach of “do the right things” – to invest in innovation, to accelerate digital transformation, to push new digital products, and to position themselves in their customers’ shoes. Their resilience and courage during the most difficult time will create a huge impact and be rewarded in the end.