Open-source and mobile: The future of financial services in Asia

Moderated by David Tweed, reporter at Bloomberg News, the panel at the annual FSM forum started with a heart-sinking laundry list of the biggest job cut announcements by banks this year.

The cuts, according to Tim Pagett, Deloitte China's financial services industry leader, are a function of what’s happening to the industry and the restructuring that should have happened post-crisis. "There is no randomness associated with what’s happening at the moment," he said. "It is exacerbating the pace of change that is needed in the industry."

The future of finance

The panel spent considerable time discussing what financial services will look like in the future. 

One definition that emerged: A network of platforms that connect current providers with other peers in a way that dislodges the closed approach that financial institutions have previously used. Essentially, financial services will become an open-source platform that accesses consumers and influences their preferences.

The traditional banking model will become unbundled, according to Pagett, as "lean and nimble" niche entrants develop credible financial solutions and exert margin pressure on banking products.

These entrants, such as fin-tech players, will create "digital banking marketplaces" that will disaggregate current customer relationships and enable comparison shopping as price competition intensifies, he predicted. "The banks' universal ownership of customer relationships will be challenged. Progressively, as customer information is held by these entrants, the power of banks will be divested."

The only remaining "power" banks currently have is "knowledge around default rates, but not around behaviour", he pointed out. Or at least that is the way in the West.

"The core of money in the US is based on credit scoring, but China's system is currently opt-in," said Aaron Boesky, chief executive officer of Marco Polo Pure Asset Management, who went on to give a master class in how troubling he felt the system is. "The scoring is insane in China—not just based on financial history, but political views and citizenship standing play a huge role.

"If you are involved in something that is anti-government, your credit score will be demoted, and even your friends' scores will be demoted. So what happens is your friends will pressure you to toe the political line. It is mind-boggling how politics play into financial services. If you want to be successful, you have to regurgitate the party dogma."

To that, a bemused Pagett phrased his perspective slightly differently. "Having a strong appreciation of the policy framework is very important, like understanding the five-year plan and what cascades from it," he said.

Oftentimes, if a foreign financial services provider operating in China "thinks something else is instead the right thing, you have to carry the cost of it for a while", he added.

To that point, the Chinese government is not completely inflexible when considering business models, pointed out Lachlan Colquhoun, chief executive of East & Partners Asia. "China is very willing to embrace Alibaba, Tencent and their disruptive services," he said, although the relationship with financial innovation was controversial and combative over the last 10 years. "But now the government is franchising them". 

Have you got WeChat?

Boesky: "How do we get into the China market?

Pagett: "Have you got WeChat?"