The head of one of China’s big six state-owned banks has highlighted the competitive threat posed by non-traditional lenders in the era of widespread fintech adoption.
Liu Jun (刘珺), head of Bank of Communications (BOCOM), said that technology’s contribution to total factor productivity in the global economy was rapidly increasing in tandem with the rising pace of tech adoption.
Speaking at the 2020 Inclusion Fintech Conference (外滩大会论坛) held in Shanghai on over the weekend, Liu said that while it took 75 years for users of landline telephones to breach the threshold 100 million users, this timeframe has continually shrunk, declining to 18 years for the mobile phone, three years for the Apple App Store, and 1.6 years for the TikTok social media platform.
As a consequence Liu believes that “the competitive adversaries” of traditional banks are no longer other banks, but also include payments companies, retailers and online lenders.
“Competition is coming from unexpected areas,” said Liu. “The competitive adversary can even be a new form of technology.”
Liu pointed to the deployment of blockchain technology as creating a “massive shock” for a number of traditional banking products, such as letters of credit.
“Bank letters of credit are primarily used for international financing, and they exist to provide trust between the two parties to a transaction, and enable banks to act as intermediaries that endorse the credit of both parties,” said Liu.
“The emergence of the blockchain, however, has made the endorsement of banks no longer necessary, because the technology has created smart contracts, enabling all credit relationships to be comprehensively locked via technology.”
Liu also pointed to the credit card as another conventional technology which is being superseded by fintech, via digital mobile payments as well as biometric technologies which could even render the smartphones unnecessary for payments purposes.
As consequence many banks are seeking to embrace fintech themselves via the adoption of biometric technology, artificial intelligence, the blockchain, the Internet of Things and distributed computing.
Liu also stressed the position of advantage enjoyed by banks within the established financial ecosystem.
“While the challenges are huge, banks possess two advantages – licenses and specialisation,” he said.