This year’s top 10 stories included a peek into AustralianSuper’s international equities build out in London, AMP’s move to slash employee benefits, and plenty of hard-hitting analysis of the issues that matter in institutional investment. But the real story is how readers helped shape all of that coverage.
Orbis’ Stuart Place is riding from Melbourne to the Moon and Back to fund a treatment for the “monster of a disease” that his youngest son was born with. The investment industry is rallying behind him.
Asian financials face ‘slow death’ unless they innovate
While Asian financials will benefit from the world’s fastest growing middle-class, they also face massive headwinds from fintech disruptors and the looming threat of central bank digital currencies.
Asian financials are still an important sector for investors and one that is poised to benefit from the region’s emerging middle-class and greater wealth accumulation in developed Asia.
However, according to William Pang, investment analyst at Capital Group, three trends are stymying higher returns for shareholders: prolonged periods of low interest rates – “Japanification” – making it harder for them to make money through their core lending businesses; “inexorably tighter regulation”; and, disruption by Asia’s more developed fintech players. Combined, they mean banks and financials face “massive headwinds”.
Pang told a webinar for investors last week (July 7): “Fintech 1.0 focused on digitalising existing products, so whatever you could do offline you could now do online – but the product proposition was still the same.
“I think we’re seeing the rise of Fintech 2.0, which is not only focusing on digitalising existing products but using technology to manufacture and offer more innovative products that didn’t exist before.
“We are seeing a proliferation of challenger digital banks across Asia, we are seeing digital insurance companies emerging. Online broking is interesting because we’ve already seen the first wave of disruption – the brick-and-mortar brokers are disrupted by the online discount brokers – and now we’re seeing another wave of disruption from mobile-first, social-led brokers like Robinhood. I don’t think any vertical within financials is safe from disruption.”
For that reason, Pang expects more startups will receive venture capital and private equity funding and that an increasing number of them will go public. And while there is still time for banks to mount a “compelling response” to the new wave of disruption, they will need to be technology leaders and invest heavily in digital acquisition.
Andy Budden, Capital investment director, said: “We have seen an acceleration from some select organisations in recent years. It’s something that’s starting to play out in results now. Something that struck me about Bank of America’s results recently was, if you look at their consumer sales for the last year, 49 per cent of it came from digital channels and that was up 33 per cent on the year. That’s really important as they try to fight for deposits to keep their business alive and thriving…banks need to innovate or potentially die a long, slow death.”
While Capital Group has no house view on crypto currencies – Pang himself believes they have the potential to “disrupt the status quo of the centralised financial system” – it does have a growing interest in the creation of central bank-regulated digital currencies.
About 50 monetary authorities globally are looking into them, while around half that number have trials underway, with Budden saying the development “could be a game changer” for both states and financial institutions.
He said: “You can accelerate financial inclusion and you don’t have to pay for the physical issuance of currency anymore… but it’s very important for the commercial banking sector, and the risk here is that deposits migrate from the commercial banks to the central banks.
“And why wouldn’t they? It’s got zero default risk. But once the deposits go from the commercial banks, it undermines their ability to lend and potentially takes the lending function to the central bank, which is rather intriguing.”
