From Unicorns to dragons, meet the new face of banking disruption

The seeds of disruption in the banking industry will not be sown by US and European Unicorns or emerging technologies like the blockchain, but from the power of Chinese dragons in the shape of Alibaba, Tencent and Baidu, according to a new report prepared for Innotribe, the innovation arm of financial messaging network Swift.

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From Unicorns to dragons, meet the new face of banking disruption

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The prognosis comes from Zennon Kapron of Kapronasia and Haydn Shaughnessy of the Disrution House in a report which explains how China's largest technology companies are redefining one of the world's oldest industries.

In western markets like the US and UK, FinTech innovation is focused on singular cherry-picking applications, with smart startups tapping into innovative new ways to make loans and transfer money. In China, by contrast, decades of protectionist policies have helped shape a new club of e-commerce powerhouses, capable of delivering enormous economies of scope via a single platform.

The potential for mass-scale disruption came in late 2013, when Chinese authorities passed a series of measures enabling the setup of new banks that are completely privately owned, paving the way for the creation of new institutions from e-commerce conglomerates Baidu, Tencent and Alibaba.

"Rather than being built for the purposes of supporting a bank, the BATs (Baidu, Alibaba, Tencent and Sina) technology was built to handle millions of e-commerce transactions, mobile and online communication and internet searches.," notes the report. "That is a critical advantage as it gives the BATs a technological agility that a traditional bank could only dream of. China's big tech companies are powered by big data, informed by automated feedback loops from customer activity, driven by business experimentation rather than IT, function at an unprecedented scale and operate at a new degree of service integration."

The report contends that the advantages that the BATs are creating from their base in China will have a global impact, affecting the economy, trade and payments as they disrupt markets vacated by the retreating banks. This is already beginning to happen, with Alibaba's recent investment in Indian mobile network Paytm and Baidu's application for a South Korean Internet banking license.

"Banks often look at disruption in terms of product impact, in other words, how general fintech (including distributed ledger technology, P2P lending, third-party payments, etc.) will disrupt," states the report. "In reality, the biggest threats lie in the changing structure of global markets."

This was brought into stark relief Monday with news that AngelList has just snagged $400 million from China’s largest private equity firm to help disrupt early stage venture capital.

Disruption generally comes in ways that are not easily anticipated notes the Innotribe paper.

"The mere illusion that the disruption points can be anticipated is where the problems of the banks begin," the document concludes. "In order to counter potential future challenges, banks need sophisticated planning with well-thought out options. This may take them far from their comfort zone into fast moving, agile platforms where the business is boss and the customer is served across a much wider array of needs."

The rise of the Chinese dragons was to the fore in a set-piece Sibos plenary speech from Piyush Gupta, chief executive of DBS Group: “Jamie Dimon said in his annual report Silicon Valley is coming. I tell you the Chinese are here."

Read the full report:

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