Apac banks suspicious about fintech consortiums
A research paper has revealed a level of scepticism among Asia Pacific banks when it comes to joining forces with fintechs.
The paper, produced by law firm Simmons & Simmons, shows that the overwhelming majority of financial institutions in Hong Kong and Singapore (92%) expect to collaborate with fintech firms in the next 18 months in order to close the gap in innovation between new and old.
However there is much more divergence on what form this collaboration should take and the various concerns that banks have around working with rivals and participating in industry consortiums.
Just under three-quarters of respondents said that consortia are vital to advancing certain digital technologies, such as distributed ledger technology (DLT). However, 65% said that they would prefer to focus on their own initiatives rather than take part in any industry cooperative.
The survey participants listed a number of concerns around the growing number of industry groups that have emerged in recent years and months, not least in the DLT field where groups like R3 have become prominent.
These concerns include the high number of participants and their lack of alignment and the consequent lack of effectiveness and control for individual banks in the group’s direction. An additional concern among banks was that joining consortia would harm their competitive advantage.
“Care is needed to ensure consortia arrangements do not give rise to technical or practical competition law issues,” said Charles Bankes, Competition Partner at Simmons & Simmons. However, there needs to be a balance, adding that for a DLT consortium, there is little point in having systems that work for only a small segment of the industry. “The value is generated by enabling a network effect,” he said.
The report cites the Utility Settlement Coin (USC) consortium, which currently has five member banks, as an example of starting from a smaller base to build momentum. “We’ve kept the USC consortium to five members at the current stage of development, to maintain focus and momentum, better achieved in a smaller group,” said Gary Chu of UBS, one of the participating banks.
“We’ll need to get other banks on board as we build out the technology. For now, the fact that we have Swiss, Spanish, German and US banks as members helps us take account of different legal and regulatory perspectives. We recognise that if we want to roll out USC industry-wide on a utility basis, it needs to be workable from the perspective of major financial markets globally.”