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Reports of the death of banking grossly exaggerated

12/09/2018

Reports of the death of traditional banking and finance have been grossly exaggerated, to misquote the celebrated author Mark Twain. Why do we say that? Much fuss has been made in recent years about the disruptive impact of financial technology (fintech) upon our industry.

 

And fintech has indeed made a number of notable contributions to the evolution of the banking landscape. Fintech has had a part to play in improving and simplifying standard operational procedures. Fintech has had a part to play in the continuing acceleration of payments. Fintech has had a part to play in addressing issues inherent in other essential processes.

For the record, KPMG recently published research (The Pulse of Fintech) showing that global fintech investment - whether by way of private equity, venture capital or mergers and acquisitions - more than doubled to a new high of US$57.9bn in the first half of 2018, buoyed by nine $1bn+ megadeals. This compares with $22bn in the second half of 2017. Europe’s top four fintech deals accounted for $22.4bn in investment, including the $12.9bn acquisition of WorldPay by UK-based Vantiv. Total investment in fintech companies in Europe hit $26bn across 198 deals in the first half of the year. US fintech companies attracted $14.2bn in investment in the first half of 2018, including over $5bn in venture capital investment.

The emergence of fintech providers in a number of specialist niches, including trade finance, has helped generate a new atmosphere of co-operation, mutual understanding and innovation within the banking industry itself.

True banking is about building trust between bankers and customers.

There is more to modern banking than just fin and tech and transactions. True banking is about building customer relationships beyond the transactional level and to serve them domestically, nationally and internationally. True banking is about being able to identify client needs and create the products required to meet those needs.

Supply chain financing has always had a high risk of fraud. And, as the recent high-profile fintech failure of at least one would-be challenger (which promised supply chain finance clients the sun, the moon and the stars) has demonstrated, the risk of outright fraud remains a life-threat for non-experienced actual bankers. In our view, this reinforces the relevance of bankers whom core expertise lies in risk analysis, who have developed a deep knowledge of their market over decades and who are trusted by their clients. Despite the turmoil caused over the past decade and more by the global financial crisis, trust remains arguably the banking industry's greatest intangible asset.

The tariffs recently imposed by the United States on imported steel and aluminium imports will not lead to the feared global trade wars, he said at a recent Societe Generale global economic outlook breakfast. He added that, despite ongoing skirmishes, the risks of all-out trade wars are actually diminishing, and that the implications for global economy should prevent the vast majority of nations allowing the situation to deteriorate further. Societe Generale's own trade finance revenues (including traditional trade and factoring but setting aside commodities trading) are still growing.

This is the result of the clear focus we have on our client base, a strong position in our domestic market, the prioritization of value-added transactions, recognised client service and innovation.

Against this backdrop, trade finance is in a robustly healthy state. Fears that a protectionist trade war might have a significant negative impact after 20 years marching towards globalisation are overstated

Klaus Baader
Societe Generale's chief economist for Asia Pacific

We are confident that continued development in the We.trade distributed ledger technology blockchain project in which we are closely involved with nine other banks will further enhance our ability to meet client needs pro-actively and boost the bank's overall performance. Inter alia, We.trade is targeting small to mid-sized companies for which traditional slow moving letters of credit are not appropriate. This represents a strong example of identifying client needs and taking the necessary steps to meet those needs and very much helps show the way forward as traditional banking reacts to the fintech challenge.

Head of Trade Services Global Transaction Banking - Societe Generale
Head of Factoring Services Global Transaction Banking - Societe Generale