True change in Banking is really coming from outside the industry - Fintechs

Visiting Toronto for SIBOS, Axel Lehmann, chief operating officer of UBS, carved out time to speak at The National Club. During his talk, Mr. Lehmann delved into financial technology – or 'fintech' – and how UBS is engaging with this exciting technology.

Here is an excerpt from a recent interview between Business Insider and Mr. Lehmann which gives a summary of the topics Axel covered here in Toronto. Read full interview here. 

While no lender wants to become the next Nokia or Kodak, crushed by an innovation they failed to properly understand, it's not always clear how an organization with 100,000 employees should deal with the threats and opportunities posed by fintech.

Ben Moshinsky: Where are the main threats and opportunities to UBS from the fintech boom?

Axel Lehmann: True change is really coming from outside the industry. That is the key challenge we face as of today. The whole fintech discussion has changed, we have moved on from discussing whether a revolution is taking place, and how the banks will become redundant, to a place where most banks are looking at collaborative efforts with other firms. This is why most of what we do in terms of technological development we do in partnership with fintech companies.

It’s less the technology, as such, providing a transformative element in the banking industry. It’s really alternative business models that have the potential to shake up everything and eat into our cake.

We have a legacy infrastructure which can be regarded as a liability, but it’s also an asset

It is also full of opportunities. We, the banks, are operating from a position of strength from a customer perspective especially in terms of the amount of customer interaction, the know-how we can provide, and the services we can offer. You can’t create any of this overnight.

And secondly, we have a legacy infrastructure which can be regarded as a liability, but it’s also an asset. When the Trump election got through, for example, volatility was high. We have an infrastructure that can scale up in line with volatility, and that’s something you need to have.

So, in this regard, I’m personally optimistic. It’s easier, when you look to consumer industries, for example, Uber or WhatsApp, to disrupt a lightly regulated sector. But when you look at where we as banks are, you get into the highly regulated space immediately, when you talk about balance sheet and liquidity, and this makes this industry less easy to disrupt.

But no doubt, we still do have to be mindful that we’re not losing out on some of that less regulated space, particularly at the point of customer interaction.

BM: What's the most exciting technology on your radar?

AL: I truly believe that whole question of robotics and artificial intelligence over a time horizon of four to eight years will fundamentally change the banking business. As banks, we understand that our business is all about data. These technologies have the potential to really fundamentally change the way we operate in terms of getting smarter with the customer, understanding what kind of products we should offer and so on. That is definitely exciting.

Business Insider then asked about how UBS is interacting with fintech. Mr. Lehmann explains the Future of Finance Challenge which was run around the globe. Out of the 11 regional finalists in the Americas, Canada has 5 companies going to New York. It shows that Canada has a dynamic fintech industry.

Here is the article again:

BM: How does a bank, like UBS with tens of thousands of employees, interact with a fintech startup of just a few people? What kind of cultural changes need to happen

AL: Dealing with fintechs is a cultural shift that needs to take place and you want to have the local people to innovate. At UBS we have a systematic process on how we expose ourselves to fintech companies. For example, we have a series of initiatives that we’re driving, such as our Future of Finance Challenge. This competition, which is happening at the moment, provides a forum for start-ups and growing companies to come and present their ideas to compete for support from UBS to

Axel and Sophie Perceval, Wondereur, award for Future of Finance

accelerate their ideas. That’s the type of work we’re doing. We really want to take advantage of some of those fast-moving and smaller boats with great ideas and great software that we can scale up and use in our organisation.

BM: Is competition for those boats fierce? How do you make sure you invest enough time and money?

AL: UBS has a CHF2.1 billion net saving target, but nevertheless our IT spend is at a record level of more than 10% of revenues. We do not sacrifice mid-term and longer term development to make numbers for a quarter. Secondly, if you look to our overall positioning it is quite unique, and that gives me confidence. We’re the global leader in wealth management, which is one of the key areas to invest in digital. Every dollar we invest there, hopefully wisely, is helping us strengthen that franchise.

Jacoline Loewen, Future of Finance Awards Dinner

The Five Finalists for the Future of Finance from Canada are:

Global-Regulations
MindBridge
Overbond
Veriday
Wondereur