AI set to shape financial services
Updated: 2017-08-07 08:25
(HK Edition)
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As the Chinese mainland engineers a transition from an export-dominated economy to one driven by domestic consumption, the development of its capital markets is critical. Significant progress has already been achieved, with a slew of measures enacted to ease access restrictions to its capital markets.
Initiatives such as the recently launched Bond Connect, following hard on the heels of a series of steps such as the Hong Kong-Shanghai and Hong Kong-Shenzhen Stock Connects, are aimed at bolstering the mainland's capital markets. It is no coincidence that Hong Kong has led the world in proceeds raised from initial public offerings during five of the past eight years, and that Shanghai and Shenzhen rank second and third this year to date in terms of IPO funds raised. These performances are valid indicators of the greater creation of wealth on the mainland. In turn, they underscore the huge opportunities for the wealth management industry in Hong Kong to manage the expected significant inflows from global investors eager to tap the numerous opportunities offered by the mainland in parallel with the rising domestic demand for wealth-management services.
All of those developments also come as the mainland and Hong Kong lead the charge in innovation and technology, at a time when enterprises and sectors in those economies have already started to redefine the way entire industries operate.
Nowhere has this disruption been more evident than in the financial services industry. The financial industry is today the second-most technology-intensive industry - second only to the tech industry itself. Technology has already had a profound impact on financial services. And the trend is only set to intensify - IT spending by banking and securities firms in the Asia-Pacific will total $67.1 billion this year, a 5.4 percent increase from a year earlier, according to Gartner.
Some major industry players - including private banks, who are quicker in recognizing the transformative potential of technology - have already teamed up with fintech companies as they looked to harness technology to enhance the client experience and develop a greater understanding of their clients through analytics, all the while looking at ways technology can help increase productivity to better serve the ever-evolving needs of clients. At times, these partnerships have translated into new products and services.
Robo-advisers are one such innovation providing automated, algorithm-driven financial planning services used to enhance investment decisions by the wealth-management industry, attracting and enabling the better management of billions of dollars in assets globally.
According to a survey by Professional Wealth Management, more than 80 percent of global and regional private banks surveyed believe the ability to communicate and engage better with end-investors will be the most powerful impact of digital innovations over time. Indeed, robo-advisers and other digital tools can help systematically monitor portfolio quality and promptly offer alerts and recommendations when a portfolio strays from pre-set goals, and at the same time free up bank staff from time-consuming tasks such as big-data analysis, letting them provide better and more efficient client advisory services with increased mobility.
Social acceptance of digital innovations is certainly increasing, too. Clients have repeatedly expressed their desire to use chat apps, such as WhatsApp and WeChat, for communication with their advisers and to receive product and investment recommendations in this way. These social media platforms are used by millions of people and are the preferred channel for millennials.
This is just the beginning of the journey. Not only in financial services but across industry in general, artificial intelligence (AI) has yet to unleash its full disruptive force. According to some current estimates, AI could create an economic value of about $1.8 trillion to $3 trillion a year by 2030 in the region, with financial services, healthcare, manufacturing, retail and transport sectors envisioned as spearheading the AI revolution in Asia.
As AI gains ground, both the public and private sectors in Hong Kong and the mainland need to embrace it, and resist the temptation to fight its advance. Regulators and governments, in particular, need to strike a balance between facilitating AI's development and deployment and managing its downside risks.
Beyond better wealth management, banks also have a critical role to play in helping clients navigate these changes in technology by connecting them to the innovation ecosystem. This closer relationship to sources of innovation will ultimately go a long way toward helping banks and clients solve their problems as technology disruption continues to impact their businesses.
These technology advances and industry initiatives come at a time when the nation forges ahead with plans to create a Greater Bay Area - in one aspect Hong Kong and the mainland's own response to Silicon Valley - which will bring together the innovation hubs of Hong Kong, Shenzhen and other major cities in Guangdong to ultimately create a regional super-hub capable of attracting the world's leading technology companies.
Here, too, Hong Kong and its financial services sector stand to benefit immensely by being in a position to provide the global investment community with the means to gain exposure to these vibrant innovation and technology centers through a combination of traditional investment in technology enterprises as well as in a wealth-management role - not only to the Greater Bay Area but to all of China. Indeed the Hong Kong financial services sector transformed by AI can serve as a catalyst, sparking technology innovation across China.
The author is chairwoman and head of Greater China at UBS Wealth Management.
(HK Edition 08/07/2017 page9)