Signs in China and around the world show that banks are in urgent need of digital transformation to help boost their next round of development. Due to continuous global economic downturn, the international banking industry has recently found itself in a rut, with an average annual revenue growth of just 5 percent since 2014.
In China specifically, the industry is facing three major challenges. First of all, liberalization has reduced the interest rate differentials and net interest incomes of financial institutions. Secondly, disintermediation has increased deposit costs which has, in turn, incurred elevated operating expenses, because corporate and private banking services now contain more investment and wealth management services. Last, but not least, established banks face increased competition from new areas, such as Internet banking companies. As a result, bank profits continue to shrink. In 2016, the year-on-year profit growth of listed banks in China was a mere 1.2 percent.
In the next decade, most banks will focus strategically on digital transformation. According to recent statistics, banks in China invest 17 to 20 percent of their pre-tax profits in digital transformation and innovation.
Deloitte’s 2019 Banking Industry Outlook describes the proactive preparation banks have made for digital transformation — more than 20 percent have invested in new technologies like big data, cloud computing, block chain, and Artificial Intelligence (AI), and over 30 percent have set up pilot sites.
Three Digital Transformation Strategies Based on ‘Cloud + Ecosystem’
As a world-leading Information and Communications Technology (ICT) solution provider, Huawei has been closely monitoring the transformation of China’s banking industry. Based on insights gleaned from observing its customers and partners, Huawei has identified three broad strategies by which banks can complete their transformation.
- Reform channels to improve customer experiences: Wide application of new technologies, like Internet and mobile banking, cloud computing, and big data, have given rise to more diversified customer behavior and service requirements. In China, most people now choose to get financial services through digital channels, which has made upgrading Automatic Teller Machines (ATMs) essential. Banks are advised to incorporate mobile marketing, video collaboration, and all-media contact capabilities into existing channels to provide safe and consistent service experiences across multiple channels.
- Overhaul the platform to better support service innovation: Banks face two major challenges during digital transformation — legacy platforms cannot support the service innovation and development needed in the new era, and current banking systems are incompatible with new technologies. However, banks can replace the closed architecture with open, distributed cloud platforms that provide higher system agility and scalability. Then they can leverage big data platforms to achieve precise marketing and real-time risk management. Banks can apply innovative AI-based services that enable more informed decision-making, deeper insights, and optimized banking processes.
- Cooperate with partners from other industries for mutually beneficial outcomes: Through acquisitions, investments, or strategic cooperation, banks can use technical innovations to better serve their customers. Many financial institutions and technical firms have mutually benefited from deep cooperation in fields like cloud computing, big data, block chain, and AI. Cooperation simultaneously serves the interests of banks, technology companies, and consumers.
Huawei’s Success Stories
In recent years, Huawei has helped many banks transform successfully based on the aforementioned strategies.
Huawei rebuilds Information Technology (IT) architecture for financial institutions with an open, cloud-based digital platform. Huawei offers a full range of products, boasts global service capabilities, and plays an important role in formulating international standards for the ICT industry.
Huawei leads the world in new technologies like cloud computing, big data, and AI, and provides strong support for customers and partners. In addition to conventional infrastructure like network equipment, servers, storage systems, mobile devices, security devices, and data center equipment, Huawei provides products and solutions for cloud-based distributed data centers, host migration, and big data platforms. Thanks to long-term, sustained Research and Development (R&D) investments, Huawei boasts significant proprietary chip and source code technologies that help guarantee security and reliability for its infrastructure products and solutions.
Huawei is working with its financial customers to constantly improve finance-oriented solutions, build a healthy ecosystem, and help banks transform. To date, Huawei’s products and solutions have been used by more than 300 financial institutions worldwide. In China, Huawei has also been chosen as the strategic partner for digital transformation by major banks and insurance companies. Together they are creating next-generation architecture that is set to propel the country’s finance industry to new heights.
Examples of Huawei’s cloud platform joint innovation partnerships include the Industrial and Commercial Bank of China (ICBC) along with the Agricultural Bank of China (ABC); big data joint innovation with China Merchants Bank (CMB) and the China Pacific Insurance Company (CPIC); and core banking and credit card system solutions developed in cooperation with industry-leading solution providers.
Through its partnerships, Huawei strives to build a mutually beneficial finance technology ecosystem. Systems co-developed by Huawei and partners, such as Chinasoft International, Yusys Technologies, and Nantian Technologies, have been widely used by many major financial institutions, including China’s Big Four state-owned establishments; national joint stock banks such as CMB, China Minsheng Banking Corporation (CMBC), and China CITIC Bank; as well as the Shenzhen and Shanghai stock exchanges.
The real-time decision-making platform co-developed with Chinasoft International and CreditX supports the rapid development of credit card business at CMB, and the platform has made the institution China’s leader in consumer finance.
CMB’s push conversion rates for Internet credit card promotions have improved by five times. The bank attributes this success to the powerful performance of its new platform.
Working with ADTEC and ShineTech, Huawei has also developed an intermediary service cloud for Guangdong Rural Credit (GDRC). The cloud provides intermediary business development and deployment services for more than 90 legal persons, simplifies code management by more than 80 percent, and shortens application Time-To-Market (TTM) from months to just one day.
Exploring Long-Term Reciprocal Cooperation
Three trends are expected to characterize the evolution of digital financial technologies. First, the significance of data will continue to grow. Second, digital technologies will combine more closely with financial services. And third, monitoring and management technologies will gradually emerge.
Huawei is shifting the focus of its financial ecosystem construction from cloud infrastructure interoperability to affordable full-stack AI solutions that cover every scenario, paying particular attention to those involving massive volumes of repeated data, expert experiences, and multi-domain collaboration. Huawei will work closely with industrial partners to develop advanced finance solutions that focus on improving and outputting core data and technological capabilities to further expand the applications and modes of digital technologies and platform services.
In this endeavor, Huawei will provide stable and efficient hardware, in addition to database and middleware infrastructure. Constantly improving AI capabilities like data acceleration, data cleaning, and machine learning will help Independent Software Vendor (ISV) partners develop applications and innovate services on the Huawei platform in a secure and convenient manner.
In the meantime, financial institutions can clarify their thoughts on digital banking, and tend to the accumulation and use of data assets from services and users. In the future, Huawei and its partners will build a reciprocal digital financial ecosystem to better serve industries. Huawei will continue its exploration of long-term partnership and development in the industrial cloud sphere, seeking modes of cooperation that benefit both parties throughout the entire process.