5G may be a telecom term, but Huawei, at least, believes that it will become widely adopted first to meet the needs of fintech.
“Fintech is going to drive 5G, not the other way around,” said Shenzhen-based William Genovese, vice president of corporate strategy planning for banking and financial markets.
Companies such as Huawei, which is widely perceived as the leader in commercial 5G, are working on next-generation digital financial services. These (as opposed to traditional banking) will need the kind of speed and connectivity of super-fast wireless communications.
What is 5G?
5G stands for fifth-generation mobile network. In 1982, telecom operators achieved throughput of 2.4 kilobits per second of data; in the 1990s the networks were fast enough to handle voice and messaging on then-trendy Nokia and Ericson mobile phones. Internet browsing and video in G3 and G4 now require speeds as much as 1 gigabit.
But 5G will enable network downloads as fast as 20 gigabits. Today most broadband is through fixed lines and fiber optics, but 5G will enable this enormous volume of data to move via mobile. It will also accelerate the ability of machines to share data, ultimately meaning every device in an urban area can be connected. And it allows latencies so low that machines will be able to conduct operations accurately, from autonomous driving to stock trading.
Most of these use cases are speculative, however. Telecom operators are rolling 5G out in hundreds of cities worldwide but without a clear path to profitability. The current business case is to give consumers super-fast downloads of video and games.
But Genovese, who made these comments from a recent presentation in Hong Kong, says those won’t be the things that drive real adoption. Consider instead emerging markets lacking even 3G today, due to the lack of cable: they can leapfrog straight to 5G. “There’s no bank branches in some of these places,” he said, “so as their economies grow, digital banks will need virtual tellers and virtual advisors.”
5G is not occurring in a vacuum. On the contrary, it is part of a convergence of other technologies – with fintech at the vanguard of use cases.
Among these developments are edge computing, in which the computation and data storage occur on the device itself, rather than in a remote server – this itself being enabled by cloud computing. Edge computing is what makes the “internet of things” viable. While it may be a while yet before your toaster starts giving you financial advice, the bandwidth that 5G allows suggests all kinds of databases and devices will be interconnected, to give people new ways to visualize things, access information, and make decisions.
Fintech is going to drive 5G, not the other way aroundBill Genovese, Huawei
Although traditional banks and insurance companies are working to take advantage of what 5G will bring, Genovese says the advantage will tilt toward companies that are experienced with business models that cut across many sectors. In other words, the likes of Alibaba and Tencent, which are in a position to combine myriad technologies to power financial services.
“To drive that convergence from a mobile and digital perspective requires additional bandwidth and latency,” Genovese said.
From his perspective, technology has led banking through a series of historical eras, starting with informal banking, when everything depended on kinship and personal relationships (an era weirdly resurrected today by Bitcoin).
Genovese calls the coming era that of “ubiquitous banking”, in which banking becomes an embedded utility within many other industries, supporting lifestyle choices.
This raises several questions. First, how safe is this?
Threat or safety blanket?
Today, banks are scrambling to adopt more security measures such as biometrics and two-factor authentication. Risk experts worry that as more functions go digital, we are creating new “surface areas” for hackers to exploit. The specter of an explosion of more connectivity, more APIs, more data, is more crime and less trust.
Genovese argues, however, that 5G, combined with other technologies such as biometrics, will make digital services safer – that we are today experiencing Peak Cybercrime, and 5G will allow institutions to detect fraud, authenticate users, trace funds, and defend their data much more effectively.
That still assumes these tech convergences are pursued, and deployment of 5G takes such questions into account.
“The discussion needs to go in the direction of 5G becoming more secure,” Genovese said.
The user experience
A second question: how will this change the customer experience with financial services?
Genovese says 5G will just further increase consumer expectations, which is a challenge for financial institutions. It will also enable scale for more market data and transactions, which should benefit capital-market players – but also give non-bank tech companies the opportunity to crack these services and become investment banks in all but name.
This is not actually a new trend: PayPal, the original payments fintech, now offers loans to small businesses. In a world still dominated by classical financial infrastructure, PayPal isn’t a threat to corporate banks; like many Chinese “techfins”, it is playing in a space that big banks don’t want to be in.
But 5G’s speed will enable e-commerce players, consumer tech companies, fintechs and virtual banks to offer a dazzling array of services that will overwhelm many incumbent banks, Genovese predicts.
Incumbents: choices narrowing
Banks and insurers will need to deepen collaboration with third parties if they want to remain relevant, he adds.
Huawei, in the meantime, is looking to provide its 5G capabilities to clients that want to use digital mobile banking and open APIs to create a broad financial proposition (from payments to investments to lending) connected to e-commerce, telecoms, or other consumer-facing lifestyle businesses.
“We’re looking for a horizontal strategy,” Genovese said.
This suggests that non-banks will eventually find themselves in a position to take on finance incumbents head to head.
Fintech until now has been less disruptive and more about financial inclusion, helping lenders, insurers and asset managers reach the underserved. The likes of Alibaba and Tencent have likewise grown huge in services ignored by banks. It’s made it possible for software companies and financial institutions to partner, or at least pursue their ambitions in separate spheres.
The next wave of technology will upset this concord, for two reasons. First, the tech and consumer players, including virtual banks, will be able to offer sophisticated solutions to top-tier clients. Second, incumbents’ biggest strength – risk management, governance, and compliance – will be eroded.
Regulation protects incumbents today, but the potential of moving at 5G speed means non-banks may combine various technologies to provide even better security and consumer protections. It might take a global financial crisis to prove the point. Today, virtual banks are untested and may well fold from a panic, but at some point – five years? ten? – they might well be the safest place to put your money.