The advent of social payment platforms like Alipay and WeChat are causing ripple effects within China’s banking sector. In September, Bank of China launched an innovation lab through a contract with IBM to fend off competition from these platforms, which function as hubs for e-commerce, banking and social media.

According to Likhit Wagle, general manager of global banking and financial markets at IBM, “super apps” like Alipay and WeChat offer a variety of services on one platform, which the bank views as a major threat to its business model.

The lab, which consists of IBM engineers working side-by-side with bank employees, is designed to speed up processes like loan underwriting and funding, functions Wagle said should take minutes instead of days. The bank also wants to take a lesson directly from the super apps by incorporating additional services into Bank of China’s platform. For example, customers buying a house could be connected to movers, decorators and nearby schools.

“It’s not just [Chinese banks] that are losing little bits of market share,” Wagle said. “More and more of the business they’re losing is in the small corporate space, and also in areas like wealth management, which in the past were believed to be safe from these platform companies.”

In addition to incorporating non-financial services into the Bank of China app, the bank and IBM are working to cut costs by automating customer journeys. To achieve this end, the bank is exploring the creation of platforms for separate communities of customers. For example, he noted that small- to medium-sized farmers could benefit from their own social banking platform. 

According to Wagle, IBM and Bank of China have collaborated for several years, but the Bank of China innovation lab is the first of its kind. The lab is housed in a Bank of China building in Singapore, and Wagle said its most important priority is to have IBM and bank employees working in the same room. The bank is planning to launch between five to eight more innovation labs in other Chinese cities, including Beijing and Shanghai, and the labs are seen as vehicles to promote agile product development approaches.

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Innovation labs have become expected offerings among financial institutions. Some companies see challenges in “innovation for innovation’s sake,” but Wagle noted that it’s too early to assess results from the Bank of China initiative. The bank will be reviewing outcomes in the coming months.

The biggest challenge for Chinese banks, according to Wagle, is the huge customer base of hundreds of millions. The bank had about $3 trillion in assets in 2018. Bank of China has a global presence, which includes a branch on every continent except Antarctica.