Asia has become the global banking industry’s epicenter for growth and change.
Already some 43% of global banking profits now originate from the Asia Pacific region. By 2021, Asia will generate the largest share of retail banking revenue in the world – driven by a combination of critical mass in China and India, sector maturity in Japan and Australia, and acceleration of growth in emerging markets like Indonesia, Thailand, and the Philippines.
Asia’s diversity of services and issues around the region range from the disruptive impact of firms like Ant Financial – originating loans in seconds – to how digital services are filling huge gaps in financial inclusion in emerging markets like Indonesia. The pressure to embrace mobile and digital services, for example, is incredibly high: today, up to 75% of customers demand digital banking in some markets. Virtual banks appear all but guaranteed to shake up markets in Singapore, Hong Kong, Taiwan and Malaysia; Traditional players are also beginning to establish digital banks in developing markets like Cambodia and Thailand.
These firms assert their competitive edge through lower operating costs (running with little to no legacy infrastructure), higher agility, and ostensibly more efficient customer service. However, Asia’s heterogeneity of operating conditions – from high regulation in Australia to the Big Tech-driven free-for-all in China – means that these states of banking are not necessarily the only ways to achieve a decisive and lasting advantage. Different markets, and indeed different banks with varying levels of history and loyalty, will require varying approaches to succeed.
Here are four critical factors shaping the banking future that I have identified over the course of our work in the region:
“Customer-led” Retail Banking: These banks have inverted their traditional “Product-Out” approach, using their vast stores of data to develop and hyper-personalize products for the consumer. Moreover, the bank no longer limits itself to meeting purely financial needs, but act as a platform to help consumers achieve their dreams and life goals. HDFC Bank in India, for example, now uses our digital core banking platform to offer services such as digital consumer-durable loans and digital loans against non-conventional collaterals like securities and mutual funds. Smaller banks in Asia who can establish themselves as platforms for themselves and partners to provide these “dream creation” services are likely to see rapid growth and customer acquisition.
Digital Corporate Banking: These banks extend digital transformation out of back-room operations and into the front-end of B2B banking, using data to maximize clients’ profitability and reduce their risks. We see, for example, that credit lines often take more than 3 months for origination, with 70% of customers in Asia being over- or under-funded due to incomplete credit analyses. Digitizing the corporate credit and lending process allows for the introduction of AI, machine learning, and analytics technologies that can radically improve the speed and accuracy of lending – enhancing customers’ experience of the bank while mitigating bottom-line capital risks for both parties. The same approach can apply across a range of customer-facing corporate banking functions from supply chain financing through to trade services.
Protected and Compliant Banking: With financial crime impacting 1 in 2 Asian banks in some way, and some of the world’s most sophisticated criminal networks calling Asia home, the region stands to benefit significantly from a more aggressive, data-led approach to illicit financial activity. These banks seize the opportunity to go beyond just ensuring their own compliance, and apply AML technologies to curtail criminal flows of capital that threaten customers and their communities. Technologies like graph analytics and machine learning, applied to histories of transactional data, can help these banks discover patterns of transaction and behavior that even regulators or litigators may not. That empowers them to play an active role in investigating and prosecuting financial crimes that put not only them but their customers at risk.
High-Performance & Resilient Banking: To maximize their market share and reduce churn, high-performance banks will deploy analytics, AI, and other data-driven tools to optimize on capital allocation, mitigate risks, and maximize long-term profitability. From our latest APAC-wide research on using data to drive business insights, some 66% of global banking executives consider aligning data charting financial performance data and risk very important or critical to success. The research shows clearly that banks need to adapt in a much more agile and reliable manner to changing market, regulatory, and competitive conditions. In the long term, that means both greater returns and loyalty from customers who see their wealth not only protected but consistently grown in even high-volatility environments.
There is no definitive “end-state” for Asia’s banks
More likely than not, Asia’s banks will progress through several, if not all, of these critical states at different points in their journey to greater customer traction and market share. Each of these states focuses less on technology than it does a specific outcome that the bank might hope to achieve – for itself, and its customers. None of these states constitutes an “end” in itself, but rather a potential vision of the bank at different stages in its journey of ongoing adaptation.
One thing remains constant, however: the time to act is indeed now. From our work with more than 200 leading banks in Asia, we find that irrespective of market the most successful banking transitions take place via a series of measured step-changes, rather than a “big bang” approach to digital transformation. A winning strategy takes constant recalibration and adaptation. The more clearly banks can define how they hope to look in the future, the easier they will move between different states of banking to get there.
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