By Asif Saleem, Senior Director, Banking Innovation Advisor, Japan and Asia Pacific, Oracle
We’re living in a time of great transformations in Asia’s banking industry. In just a few years, we have witnessed the birth and rise of new age payment and money transfer solutions across the region. With new and non-bank players each launching their own payment, remittance, insurance, lending, and investment solutions, it seems that everyone wants a piece of the banking pie today.
These financial technology (FinTech) players are pulling out all the stops to take home the biggest slice. Since reinventing the way we’re paying for small transactions such as a bus ride or an online purchase, these disruptors are now gunning for larger transactions and deeper wallet funds – financial activities that typically sit within the realms of traditional banks. With a large majority of total net wealth still being parked in traditional banks, this is the new battleground for banking disruptors in Asia to achieve new levels of participation.
This battle has already started to happen through strategic joint ventures and partnerships, as we’ve seen with Standard Chartered coming together with PCCW and Ctrip Finance to build a full-fledged virtual bank in Hong Kong; and Grab teaming up with Singtel to bid for a much-coveted digital bank license in Singapore. By tapping on each partners’ strengths to reach more customers and redefine the banking experience, these digital banks are – in theory – capable of offering everything traditional banks can offer, and they’re aiming to do it better.
To understand the appeal and successes of digital banks and its aspirants and predict their impact on Asia’s banking industry, there is value in looking to the past to make sense of the present and anticipate the future.
Digital banking takes on many faces. Call them digital banks, challenger banks, virtual banks, or neobanks, these disruptors have one thing in common, and that is its roots in the global financial crisis of 2007 – 2008. When traditional financial institutions struggled to stay afloat, much less retain customer trust and confidence. This results in the concept of virtual banking rising from the ashes of mistakes made by traditional banks. Just as banks were trying to survive in their own internal domain, life outside the banking world was digitalising fast, and early disruptors saw great incentives in bringing technology into finance (or FinTech as we know it now) to solve longstanding customer frustration and make better financial decisions.
Beginning with basic single offerings that differentiated themselves from traditional banks through the customer experience, new players on the block showed us that banking does not have to be a dreaded process of waiting two hours at a physical bank branch to set up an account, or standing in line at the ATM to update your passbook records. Instead, banking can now be done on your mobile, with zero waiting time.
If that’s not enough incentive, perhaps the greatest differentiator of these disruptors is that the cost of servicing is kept extremely low. Without a physical presence and use of technology to automate 80 to 90 per cent of all tasks, they are able to pass on savings to customers in the form of cashbacks and higher interest rates on their savings, as well as lower fees for transactions made on their platforms.
That said, while these previously unregulated disruptors have come far in capturing the attention of regulators and meeting requirements to compete for digital banking licenses, it is still too early to say that they’re here to stay. Without a proposition that will convince customers to migrate their larger transactions and wealth management needs, they will most likely find themselves at the end of their runway in time.
Having set the stage for digital banking solutions to alleviate customer frustrations and manage operational risks, here are four tips for digital bank aspirants to chart a sustainable growth trajectory and claim next generation revenue opportunities.
1. Have a clear roadmap
As a rule of thumb, digital bank aspirants should enter the market with a thorough understanding of customer’s wants and needs and offer value propositions that have not been delivered in the market.
For example, accessibility is a huge draw in countries such as the Philippines and Vietnam where much of its population are living in rural areas, and digital banks should focus its strategy on delivering banking services to rural areas. In contrast, with a population of just 5.6 million, Singapore can be considered a small market and accessibility is a non-issue. However, the real play here is the wealth of individuals. With a per capita income that is among the best in the world1, there is so much latent demand for fund management and growth that digital banks tap on by offering lower risks on investments.
2. Map a 360° view of the customer
The banking industry has and always will be driven by services provided, and the one who understands the customer best is going to be able to offer unique services that draw customers in.
This is where technology corporations can lay the bricks for better financial services. At Oracle, we leverage our extensive data ecosystem to connect banks with third party applications swiftly, offering a full suite of services under one roof.
We also have a proven track record in helping financial institutions leverage data to gain competitive advantage. When we integrated a unified Customer Service Hub into Westpac Group’s technology ecosystem, we consolidated data across multiple brands into a modern origination platform, reduced the number of systems used, and enabled continuous conversations on and offline. This has helped Australia’s oldest bank take home the iTnews Benchmark Award 2020 for its achievements in creating a single view of the customer and improving customer service.
3. Heart-share over market share
Retail banking today is all about the individual’s experience, and digital banks must consider how they can be a partner and enabler in customers’ life goals and aspirations. Considering important moments in life such as purchasing a home or taking out an education loan, banks can leverage predictive analytics and artificial intelligence to leverage these significant events in real-time and be with customers in the moments that matter.
Those who invest in building capabilities to see data in new ways will eventually come out as the true winners in driving down costs, simplifying cumbersome processes for faster reconciliation and real-time satisfaction, and ensuring customer delight through relevant interactions and coordinated responses.
4. Be a change enabler
Lastly, the services sector is all about creating value for customers and staying relevant in ever-changing times. To differentiate themselves in a competitive and crowded banking industry, digital banks need to be swift and dexterous in predicting trends and bring about the change that they wish to see in the industry.
In view of the current environment, changes in customer behaviours and expectations caused by large scale social distancing measures are expected to last well beyond the global economic downturn.
Born in the cloud, digital banks now have a fleeting window of opportunity to demonstrate their potential to define banking in the ‘new normal’ and foster digital readiness and resilience in a crisis.
That said, the current economic downturn has forced traditional banks to turn to digital means, allowing them to catch up with their competitors and fast track themselves within the industry. Today, traditional banks are moving away from the brick-and-mortar setup to build a truly digital model enabling a 360° ecosystem of financial products and services.
The banking industry in Asia has been no stranger to change since the 2008 global financial crisis. There are definitely interesting developments ahead and I’m keeping my eyes peeled for what’s to come from Asia’s burgeoning digital banks.
Join Michael Araneta, Associate Vice President, IDC Financial Insights, Steve Shipley, Adjunct CIO, IDC Financial Insights and Michael Connell, Head of Cloud Enterprise Architects, ASEAN Head of Architecture and Industry Strategy, ASEAN & GC at Oracle as they discuss the new market dynamics in banking: upheavals in the industry, the different approaches, mindsets and value propositions of challenger banks versus traditional banks in their strategies for success.