Asian consumers embrace digital banking: McKinsey: Page 2 of 2

 

Digitally engaging customers for value generation

 

Asian consumers embrace digital banking: McKinsey: Page 2 of 2

 

Deeper digital engagement with customers generates value for banks in two ways. First, digitally active customers buy more products. McKinsey's research shows that digitally active customers bought 1.6 products on average over a 12-month period, compared to 0.5 on average for customers that were not digitally active at all. The active digital customers also owned 1.5 times the banking products compared to their non-digital peers.

Second, since most simple digital transactions are conducted through self-serve channels, digitally active customers have a lower cost-to-serve than non-digital customers.

In terms of their digital preferences, McKinsey categorises banking customers into three segments: ƒ

  1. Digitally active consumers use digital banking at least every two weeks and have made e-commerce purchases in the last six months ƒ
  2. Moderately digital consumers use digital banking less than fortnightly, but have made e-commerce purchases in the last six months ƒ
  3. Non-digital consumers use no digital banking products or services

The 2017 PFS survey found that the percentage of digitally active consumers has doubled in emerging Asia since 2014, and grown by 20% in developed Asia over the same period.

In Asia, DBS was the first bank to develop a methodology to measure digital value creation, reflecting the changing attitude of banks towards the topic. It defined “digital customers” as those who either purchased a product digitally over the last year, or conducted over 50% of their financial or non-financial transactions over digital channels. Tracking digital value creation helped DBS enhance value from digital channels.

Today, DBS digital retail segments report twice the income, 20 percentage points lower cost-to-income ratio, and nine percentage points higher return on equity (ROE) than non-digital segments.

Digital customers, who form 39% of the customer base, contribute to around 68% of profit for the bank, before allowances.

Extracting value from customer data

 

Asian consumers embrace digital banking: McKinsey: Page 2 of 2

 

A wealth of customer information (from internal and third-party sources) could help banks strengthen customer relationships. Banks could gain insights on customers’ personal financial management (where they spend their money), offer tailored solutions (e.g., the next-best product to buy), and create new products and services (such as end-to-end digital lending using the additional information for more reliable credit scoring).

Incumbent banks have always had access to vast amounts of customer data such as transaction behavior and payments records. The digital world offers many additional external sources of data that could allow banks to deepen their understanding of existing and prospective customers.

With increased access to more digital platforms, consumers in emerging Asia appear more willing to share data with banks in return for customised offers.

Although fintechs often rely purely on non-traditional information for credit assessment, global banks usually incorporate these additional variables into their existing credit assessment process to enhance their predictive power. Applying analytics effectively along the customer lifecycle will require banks to not only build distinctive analytics capabilities in a central team, but to embed them across the organisation and into employees’ daily work lives.

Experience in implementing analytics engines suggests that the hardest part is not the modelling or insight gathering; instead, embedding analytics in daily operations is often a matter of overcoming legacy working styles and a very human reluctance to change.

Embedding digital banking in customers’ daily lives

A new breed of “ecosystem players” are focusing on the best way to digitally serve the daily needs of customers across a range of services, including meals, grocery shopping, travel, entertainment, and even medical services. Service providers who embed themselves in customers’ daily routine through an ecosystem stand to significantly increase usage of their services while offering customer convenience: a win–win proposition.

Banking institutions enjoy three key advantages over firms from other industries — consumer trust, extensive consumer data, and regulatory experience—which could help to facilitate ecosystem shifts.

They could play three roles in the ecosystem depending on their relative competitive situation: ƒ

  1. Participant: In this role, a bank joins a partner’s existing ecosystem in order to grow core business revenue ƒ
  2. Orchestrator: An orchestrator builds a platform to connect third-party services across sectors to create new revenue streams ƒ
  3. Creator: In this role, the bank creates the ecosystem, building digital services or acquiring service providers across sectors to establish a platform that meets customer needs beyond the core banking business

Consumer behavior and the competitive landscape for Asia’s retail banking sector have shifted significantly in the three years since the last PFS survey. While consumers are growing more engaged and digital, they also have many more digital options, including offers from non-banking companies and fintechs ready to fulfil their banking needs.

Customers will continue to adopt digital channels for banking. To ensure customer stickiness, banks should make a concerted effort to improve customer satisfaction, especially through digital offerings.

If banks can build capabilities to harness the power of digitisation, they can remain relevant in a fast-changing, fast-paced environment.

 

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