Digital-only customers to make up 15% of banking customers in APAC by 2020
Banks need to focus hard on their digital strategies, starting now
JUST as the worst effects of the financial crisis ebb, banks are facing a new challenge. Digital ‘disruptors,’ such as new startups and technology firms, are threatening traditional revenue streams by eating away at different parts of the banking and financial industry value chain.
The rise of the digitally-savvy customer with more sophisticated expectations is also driving change in the way banking as a service is consumed.
Gaining market share has thus become more complex against the backdrop of competitive new entrants and changing client demands.
Asia has long been at the forefront of technological experimentation, and customers in the region are using digital banking more frequently than traditional channels.
Due to the convergence of trends such as youthful demographics, expanding middle class, clusters of high net-worth individuals and lighter regulatory burden, Asia is proving to be the epicentre of the banking revolution and disruption.
Banks which do not want to fall by the wayside and miss out on the opportunities presented need to focus hard on their digital strategies, starting now.
The digitally-savvy customer in Asia
Asian consumers today are using digital banking more frequently than traditional channels. The Rise of the Digital Customer, the latest Temenos-sponsored white paper developed by IDC Financial Insights, found that new technologies and devices are changing the expectations and behaviour of consumers, while triggering the rise of new consumer segments, such as the digital-only customer – customers who have not interacted with branch personnel in the last six months.
These customers expect a seamless, interactive, and consistent interaction with their banks through remote channels, and are less interested in building face-to-face relationships with their banks.
Digital-only customers account for about 4.5% of banking customers in the Asia Pacific region in 2015 and IDC expects this segment to grow to about 15% by 2020, due to greater usage of sophisticated mobile devices, improved Internet bandwidth and better application quality from banking apps.
Similar themes were surfaced in Future Factors, the second annual Temenos survey on retail banking, conducted by the Economist Intelligence Unit. It surveyed more than 200 senior bankers globally, including Asia, to examine the views of retail banks on the challenges and changes they expect to face from now to 2020.
The survey found that 46% of respondents expect changing customer demands to have as big an impact on retail banking up to 2020 as regulation, while 53% say that Asian banks are experiencing the biggest overhaul in expectations as clients are increasingly bypassing PCs, preferring smartphones instead (53%).
The potential gains for those who can respond effectively in the region are immense. In a recent study, McKinsey estimated that the number of digital-banking consumers in Asia could grow to 1.7 billion by 2020 from about 700 million now, with a significant portion in fast-growing countries such as China and India.
It is no surprise then that established players in the retail banking sector are pumping significant investments into the digital space, as 46% of bankers surveyed in Future Factors regard digital strategies as a bigger priority than responding to regulation or cutting costs.
Catering to next generation of bankers
One only has to look at China to see that banking in the region is in flux. The financial arm of Jack Ma’s Alibaba is preparing to launch a bank which will reportedly use an innovative credit rating system that draws on Alibaba’s huge volume of big data generated from the multitude of information exchanges that criss-cross its network of 300 million registered real-name users and 37 million small companies.
Another Chinese company, Tencent, has received a licence to open a private bank in what appears to be a state-sanctioned move to bring depositors into a sector still dominated by lumbering state-run groups.
Tencent’s WeBank will be Internet-based and has won the blessing of the Chinese premier Li Keqiang, who has predicted a shake-up in the old bank model. Other new-model lenders are expected to open in the coming months and years.
All this suggests China, with its plethora of Generation Y and Z customers will be a key testing ground for the design of a new, integrated customer experience based on a streamlined multichannel approach and architecture.
For incumbent banks, the stakes are enormous. More than 80% of the consumers surveyed by McKinsey in developed Asian markets said they were willing to shift their holdings to a bank that offered a compelling digital proposition.
The future is digital
Gaining market share in this region has indeed become complex. In the area of private wealth management, as the wealthy get richer, their expectations rise as well.
Our research shows that Asian high net-worth individuals typically have two to three bank accounts managed simultaneously, making it increasingly important for wealth managers to establish a service that caters to the unique needs of the client.
The increased capture and application of customer data, properly managed and updated through an advanced CRM platform has been proven to enhance returns across bank functions, while helping to lower distribution costs by creating new channels, optimising client preferences and providing tailored product offerings.
Faced by the rising tide of maturing, digitally-savvy customers, the future for banks is clearly digital, and evidence from Asia suggests that banks in that region will be at the forefront of this trend. To stay in the game, they will have to create new digital customer propositions sooner rather than later.
Martin Frick is head of Asia Pacific at banking software company Temenos.
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