Once-in-a-lifetime opportunity to reinvent themselves as The Everyday Bank
Some in Malaysia already starting to move towards digitalisation to address gap
MALAYSIA’S banks face a new threat: Competitors ranging from technology and telecommunications companies to consumer retailers and travel agents who are using digital technologies to edge in on the retail banking landscape.
This new competition is a significant threat but also spell an opportunity, according to consultancy firm Accenture.
In a statement, Accenture said its research shows that digitally contestable markets are set to grow faster than traditional sectors, but the incumbents stand to lose business. It is estimated that one-third of traditional banks’ market shares will be at risk by 2020 due to new entrants.
However, if banks successfully make changes to fill a new strategic role, designed for digital, they stand to drive up to 250% more customer interactions, said Nelson Stephens (pic), managing director for the Accenture High Performance Bank Model.
“The key challenges for banks in Malaysia are to choose which area they want to be experts in – offering Shari’ah compliant products, retail loans for cars or mortgages.
“The key thing is recognising that you cannot be all things to all people. Banks in Malaysia need to make structural changes, not just incremental ones, and understand that time is of the essence in this current climate.
“The longer banks wait, [the more] they risk being left behind,” Stephens told the recent Asian Banking Summit in Kuala Lumpur.
Conventional banking has seen its day, Accenture said. The days of long queues inside banks to talk to tellers are soon becoming a thing of the past.
Today’s banks have the opportunity to make themselves a central part of lifestyle purchases and choose the path to becoming trusted and indispensable to consumer’s everyday activities instead of being just transactional providers.
Accenture describes this as ‘The Everyday Bank,’ one that fulfils a new strategic role that is designed for the digital era and provides an intelligent and meaningful experience for consumers.
To determine what it would take for a bank in today’s market to become a high performer and deliver a return on equity over the cost of capital and top quartile of peers, Accenture examined the performance of 80 banks, each with more than US$100 billion in assets, from 2007 -2012.
The drivers of the bank’s profitability, impact of regulatory change, balance sheet efficiency and revenue growth were all examined, the company said.
The analysis concluded one clear direction: Banks need to move quickly to match the agility and innovation potation of the sector’s rising new leaders, some of which bear little resemblance to today’s institutions.
The good news is that these same innovative technologies that are powering the new financial services that are threatening the progress of conventional banking can also deliver sustainable competitive advantages for traditional banks.
What’s more, some banks in Malaysia are already starting to move towards digitalisation to address this gap, Accenture said, pointing to RHB Banking Group and its technology-empowered branch network called ‘Easy.’
This simple, agile and transparent delivery model, designed to attract the less affluent, is 15% cheaper to build and operate than traditional RHB branches.
Moreover, branches built on the Easy model break even in one-quarter of the time of traditional branches, and generate operating profits equal to the initial investment more than twice as fast, Accenture said.
“Accenture’s analysis reveals that technology – mobile platforms, social media and robust analytics – is fundamental to the transformation that traditional, full-service banks must undergo if they are to emerge as winners in 2020,” said Stephens.
“It enables the optimised and simplified operations they require to keep market share. This builds an agile mindset, backed by robust IT platforms and digitally-driven front offices.
“Technology is a critical driver of the continuous innovation of digital products and services that will separate the high performers from the pack. Many traditional banks can succeed by advancing their existing business models and combining them with excellent execution,” he added.
Accenture provides three new operating models for success that will emerge by 2020:
A few dozen highly agile niche digital providers will offer specialised products such as wealth management services or mortgages at scale.
Digital full-service banks with a broad product offering will drive business primarily through digital distribution channels.
Big-box banks will compete largely on price with commoditised products for mass-market consumers.
If banks don’t make better use of new technologies and analytics to become part of their customers’ digital ecosystems – working with third parties to create values by making their products and services as relevant as possible in multiple contexts – they risk becoming sidelined by alternative providers in important new service areas, Accenture argued.
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