How can banks remain relevant in the fastest growing digital market in the world?

Home to the largest internet user base (over 2.9 billion users) and one of the fastest growing smartphone markets on the planet, it is no surprise that consumers in Asia Pacific have been quick to adopt digital banking services in their everyday lives. In fact, according to McKinsey’s latest Personal Finance Survey, nearly nine in ten consumers across the region are actively using digital banking services – an increase from 65% just four years prior. While this impressive uptake could, in part, be credited to the COVID-19 pandemic and subsequent government lockdowns, the speed at which digital services were being adopted prior to the COVID-19 was immense, and this continued growth has only been exacerbated by the pandemic.

With 97% of consumers in the region preferring to use digital channels to interact with their banks, and 60% of consumers open to switching to a digital bank, it is clear that digital banking can no longer be viewed by FIs as optional, but rather as an essential tool in reaching their current customers and tapping into new market segments.

What is fuelling the demand for digital financial services in Asia Pacific?

Asia Pacific is home to some of the most digitally-engaged consumers on the planet, with digital natives (those born between 1980 and 2012) expected to make-up almost half of the region’s consumption by 2030. Interconnectivity has penetrated almost every aspect of everyday life, and as such there have been large behavioural shifts, whereby consumers expect an always-on approach, products and services delivered to them instantly, and an excellent customer experience in all aspects of their lives, including banking. Long gone are the days where consumers would be willing to travel for hours to visit a bank branch, or await a floating ATM to arrive to enable them to have access to essential banking services. In order to best serve this substantial customer base, it is imperative for financial institutions to offer a compelling value proposition with innovative features and a digital experience that covers the entire customer journey.

In fact, digitisation has been an extremely high priority in the region over the past decade, with a wave of national government initiatives introduced that were designed to facilitate banking innovation and the move towards digital. According to McKinsey, just 3% of consumers in the region continue to utilise the branch for the majority of their banking activities. Despite this, many traditional banks continue to model their businesses on branch-based services, leaving a substantial gap in the market that challengers and fintech disruptors have been only too happy to take advantage of. These newer players are reshaping the financial services market by launching various digital-first or digital-only banks that offer consumers convenient, accessible, user-friendly and personalised banking services, and, as such, are taking all-important market share from the traditional banks.

However, it’s not just the banked customers that are catching the eye of these entrants. As a region notorious for its large unbanked and underserved population, forward-thinking challengers are seizing the opportunity to reach consumers who have not historically used banks. This previously ‘untappable’ market is no longer so closed off and, with their digital-first approach and financial inclusivity high on their agenda, it is the newer players that are making headway with this market segment, not traditional banks with their traditional approach to banking services.

How can traditional banks ensure they don’t lose market share?

The opportunity for financial institutions in the region is enormous and competition is fierce, whereby slow adopters risk losing substantial ground to these newer entrants, leaving traditional banks in a position of having to defend their core consumer businesses. Instead of relying on traditional banking services and outdated paper-based processes, these banks need to reinvent themselves by leaving behind the product-centric approach that had treated them well in the past. They need to move to a consumer-centric model to keep up with changing consumer behaviours, stay relevant, and compete in today’s market.

To do this successfully is no mean feat. It will require buy-in from all internal parties, as well as the bank taking stock of their resources and ensuring that it has the right underlying technology and partners in place that can enable them to achieve their goal. Simply upgrading their digital capabilities is not enough. Many traditional FIs run on tech stacks that were not made for the world we live in today and, therefore, are no longer meeting their business needs or those of their customers, instead weighing them down. Whereas, the companies with which they are now competing were built from the ground up in the digital era and have mobile-first innovation ingrained in their mentality, culture and at the core of their tech stacks and business models. They can therefore move a lot faster than their traditional counterparts.

While bolting on a digital banking system may be a quick fix, the only way for FIs to truly keep up with the pace of change and future-proof their business is to invest in modern architecture that offers them the flexibility required to develop and deploy products and services at speed. Built with advanced customisation at their core, modern platforms enable FIs the ability to approach product development with a different mindset to those struggling with legacy systems. As a result, FIs benefit from faster time-to-market, being able to scale up innovative digital operations, offer new products or services, and respond to ever-changing market requirements much faster.

Shifting consumer behaviours, coupled with intensified competition, is making it increasingly difficult for banks in Asia Pacific to remain relevant. They are fighting not only to keep their loyal customer base, but stay ahead of the curve by offering customers the advanced digital services they require. Only by ensuring they have a comprehensive, future-proof system in place underpinning their operations will they truly be able to embrace the digital future.