Consumer banking is rapidly changing in Asia-Pacific (APAC) and banks must reinvent themselves amid changing regulations, emerging technology, elevated client expectations and the entry of disruptive competitors, according to a new article series by EY.
Changing regulations
The banking and financial landscape is quickly evolving in the region. Notably, policymakers in many markets are re-engineering the sector to promote competition and innovation to better serve the digital economy. One such regulatory impulse is Open Banking, which requires banks to share select customer data with third-party providers and permits them to initiate payments from customers’ to merchants’ bank accounts.
For EY, Open Banking is providing incumbent banks with the opportunities to revisit their strategy and rethink the value chain.
“We see the Open Banking framework nudging traditional banks to reassess their current closed environment and explore new platform models based around open architectures and ecosystems,” the post reads.
“Collaborating with a wider community of external developers not only allows them to use client information to derive deeper insights, generate new income and raise retention rates, but build out existing applications to improve their financial solutions and convenience for customers.”
Changing technology
Another key driver is the exponential pace at which cutting-edge technologies such as big data, artificial intelligence (AI) and blockchain are evolving.
While digital technology will undeniably help transform the way customers are served and business processes are conducted, technology alone will not lead to digital maturity, EY claims.
Rather then investing in every new technology individually, banks should adopt a problem-based approach to implementing combinations of technologies, the firm advises.
“This will see various technologies applied cohesively to support strategic objectives rather than individually implemented in a disaggregated and untargeted manner,” it says.
Changing client expectations
Consumers have become accustomed to contextual interactions within industries such as technology and retail e-commerce, and are now expecting 24×7 availability, real-time capabilities, greater transparency and personalization, and frictionless user experiences from their financial providers.
At a time when customer expectations are dramatically changing, “banks must understand how to interact seamlessly with clients across channels, and efficiently configure solutions to support a range of customer journeys such as purchasing a house.”
“This involves transitioning from pushing products to proactively suggesting tailored financial solutions based on big data analytics of customers’ financial and non-financial behaviors. And above all, the speed of execution will be of essence as they seek to differentiate themselves through customer centricity and experience.”
Changing competitors
While one-third of digitally active consumers already use fintech services, a greater threat to traditional banks may actually be the established bigtechs, which are increasingly offering financial services.
Especially within APAC emerging nations such as China where banks are less established and more consumers trust well-known tech firms with their money, bigtechs have gone on to establish comprehensive, integrated financial ecosystem.
Bigtechs have the advantage of being asset-light, not saddled with legacy IT systems, digitally savvy and well-funded, thus better able to quickly adopting new technologies and agile data-driven operating models. Additionally, most already have massive customer bases and have been collecting extensive amounts of diverse customer data, enabling deeper understanding of behavior.
Typically, bigtechs would start with a core offering where they would serve customers at lower cost before leveraging their platforms and dominance to channel customers into multiple other offerings.
EY cites the example of Ant Financial, which operates a massive financial ecosystem in China encompassing digital payments (Alipay), digital banking (Mybank), consumer credit loan services (JieBei), credit scoring system (Sesame Credit) and cash management (Yu’e Bao).
Digital wallet Alipay counted 870 million users and handled over quarter million transactions per second in 2017, making it one of the world’s largest mobile payment platforms. Meanwhile, Yu’e Bao became the largest money market fund with RMB 1.56 trillion (US$226 billion) in assets under management in just five years.
In South Korea, Kakao Corp, the Internet company behind the country’s biggest chat app KakaoTalk, launched Kakao Bank in mid-2017. The mobile-only bank gained 1.5 million banking clients within a week and had approximately 6 million clients by March 2018. Its success is primarily due to the support from various other Kakao Corp businesses such as KakaoTalk, mobile payment service KakaoPay and other O2O e-commerce ventures.
In Japan, Rakuten operates the country’s largest e-commerce marketplace, one of the biggest Internet banks and number one credit card company by shopping transaction value. The firm also provides loyalty points and e-money for online and offline stores, and offers a range of financial products and services from mortgages to securities brokerage.
In Indonesia, the country’s first unicorn Go-Jek started as a ride-hailing transport app but quickly expanded to provide a payment solution with its mobile wallet Go-Pay, as well as various other offerings such as airtime top-up, to medicine and food delivery. Go-Jek acquired three digital payment fintechs in 2017 and aims to enable Go-Pay transactions with merchant partners outside of its ecosystem. It also partnered with P2P lenders to expand into credit loans.
EY concludes:
“Frontlines in the battle for consumers are shifting, and the future of banking needs to have client centricity and efficiency at its heart. Banking is necessary, but banks are not. Incumbents have to realign priorities to digitize, differentiate and disrupt themselves, else risk falling behind.”
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