The rise of digibanks is changing the way Singaporeans interact with their bank.
As customers demand better user experiences and personalized offers, banks are having to re-think the way they serve customers. However, legacy infrastructure and internal data silos mean banks are struggling to keep up. Digibanks are now taking up the role of a new kind of bank: a bank that is truly customer-centric and technologically savvy.
In a webinar we recently organised, I’m joined by Eduard, CTO Razer Fintech, Andrew Taggart, Financial Services Consulting Leader, PwC, Nisha, SVP Matchmove and Anand General Manager Retail Banking, Finastra to discuss how digibanks have affected the Singaporean banking landscape.
Impact on COVID-19 on Digibanks
The COVID-19 crisis has accelerated the long term trend towards digitisation as the circuit breaker forces both consumers and businesses to adopt digital solutions. This will naturally translate to a higher affinity towards digital banking solutions and digibanks by nature are well-positioned to provide such a service.
While overall transactions are declining may not necessarily mean a lower adoption digital payment but rather it speaks more to an overall reduction in consumer spending.
Nisha said that Matchmove’s platform which provides money transfer and corporate expense management has seen a spike in the adoption of their services. Anand believes that once the circuit breaker is over consumers will return to spending.
Eduard shared that Razer Fintech have also taken the crisis as a moment to help and give back. Eduard explains that they’ve taken social responsibility seriously and have pledged US$50 million to support business partners through financial contributions, cashflow support and investments.
While the pandemic has delayed the regulator’s assessment period for the digibanks, the panelist overall believes that it is a boon in driving adoption for digibanks in the long run.
The path to profitability for Asian Fintechs
Fintechs and digibanks are often called out for not having a sustainable business model or not being profitable. Some fintechs in Asia have found ways to operate a little differently and build a self-sustaining model from the start. Nisha explains that Matchmove is profitable thanks to its laser-focused targeting and its ability to convert customers from third party Banking-as-a-Service platforms.
Eduard echoes Nisha’s point by explaining that fintechs have a fundamentally different business model than traditional banks. With no physical branches, no paper and one basic offering, Fintechs are much leaner and agile. By partnering with BaaS and open platforms, fintechs can reduce their tech costs to operating with much less than what banks usually need.
What about customer acquisition? Matchmove intends to keep their cost of acquisition low by partnering with platforms from other websites that have direct access to customers. Razer Fintech aim to keep theirs low by converting gamers into banking customers. With 70% of millennials who are gamers, Razer can tap into the gaming industry and create a large user base of millennial banking clients.
Andrew points out that the virtual bank business model in Asia is much more mature than the one in the US or Europe. In the US and Europe, virtual banks tend to start with a clean state and follow a purely organic strategy. Asian virtual banks already have an existing customer base that they can convert, while European virtual banks need to spend a lot of money on acquiring completely new customers, affecting their potential to make a profit. This is what allows Asian digibanks to eliminate a lot of the cost and be profitable.
Partnerships and trust
Open platforms are at the heart of the digibank model: virtual banks form an ecosystem that allows fintechs to leverage and offer specific services to customers. By focusing 100% on a unique segment, a fintech can get very good at what they do. By partnering up with other specialised fintechs and sharing data, customers are then served excellently across all services. This innovative approach is already spreading throughout Asia, where customers prefer a platform model rather than a one-size-fits-all solution.
Most customers in Singapore currently trust their bank more than a digibank. However, Eduard believes that as the landscape evolves over the next 10 to 15 years, this will change. Trust takes time to build, but it’s only those that adapt and survive that will earn trust over time. Banks may have the customers’ trust, but if they lack innovation they will soon fall by the wayside.
This is visible in the UK, where most customers use virtual banks as a secondary account rather than a primary one. Andrew from PwC proposes that digibanks gain trust by offering new opportunities to customers and acquiring them through platforms they already trust – such as Instagram or Facebook. He mentions that people are becoming more and more aware of digibanks in Singapore. According to a PwC study, 74% of Singaporeans interviewed are aware of digibanks, as well as 73% of 18-24 year olds.
If digibanks want to become a primary account, Andrew explains they need to focus on three main things:
- User experience
- Solutions that solve specific pain points
- Cyber security
Many banks hide behind security and compliance as an excuse not to innovate. Thanks to their agile startup model, digibanks can afford to push boundaries, test more products and offer better services. This is a large differentiator between Fintechs and incumbents, one that will likely speed up the time it takes for users to trust a Fintech or make a digibank their primary account.
Financial inclusion for digibanks
Digibanks and banking still offer mostly transactional experiences. Products are the same whether the user is 18 or 80 years old and SMEs are a highly underserved segment. There is a lot of room for growth for both digibanks and incumbents in the underbanked population.
Digibanks can adopt an approach of financial inclusion by incorporating financial education into their product design and services. Thanks to the advanced technology and unencumbered infrastructure, digibanks can turn to data analytics to improve their services even further. By gathering information about customers from social media, biometrics and location, virtual banks can offer more personalized experiences to their users than a traditional bank. With this information, digibanks can drastically change banking as we know it.
When it comes to digibanks in the Singaporean banking landscape, it’s clear that there is space for both incumbents and digital banks. However, it’s the players that know how to best serve their customers that will come ahead; banking in Singapore will be tailored, educational and integrated. Those that won’t take part in the new wave of innovation risk becoming irrelevant.
The full webinar can be viewed here
