63% of APAC Customers Willing to Switch to Challenger Banks in 5 Years

63% of APAC Customers Willing to Switch to Challenger Banks in 5 Years

by May 8, 2020
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63% of banking customers in Asia-Pacific (APAC) are likely to use digital banking services offered by neobanks and challenger banks by 2025, highlighting the urgency for banks to innovate, according to the Fintech and Digital Banking 2025 report by Backbase and IDC.

The report, released on April 29, found that the region is expected to see 100 new financial institutions, including pureplay digital banks, payment banks, and financial aggregators, emerge by 2025, a trend ushered in by liberalization of several markets and the issuance of new banking licenses.

The Monetary Authority of Singapore (MAS) is set to issue five digital banking licenses later this year after receiving 21 applications from companies such as Ant Financial, Grab, and Xiaomi; Hong Kong, Malaysia and Taiwan have all introduced digital banking licenses over the past year or so; and the Bank of Thailand, is reportedly considering following suit.

According to the report, there are currently more than 35 neobanks or new digital challengers across APAC that are built on agile innovative best practices. By 2025, it is estimated that 38% of revenues of traditional banks will be at risk because of these new players and further digital disruption in the industry.

A long way to go

This new landscape is putting pressure on incumbent banks across APAC to raise the ante on digital-first banking as customer demand greater availability, access, and control of digital channel interactions. But unfortunately, so far, incumbents have failed to take advantage of potential ecosystem partners and still hold traditional views of the value chain, the research found. 80% of the top 250 banks in APAC still prefer to own the entire value chain of banking and the average age of legacy core banking systems in the top 100 banks in APAC remains at 17.5 years.

But digitalization is set to accelerate between 2020 and 2025 with 44% of the top 250 banks in APAC expecting to complete their “connected core” transformation, and 60% of all banks across the region planning to grow their ecosystems by integrating fintech solutions and enriching transactions from their core systems, it says.

A key focus will be put on artificial intelligence (AI), the research found, with 48% of banks in APAC expected to leverage AI or machine learning (ML) technologies to offer smart and intelligent banking, the research found. It is also predicted that 18% of a bank’s business in APAC will be advisory-based by 2025, and will continue to grow.

Health crisis accelerating digitalization

The findings from the Backbase and IDC study comes at a time when the COVID-19 pandemic is accelerating digitalization of financial services, and creating new opportunities for some fintechs.

While digital lenders are being inundated with customer requests for small business loans, and while payment- and wealth-focused fintechs are experiencing soaring transaction volumes, others have decided to innovate by creating new products that address the rapidly evolving economic environment.

In the UK, for example, Trade Ledger, Wiserfunding, Nimbla, and NorthRow, have formed a business-lending taskforce to provide a turnkey origination and underwriting platform that allows banks, alternative lenders, and private debt lenders to virtually and digitally deploy funds to businesses during the COVID-19 outbreak.

And in Israel, fintech company Innovesta has launched the COVID-19 Resilience Innodex (CRI), which uses a proprietary AI technology to assign risk scores based on a business’ ability to withstand the effects of a pandemic such as COVID-19.

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