Digital banking has been gathering steam in Asia for awhile now. It has grown to the extent that Asia is now on the cusp of a neobanking revolution, as nearly every country across the region is in the process of launching digital banks in some form or the other. Australia was the first out of the gate a few years ago and has several rapidly growing challenger banks, including Judo, 86 400, and Xinja. Other’s such as Singapore and Malaysia are expected to award licenses later this year.
As part of the application process, each prospective bank needed to map out their strategy and competitive differentiation. The justifications for launching digital banks vary by regulator, but fundamentally the rationale is to help address under-served segments of the market, which typically means SME or retail customers.
Research by Forbes has shown that even in well-established financial centres such as Hong Kong, a large number of the population remains under-banked; meaning that individuals are unable to access credit through traditional lending channels.
However, to address these under-served markets, digital banks need to build up their capital base, which is not cheap. Most developed financial industries tend to have 3-5 traditional banks that hold 85-90 percent of retail deposits. Capturing market share in those conditions is challenging.
Instead of returns, metal cards, or unprofitable rewards programs, the one silver lining for digital banking in Asia is customer experience.
Nearly all the traditional banks across country’s such as Singapore, Mlaysia, and Australia offer decent online banking platforms and services, offering an array of convenience for customers. However, once you want to open an account, change a credit card pin, or slightly deviate from the norm, that is where the problems come into play. Many of the processes are paper-based and require a lengthy phone call or, in some cases, in-person discussion.
Digital banks, by their very nature, will, of course, be digital-first, insofar that account opening and maintenance will all be done remotely. The technology is already in place to offer a vastly superior customer experience.
Maintaining superior customer experience is also much cheaper than providing financial or near-financial incentives. One of the reasons that Alipay and WeChat Pay have done so well in China is their interface. Every icon and customer journey have a clear flow and rationale.
For the digital banks, the challenge in this customer-centric approach will be as they seek to expand internationally. Although digital banks in countries like Singapore will focus on the domestic market first, we are starting to see overlap in digital bank applicants in other markets. It is only reasonable to assume that once local digital banks establish themselves in the city-state, they would look towards expanding to neighbours such as Malaysia. This will definitely result in overlap between applicants in both markets.
Each country has a different set of customer habits and demands that the banks will need to adapt to, which may complicate expansion. It remains to be seen if digital banks will face similar challenges, but we can be sure that each new overseas market will require a localised approach to truly succeed.
Regardless, digital banks have their work cut out for them if they wish to have any hope of pulling customers away from traditional banking systems. Although incentives like high returns or rewards program may bring people to the platform, the customer experience will be what keeps them there.