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

Shifting consumer behaviours, coupled with intensified competition, is making it increasingly difficult for banks in the Apac region to remain relevant. How can traditional banks reinvent themselves and their services to compete in today’s market?

by | February 21, 2022 | Compass Plus Technologies

Home to the largest internet user base (over 2.5 billion users) and one of the fastest growing smartphone markets on the planet, it is no surprise consumers in the Asia Pacific (APAC) region have been quick to adopt digital banking services in their everyday lives. According to McKinsey’s 2021 Personal Finance Survey, nearly nine in ten consumers across the region are actively using digital banking services – an increase from 65 percent 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 outbreak was immense; this continued growth has only been exacerbated by the pandemic.

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

The rising demand for digital services in APAC

APAC 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.

Digitisation has been an extremely high priority in the region over the past decade, with a wave of national government initiatives introduced which were designed to facilitate banking innovation and the move towards digital. According to McKinsey, just 3 percent of consumers in the region continue to utilise physical bank branches 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 which market challengers and fintech disruptors have been only tootech happy to take advantage of. These newer players are reshaping the financial services market by launching various digital-first or digital-only banks which offer consumers convenient, accessible, user-friendly and personalised banking services. As a result, incumbents are losing all important market share.

However, it is not just the banked customers which are catching the eye of these new 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 been financially included. 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 which are making headway with this market segment.

Do not lose ground to your competition

The opportunity for financial institutions in the APAC region is enormous, and competition is fierce: slow adopters risk losing substantial ground to 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 which has 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 its resources and ensuring it has the right underlying technology and partners in place to achieve its goal. Simply upgrading a bank’s digital capabilities is not enough. Many traditional FIs run on tech stacks which were not made for the world we live in today and, therefore, are no longer meeting their business needs or those of their customers. Arguably, they are weighing them down. Companies with which they are now competing however, 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  move a lot faster than their traditional counterparts as a result.

While bolting on a digital banking system may be a quick fix for incumbents, 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 which 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 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 the APAC region 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.

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