Banks (Need To) Go Big On Digital Revolution

International | Sep 21 2021

With rapid digitalisation a key characteristic of our post-pandemic world, traditional banks are expected to keep pace with global trends. The Asia Pacific banking sector, in particular, appears behind global peers when it comes to digitisation, and a strong shift is needed to retain market share.

-Emerging digital ‘evolvers’ are leading the pack as banks scramble to remain relevant
-Players in the Asia Pacific region believe they will lose market share without headway in digital transformation
-APAC banks are more likely to be investing in technology competencies than peers in other regions

By Danielle Austin

Asia Pacific banks are committing big bucks to technology investment, including big data, machine learning and blockchain, to ensure market share retention in an increasingly digitised post-pandemic world. Institutions lagging behind are at risk of being made obsolete by tech-savvy competitors.

Consumer behaviour has changed rapidly during the covid pandemic, and consumer expectation is now that providers, including banks, will adapt services to be available digitally or remotely.

Research from cloud banking platform Mambu, which surveyed over 500 banking executives globally, showed that 58% of these industry insiders predicted traditional banks would cease to exist within the next five years without change to business models.

One group of digital evolvers within the space, spanning neobanks, fintechs and traditional banks, has been faster to adopt digital change and is outperforming competitors in key business metrics as a result. These evolvers may be providing a roadmap to contemporaries that aim to replicate digitisation.

These evolvers are defined by a business approach underpinned by deep data analytics to better understand customers, more transparency around the positives and negatives of products and services, and are customer-centric performance leaders.

How Asia Pacific compares to global peers

Banks in the Asia Pacific region are more than aware of the dangers of not embracing digital trends, but despite 59% of Asia Pacific banks believing they could cease to exist within five to ten years without significant change to operating models, the region is lagging behind in digital transformation.

Almost three quarters of banks surveyed predict tech giants such as Google and Amazon will hold the largest market share in the region within five years.

Banks in the region are subsequently more likely to be investing in key areas for digitisation than global peers, and are increasing investment in digitisation in a bid to catch up. Of Asia Pacific respondents:

-40% plan to significantly increase investment in big data
-37% expect to significantly increase spend on machine learning
-34% are targeting ledger technologies such as blockchain

Other key areas of investment for these banks include artificial intelligence, the Internet of Things and digital twins (digital replication of physical object for predictive purposes). Banks in the region will also need to improve confidence in innovation to get products to market without lengthy decision-making processes.

Increasing speed to market and strategic partnerships are key

Two-thirds of Asia Pacific banks believe they will lose market share within two years if they don’t make significant digital transformation progress, and many were of the mind that they lacked necessary workforce skills or were being held back by legacy technology platforms.

Among the obstacles delaying bank digitisation is the prioritisation of short-term profit motive over longer-term business motives. Cultural change and strategic partnerships will both be crucial to adapting for many banks.

Speed to market with new products and services has also increased in the last year, implying tech investment is paying off. Further, those banks identified as ‘digital evolvers’ are transforming at a faster pace than peers, putting pressure on other organisations to speed up or risk being made redundant.

One school of thought is that ecosystem partnerships may also be a large source of growth, allowing banks to create new revenue streams.

Banks offering mortgage finance services may offer access to home insurance, renovation services and more through ecosystem partnerships, for example.

Industry regulation, however, may suffocate partnership innovation where stringent compliance levels are placed on potential partner organisations.

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