The Rapid Evolution of Digital Banking

Yves Roesti, Managing Partner and CEO, and Rahul Bansal, Associate Partner, Synpulse.

Asia-Pacific is now the region for the rapid growth of digital banking services. Financial institutions have been making investments to create new products and platforms, all in a bid to meet the accelerated increase in demand for such services during the Covid-19 pandemic.

In the past couple of years, people of all ages have reached the tipping point of shifting their buying patterns to digital channels such as e-commerce and food deliveries. Transactions that were previously made in-person have now largely moved online. Businesses saw the urgent need to develop digital products to interact with and retain their customers whilst ensuring business continuity. Whilst some were able to make the necessary adjustments, others were rendered irrelevant in the new world. 

Our expectations of how we can live our lives have transformed to incorporate locational convenience. Consumers today  especially Gen Z and millennials – value convenience, low touch points, ability to solve issues without the need to leave home, and expediency to toggle between a myriad of digital solutions that have been made easily available to them. 

Digital transformation, coupled with the shift in consumer patterns, has catalysed the need for digital banking. Governments across the region are now playing catch-up to implement policies and regulations to govern the new banking landscape. For example, as digital banks become ubiquitous in Singapore, the government has been careful in awarding licences to new operators.

There are currently five digital native banks in Singapore, with the most recently set up Trust Bank becoming the first to launch services beyond just financial transactions, including services like savings accounts and family personal accident insurance. Other countries, including Malaysia, recently granted banking licences for five digital-only banks, whilst Hong Kong currently has eight digital banks with more than half a million customers. 

Ever-growing digital banking trends
The Asia-Pacific region is now a key player in the acceleration of digital banking, not just for the purposes of personal banking, but also for other services, including cross-border payments and collecting rewards from one’s expenditure – just to name a few.

According to McKinsey’s 2021 Personal Finance Survey, the share of active digital banking users across the Asia-Pacific increased sharply to 88% that year, up from 54% in 2017. Nine in 10 consumers in the region actively rely on digital banking services, and most of them are keen to purchase more banking services through digital channels.

Consumer behaviour changes, the shift to a hybrid work environment, and even the emergence of new channels of communication and interactions have all influenced the pace and market penetration of digital banks and fintech. With this in mind, more services will continue to appear and evolve.

More recently, Buy Now Pay Later (BNPL) and customer rewards systems have become popular among consumers – a reinvention of credit card payments and their associated benefits. Consumers have always valued the ability to get more bang for their buck, and the option to spend first and pay in instalments, but without the interest that comes with it. This gives them the assurance of having more ‘cash on hand’ to spend.

What’s next for digital banks?
From what we’ve observed over the past few years, we know for certain that more changes are yet to come. Consumer trends will continue to mature and service providers must keep up with this wave of digital revolution. 

With most of the world now able to live comfortably through their mobile devices, there will be more demand for the ability to do everything through as few steps as possible – perhaps from a super mobile application that would allow consumers to do everything from paying bills, investing savings, claiming their medical insurance to booking vacations. 

There will also be higher pressure imposed by regulators on digital banks to show their value in the long term. For instance, the Monetary Authority of Singapore requires non-bank players with a digital bank licence in Singapore to turn profitable within five years. As a result, industry players, including digitally native and incumbent banks, would have to create an ecosystem that works together to address consumer needs whilst also meeting their business goals to survive and thrive.

Digital banks, which leverage penetration strategies to ensure optimal market timing alongside a steady customer acquisition cost (CAC) whilst bolstering the lifetime value (LTV), must develop bespoke offerings for customer engagement to differentiate themselves in the market. This makes it possible to reduce the cost of acquisition, whilst simultaneously improving employee retention.

To create even more meaningful and unique customer journeys, digital banks will need to leverage customer data across multiple channels, continuously analyse customer behaviours to identify real-time needs, rethink ways to convert digital products into digital sales, reinvent their delivery model, and invest in technological advancements, such as artificial intelligence and machine learning. It is a constant pursuit to launch better products and platforms that cater to the increasing needs of their customers.

And whilst the Asia-Pacific region has been prospering and digital banks are rapidly evolving, each bank must have a clear strategic positioning, tap tech talents in the region and globally, and find new ways of working to scale and sustain the current growth they are experiencing.

It will be critical for banks to leverage on global technological advancements, delivery accelerators and frameworks to stay ahead of the market and succeed in this environment.