Banking’s next decade: change is the new normal

The start of a new decade brings with it a new set of challenges for banks across Asia-Pacific.

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Asia remains a key growth market and banks in the region continue to outperform on efficiency measures – particularly when compared with other parts of the world. 

" In response to increasing competition and evolving customer expectations, Asia-Pacific banks need to focus on ramping up the digital transformation of their businesses.”

However, margins are still under significant pressure. A continuing low interest rate environment, ongoing regulatory costs, local and global economic and geo-political uncertainty, and trade tensions between the US and China are all having an impact.

But, as we look into 2020 and beyond, perhaps the biggest challenge facing incumbent Asia-Pacific banks is competition from non-traditional market entrants.

The Asia-Pacific region is home to a thriving fintech scene and, while they are unlikely to pose an immediate threat to the incumbents, these fintechs are certainly changing the market dynamic by offering customers innovative new products and services, as well as highly attractive fees and rates.

In addition, bigtech players in areas like China and India are also successfully leveraging their strong brands and existing infrastructure to move laterally into the financial services sector. With their built-in customer bases and high levels of consumer trust, bigtechs may in fact have the greater opportunity to take market share in the short term.

At the same time, new digital bank licenses are being made available in markets such as Australia, Singapore, Malaysia and Hong Kong, as regulators seek to encourage more innovation. Similarly, open banking agendas across the region – whether they are regulatory driven such as in Australia or more organic as is the case in China – look set to increase competition even further. Financial liberalisation in China is also likely to change the competitive dynamic in the region, as the country’s financial markets begin to open up to foreign financial institutions.

Ramping up

In this environment, the region’s incumbent players can’t afford to be passive. Primarily, they need to focus on ramping up the digital transformation of their businesses. Building their digital banking capabilities will help drive further efficiency and productivity and enable them to serve customers more effectively across markets.

If they can do this effectively, Asia-Pacifc banks have the potential to reach more unbanked and underbanked customers and micro, small and medium enterprises (MSME) across the region – a market segment that could potentially generate an additional $US800 billion in revenue for the sector.

The question then is what approach should Asia-Pacific banks take to ramping up their digital banking efforts to compete more effectively with new players, like fintechs and bigtechs, who are more agile and less burdened by legacy technology issues?

Should they take a slow and steady approach to digitising their core business? Should they consider launching a stand-alone digital-native challenger bank or collaborating with a fintech or bigtech partner?

Mix and match

While there is no one-size-fits all approach, across the region, EY is seeing four main digital banking models emerging for incumbents – each of which has their own drivers and benefits:

  • the digitised bank is a digitised version of the traditional model, with improved customer experience and a lower cost to serve
  • the digital attacker is a digital-only proposition, targeting new geographies or specific segments in existing markets
  • the open platform player shares their data, process and processing with other banks, non-banks and developers to build apps on top, creating a fast, low-cost route to innovation and non-traditional revenue streams
  • the utility player is a white-labelling play, click-revenue model allowing others to plug into their digital backend.

It should be noted these models are not mutually exclusive. As incumbent banks move further into the digital banking space, the most successful will be those that take a mix and match strategy, selectively employing different business models to target specific markets and customer segments.

One thing that is clear is, whichever combination of models they choose, Asia-Pacific banks will need to continue to invest in building their digital banking capabilities if they want to remain competitive in the future.

In a challenging growth environment, some banks may be tempted to halt or reverse digital transformation programs to double down on cost control. However, this is a short-sighted approach that will see them left behind the curve when conditions rebound.

Challenging times call on banks to take bold action to transform, making the most of new technologies to stay ahead of competitors and meet evolving customer demands.

Transformation amid a downturn is not only possible but must be a priority for those Asia-Pacific banks who want to be ready for success on the upside.


Andrew Gilder is Asia-Pacific Banking and Capital Markets Leader at EY


You can read more about this topic in EY’s latest report: EY Global Banking Outlook 2020: Banking in the new decade


The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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