Digital transformation is crucial for banks to remain competitive amid the FinTech buzz

Today’s most attractive customers no longer consider the bank branch as their first point of contact

Since the global financial crisis in 2008, leading Asia Pacific (APAC) banks have outperformed the global banking sector. The region is forecast to continue offering growth opportunities, but traditional banking powerhouses will need to revisit their business models and adopt digital technologies in order to remain competitive with new, non-traditional rivals.

At this previous year’s Symposium on Asian Banking and Finance, Mr. Ravi Menon, managing director of the Monetary Authority of Singapore, gave a number of reasons for the strength of the Asian banking sector, such the strong fundamentals built up by Asian banks following the Asian Financial Crisis of 1997.

Mr. Menon went on to highlight the fact that financial inclusion remains low in many parts of Asia. Although global banks will continue to play an important role in the region, it is the responsibility of Asian banks to expand financial inclusion, especially at the retail and small business level. His opinion is that they can use innovative fintech solutions to bring under-banked individuals and businesses into the financial mainstream.

The question is, are Asia’s banks really ready to respond to the changing landscape?

A new audience: Millennials

The millennial generation is far more open to branchless and alternative banks, according to a study by Accenture. Results show that millennials would be open to banking with technology players such as Google, Apple, and Amazon if those companies offered banking services, revealing a shifting perception of what a bank should be.

This trend is particularly significant in Asia. A McKinsey study reveals that in developed Asian markets, internet banking is now near universal and smartphone banking has grown more than threefold since 2011.

In fact, the consumers most comfortable with digital banking – digitally savvy customers – are more attractive to financial institutions than other consumers. These customers are more educated than other segments, have account balances that are two to three times higher, and interact with their banks almost three times as often. They also hold multiple banking products – almost six per customer in developed Asia and three to four in emerging Asia – and are very active in online shopping.

A key takeaway here is that today’s most attractive customers no longer consider the bank branch as their first point of contact. To remain relevant, the Asian banking industry must interact with customers in new ways – to connect and engage with mobile-first, potentially mobile-only, customers.

Rise of non-traditional banking companies

Payment or funding services traditionally provided by banks are ripe to be overtaken by mobile payment systems such as Apple Pay, Alipay, PayPal, or Amazon Payments. Braintree, a division of PayPal, is one example of a global fintech start-up in Singapore that provides secure online payments for businesses such as Airbnb and Uber.

Fintech start-ups are hungrily circling the traditional banking heavyweights – which are slower to respond to young consumers’ needs, such as crowdfunding, mobile payments, student loans and remittances – and dozens of lean, nimble innovators in Silicon Valley or Singapore are seeing opportunities to fill these gaps.

“35% of banking revenues are at risk because of disruption from fintech. The time of the fortress mentality is gone. It is time for banks to open up and play with the enemy. We need to ‘Fintegrate’ with start-ups to build new experiences.” said Sanjeev Mehra, Managing Director and Head of Global Product Development of Citi and based in Singapore, speaking at the TIBCO NOW Conference held in Singapore in March this year.

What is holding traditional banks back from fully achieving digital transformation? 

It takes leadership vision and a strong corporate commitment to move on from legacy systems, manual processes, and entrenched ‘old’ processes that have served the banking sector well for decades.

For example, in Hong Kong, long perceived to be a global financial powerhouse, many banks continue to be saddled with manual processes that go against the very grain of the digital transformation phenomenon. Legacy core platforms continue to be the primary barrier, as they are simply not suited to meeting the challenges that banks face in the digital economy. The banking industry’s new generation of competitors are not only offering all-digital services, but also using strong analytics to understand and serve their customers better.

Full Article: https://sg.news.yahoo.com/digital-transformation-crucial-banks-remain-competitive-amid-fintech-083851437.html