Customers Across Asia are Changing How They Bank

In Asia, banking customers growing more open to exploring and using digital channels for their financial needs, said McKinsey.

The firm revealed in its survey entitled “Asia’s digital banking race: Giving customers what they want” that this openness to digital channels will reward those banks that can meet customers’ expectations.

“It also represents a challenge to incumbent banks because customers are also expressing a willingness to bank with non-traditional players such as fintechs and nonbanking payments players.

“Incumbent banks need a response to this changing landscape if they are to remain relevant and sustain growth,” it said, adding that three questions loom large for banks and nonbank disruptors in this dynamic landscape.

1. Are branches still relevant?

Physical branches have been the traditional customer engagement channel, but there is a clear shift in Asia towards digital channels for daily transactions. Bank branches now account for only 12 to 21 percent of monthly transactions.

Customers prefer digital platforms for simple, routine transactions such as checking their balance, peer-to-peer transfers, or bill payments. Overall customer engagement has grown from an average of 12.7 to 14.9 monthly transactions in Developed Asia, and from 6.0 to 8.1 in Emerging Asia, with increased smartphone usage driving growth in each case.

However, a significant percentage of customers in Asia still use the physical branch for transactions they consider complex. For Asia’s banks, this means that as they evaluate their branch networks they need to think about more than simply footprint. They also need to shift branches from purely transactional points to interaction hubs that meet customer needs for financial advice and sales of more complex products, for example, investments.

Banks are also rethinking the role of the branch. A more user-friendly design could help banks to migrate more customers to their own digital channels, allowing them to reorient their physical branches to offer more complex products and services.

2. How disruptive are the new-age digital players?

Customers’ changing behaviour and increasing comfort with digital propositions in other sectors. For instance, e-commerce or travel have paved the way for new firms aiming to capture banking revenues through purely digital propositions.

With many consumers willing to go “fully digital” with regard to banking, a set of digital propositions is emerging to cater to these digitally savvy customers without the limitations of a physical distribution network.

Over the last three years, several new banking propositions have been launched across the Asia-Pacific region (APAC).

In Korea, Kakao launched Kakaobank, building on its nearly 40-million strong chat user base in South Korea to acquire one million customers within the first five days. The new bank also raised up to USD 3.6 billion in deposits and issued over USD 3 billion of loans in the first 100 days.

It is now the fastest-growing mobile bank in the world with over 5.5 million users, USD 6 billion in deposits, and over USD 5 billion in loans issued as of February 2018. Kakaobank is now expanding its portfolio into mortgage, credit cards, and new payments offerings.

Emerging Asia is not far behind in the move towards establishing pure digital banking. In 2016, BTPN in Indonesia launched Jenius—a standalone and first-to-market digital bank, while Singapore’s DBS launched its mobile-only digital bank—digibank—in India in 2016 and expanded to Indonesia in 2017.

McKinsey’s survey results highlight a significant opportunity for these entities—approximately 55 to 80 percent of customers in Asia would consider opening an account with a branchless digital-only bank; and those willing to bank digitally would be willing to shift between 35 to 40 percent of their total wallets to the digital account.

The penetration of nonbanking payments solutions varies significantly in Asia. While 40 to 50 percent of the population in Developed Asia uses nonbanking payments solutions, in most of Emerging Asia penetration ranges from 5 to 15 percent.

In Emerging Asia, two markets are ahead of the pack in terms of nonbanking payments solutions—China and India, with 67 percent and 39 percent penetration respectively. These leading positions are due in large part to the widespread success of payments solutions from firms such as Alibaba, Tencent, and PayTM.

Combined, Alibaba’s Alipay and Tencent’s WeChat Pay have an approximately 94 percent share of China’s $6 trillion mobile payments market. Both boast an active customer base of over 500 million and have made their mark in the Chinese payments market through strong integration with their existing sister entities—Taobao and Tmall (Alibaba) and WeChat (WeChat Pay).

India’s PayTM launched in 2010 as a mobile recharge player but now operates a variety of payments-related solutions, including a mobile wallet, a payments gateway, an online mall for bookings and bill payments, and a financial marketplace for investment and loan products.

PayTM has more than 200 million customers and 5 million merchants. The company plans to venture into wealth management and insurance distribution soon. New-age digital players are venturing beyond payments and transactions, with offerings in areas like lending or investments—traditionally part of banking revenue streams.

The rise of such disruptive companies could directly affect the volumes and margins of incumbent firms that offer these products.

3. Can banks still bank on loyalty?

The PFS Survey measures loyalty and customer satisfaction by asking how likely customers are to recommend their bank.

The research shows that loyalty towards primary banks in Asia is comparable to 2014 levels, and varies significantly between Developed and Emerging Asia. While about 70 percent of Emerging Asia consumers would recommend their bank to a friend or colleague, only around 40 percent of consumers would do so in Developed Asia.

Branch satisfaction is particularly low in Developed Asia, while the survey reveals moderate satisfaction with digital channels across Developed and Emerging Asia, again with considerable scope to grow. In a banking landscape with numerous options, incumbent banks must find ways to remain relevant or risk losing customers.