The digital race is on. The COVID-19 situation has only intensified the push for digital-first banking, according to the Fintech and Digital Banking 2025 report by Backbase and IDC. Digital banking in the Asia Pacific (APAC) is set to be widely adopted with over three in five customers (63%) willing to make the switch to neobanks and challenger banks in the next five years, says the report.
APAC region is expected to see 100 new financial institutions by 2025, ushered in by liberalization of several markets and issuance of new banking licenses.
Australia Forecast
In Australia, the Big 4 are set to maintain a dominant share as small and mid-tier banks face challenges in executing large-scale digital transformation.
Access ITVibes’ analysis of Bank of Queensland results and digital strategy here
The high customer adoption of digital together with regulated open banking presents significant opportunities for banks with the capabilities to adapt, offering holistic solutions and personalizing at scale.
Highlights
- By 2025, Australia will reach 90% of retail transactions through mobile
- 80% of banking assets in Australia will still be dominated by the Big 4
- Small and mid-tier banks will be challenged by a combination of legacy systems, lack of digital talent, and lack of experience in executing large-scale digital transformation
- 35% of IT budgets among Tier 1 and Tier 2 banks will be spent on “new” ― new technologies and new categories of spending. There will be a growing challenge in integrating these with legacy systems
Banks should allow for two-speed architecture
The report recommends combining the best of the old and new with a two-speed architecture.
A smart customer experience layer can work in harmony with core systems, introducing the flexibility banks need to compete without having to replace core systems.
The pandemic has triggered the accelerated digitization of financial services across the region. Consumers and small business owners alike expect their banks to truly step up their digital game and provide 100% seamless digital capabilities, any time, any place. Looking beyond, banks and neobanks have to elevate their digital-first capabilities to effectively enable hyper-personalization for customers
Jouk Pleiter, CEO and Founder of Backbase
Better aggregators of customer data, One location for financial life
By becoming better data aggregators, banks can go beyond analysing historical behaviour to actively predicting it with AI/ML tools, which brings banks into the realm of smart and intelligent banking.
The report calls for reaching into the future, to actively craft customer journeys and consistently provide timely, optimal solutions.
Essentially, the bank becomes part of the customer’s decision-making process and financial life.
From the customer’s point of view, true open banking allows them to access all aspects of their financial life at one location, rather than juggling multiple disparate services.
“Being digital-first calls for the integration of digital technologies with the comprehensive transformation of business processes, engagement strategies, channels, and business models of banking. With the insights from the report, banks and neobanks can be well-positioned for the future.”
Michael Araneta, Associate Vice-President of IDC Financial Insights, Asia Pacific
Customer experience focus
The report reveals hyper-personalization at scale through mobile experiences is key as the fight to be a super app intensifies. However, a once-off mobile app should be avoided.
Instead, the report says, banks must create memorable and composable omnichannel capabilities that are smartphone-friendly but can easily be used across other customer touchpoints including online banking, or even face-to-face channels.
There is opportunity to win more business in time-sensitive areas (e.g., loan approvals).
Unfortunately for the established players, as a result of incumbent banks’ extreme focus on legacy systems and disregarding digital-first integration, only 30% of the banking customer base in APAC are active on digital banking channels.
The report also reveals a significant majority (70%) of banking customers continue to view banking processes as tedious.
Key Australian banks have recognised improvement areas. One key improvement area is to improve the banking processes by digital-driven simplification approach.
Access ITVibes deep dive of NAB results and digital strategy here.
Lack of Agility in the Race to be Digital-First across APAC
The report found that incumbent banks have not been able to take advantage of potential ecosystem partners as they still hold traditional views of the value chain.
80% of the top 250 banks in APAC still prefer to own the entire value chain of banking, with third party-contributed business at a mere 2%.
Meanwhile, the average age of legacy core banking systems in the top 100 banks in APAC remains at 17.5 years, far behind the rapidly developing digital economy of today.
On the other hand, more than 35 neobanks or new digital challengers across APAC are built on agile innovative best practices — way ahead of incumbents in terms of:
- Flexibility
- Self-service capabilities
- Customer needs, and
- Personalization
Consequently, with the emergence of new players and further digital disruption in the industry, 38% of traditional banks’ revenues are at risk by 2025.
Strategic Investments & Growth Priorities for 2025
Personalisation, Digitisation and AI are key
As the banking industry goes through a period of accelerated pursuit to be digital-first, the report found that banks must unleash the potential of personalization at scale and be more customer-driven and platform-oriented.
The key focus will be on digitization and implementation of artificial intelligence (AI).
By 2025, 44% of the top 250 banks across APAC will complete their “connected core” transformation — working on platform-based and componentized modernization, and API-enablement.
48% of banks in APAC are also expected to leverage AI or machine learning (ML) technologies for data-driven decisions.
The report calls for the banking players to digitize faster leveraging AI/ML initiatives to automate boosting efficiencies while improving customer service and experience.
Related Insights:
Gartner: Australian IT spending will decline by 6%
NAB switches on Whatsapp, imessage for customer support
Neobank ambitions of a niche player – Bank of Queensland Digital Strategy revealed
