Challenges for South-east Asian banks in a digital age
The Straits Times recently launched a new column called S.E.A View offering views on South-east Asia affairs from expert commentators and reporters from our regional network of bureaus. Here's a selection:
Published on Apr 24, 2014 7:49 PM
Banks in South-east Asia need to offer more than just banking services to be relevant to their customers.
Singapore's banks are facing a threat as well as an opportunity: Competitors ranging from technology and telecommunications companies to consumer retailers and travel agents are using digital technologies to make inroads into retail banking.
For example, in Singapore, SingTel's mobile payment service for smartphones lets customers make cashless payments at more than 20,000 locations - ranging from supermarkets and fast food chains to taxis. What started out as an easy transit payment option is now regularly being used in lieu of cash, debit or credit.
In Indonesia, the rise of KasKus, an e-market forum with more than 4.5 million registered users, has developed its own digital payments system for its site called KasPay. It is also looking to roll out a third-party website that could become the Indonesian version of PayPal.
The risk for South-east Asian banks is that these new digital entrants, in their quest to offer convenience to their customers, will continue moving deeper into financial services and either steal the retail market from under the banks or confine banks to a utility role.
While it is unclear at this stage whether the banking industry will be liberalized under AEC, there is undoubtedly going to be increased competition. Banks within South-east Asia are already expanding beyond their borders, but so too are banks from across Asia-Pacific. Consider the number of Japanese banks that have already invested in banks in Asean and Australian banks that have extended their footprint in the region. It is reasonable to expect Chinese banks to look toward Asean as well, as they follow their corporations doing business in Southeast Asia.
Accenture research shows that digitally contestable markets in the finance sector - those where digital technology is opening up traditional industries to new levels of competition - are set to grow faster than traditional sectors. But the incumbents in these sectors also stand to lose business.
We estimate that one-third of the traditional market share of banks worldwide will be at risk by 2020 due to new entrants.
A good example of the potential speed of change is in China.
Three years ago Alibaba, China's equivalent to Amazon, began taking deposits from customers who had made a purchase but then had some money left over. The company then applied its own data analytics to assess creditworthiness of small businesses. Today it is a US$16 billion lender and - only seven months after acquiring an asset management firm - is also China's largest seller of money market funds. At the moment, it is able to operate like this, but regulators are watching the market closely.
With such competition, banks need to fight back.
Payments alone can account for up to 25 per cent of bank revenues, and are a key touch point with customers. The vast amounts of information they have puts them in a good position to help customers not only make payments but also to reach decisions on what to buy, when and where.
Standard Chartered is on the right track.
It has turned the disadvantage of restricted branch licensing in markets in the Asia-Pacific region into an advantage by leveraging digital channels to win customers. The bank launched "Breeze Living", a lifestyle smartphone app - available in Malaysia, Singapore, India, China, Hong Kong and Korea - that offers open, social and location-based mobile discount coupons for dining and shopping. According to the bank, more than one million users around the world have downloaded Breeze.
In Malaysia, Maybank has turned to television to become more involved in peoples' lives.
It is behind CashVille Kidz, an animated series that airs on Astro, Malaysia's largest cable television provider. The series, which teaches financial literacy to children, has about one million viewers and earned 125,000 Facebook fans in less than six months and a YouTube channel with more than two million views. All these efforts have raised the bank's profile.
With efforts underway to create an AEC by 2015, it is clear that consumers will expect more from Southeast Asia's banks.
While Asean financial institutions will benefit from intra-and inter-regional economic development, there will also be increased competition.
Retail bank customers will become increasingly savvy about investment opportunities in different Asean countries.
As a result, banks in the region will need to provide more investment vehicles and product offerings. The successful banks in the new Asean world order will be the ones that are offering the most useful and convenient services to their customers.
According to Accenture forecasts, within five years, at least three out of every four customer interactions with banks will be online or mobile, with an estimated five per cent of customer interactions with banks taking place in branches and about 20 per cent at ATMs.
While banks will need to invest in this digital future, the payback is that it not only expands the customer relationship, it also reduces operating costs by automating systems and processes.
Take the example of the biggest purchase in most people's lives: their home. In Australia, the Commonwealth Bank (CBA) offers home-buyers an app that allows them to simply point their smartphone camera at residential properties to bring up property details, recent sale prices. They can also get information on local neighbourhoods - as well as estimated monthly payment amounts on CBA mortgage loans and insurance. With an average of 20,000 property searches per week, CBA is clearly on to a service customers want.
In the US, BBVA Compass, one of nation's 25 largest banks, helps its customers looking to purchase a new car. It does this by providing information - not only about loans and insurance - but about the selling prices of cars.
These are the sort of services banks in South-east Asia need to embrace as players from other industries increasingly use digital technology to move into financial services. If banks learn to use digital technology to help customers find deals and better manage their lives, they will not only transform the role they play but also assure their own future.
Beat Monnerat is Accenture's managing director responsible for the client service group for financial services in Asean as well as for analytics for financial services globally. Juan Pedro Moreno is senior managing director and head of Accenture's global banking industry practice.