Bank NXT Asia (February 2021)

Over 200 digital challenger banks have been established globally since 2010, with a fifth of these based in the Asia Pacific region. At the same time, customers expect for ever increasing levels of convenience and personalized experiences, while regulators push for innovative banking models.

As a result of these converging trends, we can expect to see financial institutions and government bodies prioritising the use of digital financial tools and services.

Here’s how incumbents should be looking to innovate like a fintech to stay relevant in this competitive industry.

Regulators have shown considerable interest in encouraging the growth and adoption of digital banking. For example, digital banking licenses have been introduced across various markets to encourage innovation, heighten competition, and protect consumer interests.

We have also seen various open banking initiatives. These include Australia’s Consumer data right (CDR) initiative and India’s Unified Payments Interface (UPI) which help to level the playing field for new challenger banks.

The rise of non-financial institutions (NFIs) and fintechs is also making the banking landscape more competitive. However, while the former can boast superior agility in utilising technology to boost customer engagement, traditional banks can still leverage their reputation for customer protection to retain their competitive edge.

Traditional banks who are able to create new operating models that meet stringent compliance requirements while possessing the agility to incorporate digital offerings will thrive in the long term.

The digital banking revolution is empowering customers to expect and demand even more.

As I have outlined in my previous post on how banks can tap into SEA’s growing digital market potential, customers are no longer content with traditional financial products only. They are looking for banks that offer better experiences throughout their banking journeys.

Thus, Incumbents should look towards providing a comprehensive financial ecosystem by leveraging insights to offer innovative value-added services and products.

Additionally, banks should continuously evolve their technology infrastructure and stay ahead of their competition – especially in providing intuitive relevant and personalised digital propositions.

A prime example of this is India’s Axis Bank, where the bank adopted AI & RPA technologies in both its front-end and back-office. This resulted in greater accuracy and reduced turn-around time for auditing processes by 40%.

Banks with legacy core systems that are over 17 – 18 years old should be looking to transit towards a scalable cloud infrastructure.

However, the lack of in-house digital talent and the competitive talent landscape has hampered this transition. Banks trying to embark on digital transformation projects without external help are finding that they require longer development cycles and higher investment costs.

To compete, incumbents must shift away from legacy mindsets of owning the entire banking ecosystem and look towards leveraging expertise from third-party technology solution providers.

I recently spoke with Ajay Rajan, Global Head for Transaction Banking Group at Yes Bank. He shared that through a collaborative approach with his partners, Yes Bank was able to increase their agility, respond in real-time to market changes, and scale for growth.

While evolving customer expectations and regulations are leading to additional pressure for traditional banks, they also present great opportunity. Banks should be looking to expand and innovate their banking ecosystems through strategic partnerships, and ultimately aim for improved customer experiences and engagement.