Staying digitally fit: Three in five Filipino customers willing to shift to banks that are more digital
The second edition of the Fintech and Digital Banking 2025 (Asia Pacific) IDC report commissioned by Backbase reveals 60% of bankable customers in the Philippines are willing to shift to banking players that are more digital, and that the proportion of the unbanked and underbanked will be cut by about half to 20% of the country’s bankable population. Across the region, Asia Pacific (APAC) banks are going back to the drawing board on their digital transformation programs. Digital banking fitness has been the key factor, with digital banks enjoying three times the growth in customer bases compared to traditional banks.
In response, incumbent banks are reinvigorating digital transformation initiatives, having had to accommodate at least a 50% growth in the quantity of digital customer transactions and interactions. It is expected that organizations will undertake a comprehensive realignment of customer engagement projects, with the report having highlighted that digital capabilities are the key to resilience and winning the race to recover from pandemic-related setbacks.
New competition in an evolving banking landscape
While the APAC banking landscape saw the departure of some neo banks and fintechs due to COVID-19 challenges, the report predicts that we will still see 100 new challengers across the region by 2025. With new challengers presenting stronger post-pandemic propositions, there will be at least two digital banks in every APAC market that will pose a significant challenge to incumbents. Remaining neo banks and second-round players are expected to compete on being digital-first. At the same time, six of the top 10 banks in the Philippines will launch their own digital banking brands in the market.
Two digital banks in the Philippines have enjoyed significant growth, and are anticipating their customer cases to grow by at least 80% every year until 2025. Some fintechs that had gained sufficient size by 2019 also found success, gaining more market share than expected. Fintech categories that have typically shown success include payments, wealth advisory, alternative data, lending platforms, and account origination.
Traditional banks double down on digital
Meanwhile, traditional banks across APAC are increasingly focused on being digital-first. Innovation initiatives are expected to re-accelerate in 2021 and will most likely have a higher chance of success as banks restructure their agile and DevOps teams. 50% of Tier 1 banks already have agile frameworks in place.
The report also found that digital banks have seen three times the growth in their customer bases compared to traditional banks in 2020/2019. Investments in digital channels have paid off: banks have growing strength to acquire new customers, expand share of wallet, and push more products. 44% of the top 250 banks in APAC will leverage platforms with componentized modernization and API-enablement.
Strategic investments and growth priorities for 2025
Technology spending on governance, risk, and compliance saw double-digit growth in 2020/2019, while other areas of investment lagged behind.
The latest edition of the Fintech and Digital Banking 2025 (APAC) report found that 60% of banks in Asia Pacific will leverage artificial intelligence (AI) or machine learning (ML) technologies for data-driven decisions, compared to 48% from the previous year. One result of this is a more humanistic type of customer centricity, as the economic downturn required banks to communicate with customers in empathetic, trustworthy and reliable ways. This has been complemented by the increased integration of human agents into customer engagement strategies, as contact centers saw surges in usage.
A back-to-basics trend has also overtaken the need for new revenue sources. Banks will be focusing on digitalizing their core business of lending with some focus, subsequently, on deposits. New capabilities will be acquired from fintech partners: IDC predicts by the middle of 2021, 50% of lending decisions in retail banking will be supported by fintech propositions, underscoring accelerating bank-fintech collaboration. Banks in the Philippines are expected to partner fintechs and telcos to improve distribution and availability of banking offerings, especially for payments and lending.
This report has highlighted the COVID-19 challenges faced by banking and fintech players across APAC and the Philippines. To thrive in a post-pandemic world, organizations will need to keep their customers at the centre by focusing on the removal of silos, providing greater levels of convenience, overcoming financial literacy challenges, and improving accessibility to lender and payment products. We at Backbase are committed to empowering financial institutions in the Philippines with innovative banking models and experiences that will meet the changing needs of customers here.”
Riddhi Dutta, Regional Director for ASEAN & South Asia, Backbase
The events of 2020 have shown the resilience of the financial services industry, and that organizations must refocus their efforts on becoming even more customer-driven and platform-oriented. The insights from this report will help banks, neobanks and fintechs identify key areas of investment in preparation for 2025 and beyond.
Michael Araneta, Associate Vice-President of IDC Financial Insights, Asia Pacific
About the report
This study is based on IDC Financial Insights review of digital banking strategies of 65 banks from key Asia/Pacific markets that represent more than 65% of the total share of assets in each market. The study also looked at 100 challenger banks and fintechs under the Challenger Bank Program of IDC Financial Insights Asia/Pacific. The study was conducted in 4Q2020-1Q2021. IDC also made reference to its reports on Digital Banking from the past five years to understand the evolution of digital banking strategies.