Thailand to set standards with most comprehensive digitalization of banking in the region
Thai customers have displayed a remarkable ability to embrace digital financial services, and their quick adoption of digital capabilities has proven beneficial during the ongoing crisis. Four out of the top six banks in Thailand will expand staff to improve agility, leading to an era of continuous delivery of innovation, according to the newly released second edition of the Fintech and Digital Banking 2025 (Asia Pacific) IDC InfoBrief, commissioned by Backbase.
Digital banking fitness has been the key factor in the resiliency of financial institutions and being able to recover from pandemic-related setbacks and to address the changing needs of bankable customers. Digital banks across Asia Pacific (APAC) enjoyed three times the growth in customer bases in 2020/2019, compared to traditional banks. Incumbent banks have also had to accommodate at least a 50% growth in the quantity of digital customer transactions and interactions. It is expected that organizations will reinvigorate digital transformation initiatives and undertake a comprehensive realignment of customer engagement projects.
New competition in an evolving banking landscape
Incumbents and new entrants alike will be jockeying for market share, and will look to compete on the basis of being digital-first. While the APAC banking landscape saw the departure of some neo banks and fintechs due to COVID-19 challenges, we will still see 100 new challengers across the region by 2025, according to IDC. 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.
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 are increasingly focused on responding to changing consumer behaviours. Six of the top ten banks have reinvested in a newly-digitalized channel – the contact center, which is becoming a hub for advice and recommendations. Digital banks across APAC saw three times the growth in their customer bases compared to traditional banks in 2020/2019.
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. 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. Technology spending on governance, risk, and compliance saw double-digit growth in 2020/2019, while other areas of investment lagged behind. At the same time, a 15% reduction of branch network is expected by 2025 among the top ten banks in Thailand, as banks seek greater optimization of staff and resources.
Growth priorities for 2025
One result of the economic downturn is a more humanistic type of customer centricity, as banks needed to communicate with customers in empathetic, trustworthy and reliable ways that are complemented by digital innovations. There has been an increased integration of human agents into customer engagement strategies, as contact centres saw surges in usage.
The latest edition of Fintech and Digital Banking 2025 (APAC) 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.
A back-to-basics trend has also overtaken the need for new revenue sources. Banks across the APAC region 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 across the region will be supported by fintech propositions, underscoring accelerating bank-fintech collaboration. We can also expect greater levels of collaboration in Thailand, with 10% of the retail business for Tier 1 banks in the country being partner-generated, up from under 2% currently.
From this report, we can see that Thailand’s rapid adoption for digital transactions and engagement has the potential to make the country a market leader in the region. With regulatory guidelines looking to gradually open the sector up for a truly digital future, banks should look at tapping on the potential of third-party collaboration to deliver value-added services to their customers. At Backbase, we’re committed to supporting Thailand’s financial institutions in accelerating their digital initiatives for a better banking experience.”
Riddhi Dutta, Regional Director for ASEAN & South Asia, Backbase
Michael Araneta, Associate Vice-President of IDC Financial Insights, Asia Pacific, added:
“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.”
About the IDC InfoBrief
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.
Download the InfoBrief here: www.backbase.com/fintech-and-digital-banking-2025