Accelerating changes are afoot in the retail banking industry as the convergence of customer expectations, advancing technology, evolving regulation, changing demographics and stormy economics are causing upheavals for retail banks across Asia.
The early successes of fintech startups like Motif, TransferWise, Wealthfront, Lending Club and Betterment and the rise of China’s own Internet giants - Baidu, Alibaba and Tencent - as powerhouses in wealth management, may have contributed to early prognostication that retail banking as we know it has forever changed and that incumbent banks are at their death throes.
The reality is far from the truth. Yes analysts and industry observers are predicting that retail banks will lose as much as a third of their business to fintechs and technology companies. But banks are not sitting idle on the sidelines watching as we see businesses like DBS Bank, CIMB and OCBC, to name a few, undergo accelerating transformations of their own to meet the competition that have successfully eaten portions of their revenue.
Sui-Jon Ho, market analyst, IDC Financial Insights Asia Pacific, warns of the rise of digital-only consumers - those who prefer to transact only via online or mobile channels - in the coming years.
“Banks cannot remain as purely financial intermediaries. Consumers expect their banks to be content developers,” says Hon. He cites the example of Alibaba which has a downstream presence by way of T-Mall and Taobao which create tangible offerings that consumers can subscribe into. Layered above these is financial intermediation.
“Retail can exist without financial intermediation but financial intermediation cannot exist without the need to trade goods. Banks are the ones who are expendable in this scenario,” says Hon.
Acknowledging that not everyone can be an Alibaba or own the whole ecosystem, he believes that a viable option is through partners.
“The option is to partner and we’ve seen this in Malaysia and Singapore where banks are forming strategic cross-vertical partnerships with players outside the industry - into telcos, retail and mainly this is to create new value to the consumer,” he says.
A Russell Reynolds Associates’ 2015 survey of C-level executives from across 15 verticals on the impact of digital technologies may be a forgone conclusion at this time, but at the time of the study it revealed a telling concern by business leaders of the threat, and opportunities, posed by digital disruption. Media, telcos and consumer financial services were thought to be under the greatest threat from disruption. The study revealed that while 90% of these organizations already have a digital strategy in place, the prevailing skills gap will cripple each’s ability to realize their digital strategy goals in the time necessary to stay competitive and lead their respective markets.