As the impact of the pandemic continues to shake the very core of public confidence, the stability of economic security is developing into an ever-increasing priority for residents of the Asia-Pacific region. The demonstrated financial outcome of this shift in conscientiousness witnesses growing participation between incumbent banks and their customers.
As APAC came to a standstill, so too did the customer participation shift to challenger banks; a notable trend of 2019. The recently published second edition of IDC and Backbase’s “Fintech and Digital Banking Report”, which itself explores the narrative and resilience present in the region’s financial industry, details this halt. “As the economic impact of Covid-19 deepened, customers stuck it out with traditional incumbents, whilst the field of challengers dwindled. The supposed fintech disruptors were disrupted themselves.”
The 100 largest banks in the APAC region have on average 70 years of existence, implying they have experience in managing the booms and busts of economic history. In this light, it is clear to see how traditional banks are capable of swaying the trust of their customers into their favour; in a way, that new entrants to the market just can’t compete with.
“People will always need efficient ways to use and access money and financial services, but their ideas about who is best to deliver these services has rapidly changed. Many services have become commoditised, with no real reason to be loyal beyond speed and price. If we look beyond banking at today’s most successful companies, think Apple, Tesla and Alibaba for example, they excel in two areas. Firstly they anticipate emerging customer needs before anyone else and use that foresight to drive change in their industries. Google or Alipay, for example, have a sense of “confidence” that allows them to think beyond what they currently do, to focus on what consumers want or need, and then develop services to meet these new requirements” comments Lucien Harrington, the Managing Director at Lynxeye Asia.
“Secondly,” he continues, “they manage to define a role that goes way beyond the standard customer-supplier relationship, while also having a clear ability to deliver major societal impact and benefits as a result of defining a clearly articulated purpose. Banks have all of the resources and knowledge required to initiate this process with a high degree of confidence that they will succeed.”
Of various aspects, one considerable advantage that incumbent banks hold over their competitors, namely in those of neo and challenger banks, is their ability to adapt their services to the changing needs of their customers. “Availability of services, fast turnaround time, and empathy are the top three factors driving customer loyalty,” notes IDC’s report. As the pandemic hit economies across the Asia-Pacific, sending the economies of Singapore, Japan and Australia into recession, banks swiftly transformed their services to meet the demand for digital. “Covid-19 has forced a rapid shift of customer transactions and interactions to digital. Asia Pacific banks rushed to meet an average of at least 50% growth of digital transactions. Ensuring the quality of these interactions has remained a challenge,” describes the report.
“The investment and demand for digitisation dramatically altered the playing field in the banks’ favour. When size can become a weakness when you follow, it’s a great advantage when you lead,” comments Lucien Harrington. Findings such as these only confirm the notion that in times of great uncertainty, the certainty of being able to deliver such services is increasingly valued.
The trust and reassurance sought in the financial stability of incumbent banks is climbing in demand, and it’s the appropriate response of the banks to this that has aided in the retention of their customers. “Banks responded and helped the societies and communities in which they operate, implementing measures such as moratorium periods on mortgages, providing cash flow support to companies – particularly SME’s – lowering the cost of lending, and of course investing in helping their customers do many tasks digitally”, comments Lucien Harrington. ”In this very real sense, consumers rewarded banks for their pandemic response which was not purely about profit,” he continues.
Banking in Favour
The response on all sides to the pandemic was predominantly digital-focused, with predictions that 18% of a bank’s business in the Asia-Pacific region will be advisory-based by the year 2025; with 60% of banks in the region leveraging AI or machine learning (ML) technologies for the production of data-driven decisions. As Lucien Harrington explains “By tapping into their unrivalled wealth of customer data to identify deep insights from data patterns, banks can find what really matters to people. What do they value? What do they love? What frustrations prevent them from achieving their goals? The quality of their data allows them to build these models better than anyone else with an extremely high level of confidence that their predictions will be accurate.”
“This foundation will then allow them to define and invest in a future-proofed role that they know will deliver for them over the long term,” he continues. “The bank naturally moves from the transactional – providing/ selling products for a quick financial return to making decisions over a much longer period that are all about delivering real value and sustainable financial health to customers.“
If there’s one aspect that remains prevalent in the minds of the masses, it’s that right now, everything is to play for. The pandemic has offered a springboard to new beginnings, with only the fittest, most adaptable being able to survive. We speak of the growing comfort found in household name banking, but this is in no way to suggest that such favour will last a lifetime. Indeed, the playing field is open, and it’s very much possible for Challengers to swing back into the scene to reclaim their dwindling customer base.
“Challenger banks can compete,” comments Lucien Harrington, “but they often need help in working our what wider purpose do they solve – why do they matter to consumers beyond the purely transactional.” In this sense, Challenger and new banks are very much able to compete, but the process must begin with a stern and honest confrontation of what it is that they want to offer their customers and if it is indeed correct that they’re adequately meeting the demand for specific services.
“New challengers will emerge, with stronger post-pandemic propositions. By 2025, there will be 100 new challengers across the region, with at least two digital banks in every Asia-Pacific market that will present a serious challenge to incumbents.” details IDC’s report.
Challengers must redefine their role within the APAC financial market if they hope to not only survive but to thrive too. They must utilise emerging technologies to gain insightful intuition into the needs and desires of their customers; essentially before they’re even required. The highly anticipated close of the pandemic will create the perfect environment for such evolution to occur, and it’s the imminent movements of the challengers that will likely determine if they fly or die.