Digital banking in the Asia Pacific (APAC) is set to be widely adopted with over three in five customers (63%) willing to make the switch to neobanksneobanks and challenger banks in the next five years, according to the Fintech and Digital Banking 2025 report by Backbase, a company that offers digital banking platform, and the International Data Corp. (IDC).
The report also found that the region is expected to see 100 new financial institutions by 2025, ushered in by liberalization of several markets and issuance of new banking licenses.
In the Philippines, 70% of customers who are active on digital apps believe they do not have options for “value add” banking products. However, new capabilities from Big Techs, fintechs, and neobanks can help close the financial inclusion gap. By 2025, the unbanked and underbanked segments in the Philippines are expected to cut by half to around 20% of the bankable population. Today, incumbent banks across APAC are faced with the pressing need to up the ante on digital-first banking due to intensified customers’ need for availability, access, and control of digital channel interactions.
Lack of agility
The report found that incumbent banks have not been able to take advantage of potential ecosystem partners as they still hold traditional views of the value chain. 80% of the top 250 banks in APAC still prefer to own the entire value chain of banking, with third party-contributed business at a mere 2%. Meanwhile, the average age of legacy core banking systems in the top 100 banks in APAC remains at 17.5 years, far behind the rapidly developing digital economy of today.
On the other hand, more than 35 neobanks or new digital challengers across APAC are built on agile innovative best practices — way ahead of incumbents in terms of flexibility, self-service capabilities, customer needs, and personalization. Consequently, with the emergence of new players and further digital disruption in the industry, 38% of traditional banks’ revenues are at risk by 2025.
As the banking industry goes through a period of accelerated pursuit to be digital-first, the report found that APAC banks must unleash the potential of personalization at scale and be more customer-driven and platform-oriented.
By 2025, 80% of customers in the Philippines will open new bank accounts with other banks, diluting “primary bank” relationships. The report also found that 60% of bankable customers are willing to shift to other players that are more digital. Incumbent banks should deliver unique products through leveraging customer data analytics as more fintechs and distribution partners accelerate their customer adoption with personalization content and frictionless experiences within digital channels.
The key focus will be on the digitization and implementation of artificial intelligence (AI). By 2025, 44% of the top 250 banks across APAC will complete their “connected core” transformation — working on platform-based and componentized modernization, and API-enablement. 48% of banks in APAC are also expected to leverage AI or machine learning (ML) technologies for data-driven decisions.
In the area of customer onboarding, in the Philippines, there is an opportunity for banks to reap returns with electronic know your customer (KYC) and customer identity integration, coupled with investments in workflow automation on digital platforms. Supported by a modern digital platform that enables data sharing, functionalities, and processes with third parties, banks can significantly accelerate the onboarding of new customers.
Digitization provides a multitude of benefits to core banking systems. For instance, in retail and consumer banking, instantaneous delivery of products, services, and information is certain to meet the growing demands of consumers. Further, automated processes and lower cost of operations can enable banks to better serve their corporate clients. Lastly, AI and ML also bring intelligence to wealth management decisions, boosting productivity.