The Future of Banking and Financial Services in Asia

Asia is the world’s growth driver in consumption growth.  Asia’s consumer markets are constantly changing with new growth angles, presenting opportunities for financial service providers.

Recent research from the McKinsey Global Institute (MGI) reveals three distinct changes taking place across the region. Changes in the Asian consumer market present new and diverse opportunities for growth. Asia is the world’s growth driver in consumption growth, Asia’s consumer market is constantly changing with new growth angles, providing opportunities for financial service providers. First, as incomes rise across Asia, more consumers will reach the top tiers of the income pyramid, and a shift in consumption is likely to be the driving force behind consumption growth.  rather than the displacement of numbers within that class.

Second, cities will continue to drive consumption growth, promising, increasingly diverse sources of growth within cities. Third, when the relationship between income and consumption is broken in some cases, new consumption indicators gradually emerge in specific sections.

 Asian consumers tend to use more financial services

Asian consumption is expected to account for half of global consumption growth over the next decade, which equates to a $10 trillion growth opportunity.  Globally, one in two middle-income households or more is in Asia, and it is likely that one in two households in the world have completed a consumer transaction. 

 More and more people are expected to be in the consumer class, which means spending more than $11 a day in purchasing power parity (PPP) terms in 2011. In 2000, only 15% of Asia’s population was in the consumer class.  The income of the remaining three billion population is still not enough for discretionary spending.

 However, over the next decade, a significant reversal could occur.  By 2030, three billion people, or 70% of Asia’s total population, could become part of the consumer class. As consumers increase their income, their financial needs are likely to grow and become more complex.  McKinsey’s Global Banking Pools projects total revenue in the region likely to grow by about 7-8% annually over the next five years, driven by the growing number of consumers accessing financial services and today’s consumers.  already widely used financial services.

 MGI research indicates that most of the consumption growth over the next decade will be in cities and driven by higher income consumers – 85% of consumption growth is expected to come from regions  cities and 80% is expected to be driven by the top two tiers of the consumer class.

 Consumption patterns and consumption growth are diversifying, reflecting demographic, social, and technological shifts.  That requires banking and financial services organizations to find ways to personalize the messages sent to their users as well as build a standard customer experience journey to facilitate and encourage customers.  consumers use more financial services.

 A new growth perspective in financial services

Growth on mobile apps is now more than a story of how to get more downloads or new customers to sign up.  Equally important is how customers come, stay, and interact more with the bank’s app.

To do that, banks need to:

(1) Provide a diverse ecosystem that fully meets the needs of customers in the digital environment,

(2) Optimize UIUX to create customer experiences  seamlessly across touchpoints,

(3) Interact with customers regularly, in the right channel, at the right people, at the right time through products, offers and messages  highly personalized

 Below is a MGI study that highlights eight growth perspectives specific to financial services and presents new opportunities for service delivery in the region:

 A reunion to reshape the role of financial service providers

 Digital ecosystems are popular in Asia.  Many consumers choose mobile applications, promoting the development of a digital ecosystem, including super apps with many features.  Although super apps are emerging in China, Asian economies like India, Indonesia, Japan, South Korea and Vietnam now have top super app businesses.

 As the digital ecosystem and super-apps settle for a growing number of customers, financial service providers should consider how to effectively define partnerships with technology partners to leverage technology, speed up the digitization process.  For example, VPBank is cooperating with  Insider  in the field of Marketing Automation (web, app and email).  One thing is for sure, everyone can predict that slow-adapting businesses and banks are likely to be left out of the game.

According to McKinsey’s 2021 Personal Finance Survey, Asian banks, card providers and e-wallets have the highest level of trust (70-75%), compared to technology companies (65%  ) or social media companies (55%).

 “Digital natives” are reshaping relationships with financial institutions

 “Digital natives” (born circa 1980 to 2012) are predicted to reach 40-50% of Asian consumption by 2030. With regional differences, Asian digital generations tend to use  social media platforms, messaging apps and digital payment service providers outside of Asia and following local social media celebrities, but using Asian e-commerce platforms.

 This younger generation is reshaping relationships with financial service providers.  They are more likely to explore alternative financial services.  In China, for example, the proportion of 21- to 24-year-old consumers with a credit card is 20 percentage points lower than the older generation.

Opportunities to provide services to ‘digital natives’ such as point-of-sale financing with flexible maturities suggest that this group is more inclined to take out consumer debt than others. In particular, digital natives think that they are willing to accept embedded financial proposals such as pre-paid – post-paid services.  According to research by WorldPay, the market share of prepaid – postpaid transactions in Asia has doubled every year from 2019 to 2020 over the next three years.

 COVID-19 has resulted in new channel combinations, which will require financial service providers to change the way they interact with customers. As consumers’ adoption of digital channels increases, so do their expectations for customer experience.  Digital technology elevates standards to make services easy to use and personalized.

 The COVID-19 pandemic has accelerated the shift.  Although, initially, consumers heavily used transaction services on digital channels, in 2020, even “sensitive” products like mortgages have started to move to online channels.

In McKinsey’s 2021 Personal Finance Survey, the percentage of active digital banking users in Asia jumped to 88%, up from 65% four years ago.  Not only that, more than 60% of consumers are willing to switch to direct banking.

However, while about 70% of Asian consumers are willing to buy new products on digital platforms, so far only 20-30% do.  Substantial investment reflects the reception.  As a result of these changes, financial service providers are innovating to drive online sales.

 Because of COVID-19, the digital behavior of customers and the digital solutions of the competitive environment has changed forever and will never return to the way it was before the pandemic.  5-7 years, which is as if we were living in 2027-2028.  The new question the bank must answer is not what channels to join, but rather  where are my customers and how do they learn and make decisions on their journey.  From there, re-imagine your relationship with customers through establishing enough and accurate customer journeys.

 This is an important input to a digital growth and transformation strategy, as it defines how a bank will create new experiences or value for its customers.  But remember, even though customers now have common behaviors in the digital environment, the customer journey must be seamless with both offline and online touchpoints because what customers achieve their goals is ease of use.  It’s convenient and good, but they don’t care about digital or not, that’s how digital strategists need to care.

 The perfect stage to start personalizing data collection and scaling

The Asian economy has the right characteristics for the diffusion of personalization, including explosive growth in data generation, collection and replication that IDC expects to triple between 2020-  2025 in this area.

 Asian consumers are relatively willing to share their data.  A 2021 Euromonitor survey found that in China, India and Thailand, more than 45% of respondents said they share their data for personalized offers and deals, compared to below  30% in France, Germany and the UK. Digital not only provides many features and conveniences for customers, but must aim to collect, store and better understand customer data every time they access the platform. From there, the bank can better understand customers thanks to insight and become a trusted partner for their financial management journey.

 Empowering women to become economically independent creates new financial needs and opportunities for women

 Five ways to empower women with economic autonomy – increasing labor participation, increasing income opportunities, increasing financial and digital inclusion, changing family structures, and playing a larger role  in purchasing decisions – could boost Asia’s consumption growth.

Based on the potential for GDP growth from closing the gender gap estimated in previous MGI research, women’s economic empowerment could add 30% to Asia’s consumption growth by  by 2030, equivalent to 3 trillion dollars.

 As women are given more power in the economic sphere, they are likely to develop additional financial need.  There remains a significant gender gap in Asia in accessing financial services.  However, many vendors have developed products specifically for women.

 The elderly segment grows faster than the rest of the population and has unique needs
 Asia’s elderly population, those aged 60 years and over, is expected to grow by about 40% over the next decade, and consumption by the elderly is likely to grow twice as fast as the rest of the population in many parts of the world.  Asian country.  Financial institutions often have a strong relationship with seniors, but many providers are looking to expand their services to this demographic.

 Environmental and social responsibility increases as Asian consumers increasingly care about sustainability. In an Ipsos poll conducted at the end of 2019, more than 80% of respondents in China, India and emerging Asian economies said they had changed products and services.  that they buy because of concerns about climate change.

 Financial service providers may consider new products to assist consumers with their concerns.  Insurance companies in particular are likely to be at the forefront of protecting their consumers.  Previous MGI research estimated that in Asia, by 2050, $2.8 trillion to $4.7 trillion of GDP could be at risk each year as labor productivity is affected by temperature and  extreme humidity, and $1.2 trillion in physical capital can be damaged by riverine flooding.

 Insurers in Asia have stepped up services to protect their customers.  The human factor is very important, but changing the perception of the staff is a challenge, when technology is 4.0, but people are at 0.4, not used to applying and using technology in the field.  insurance in particular.  The challenge is that, but digital transformation is an inevitable path for insurance companies to develop in the new competitive context.

Consumption patterns vary from 15 to 25% of the financial services revenue group

 New MGI research explores new forms of technological innovation and business models that are democratizing consumption and leading to the emergence of “market-specific” consumption metrics.  The relationship between income and consumption is disrupting in some cases in the financial services sector and in other sectors.

 Typically, many products follow an earnings-based S-curve.  Lower-income economies have lower penetration.  As incomes rise, penetration reaches a tipping point where there will be a boom.

 Some of the largest banking value pools, including mortgages and credit cards, are likely to continue to follow an earnings-oriented S-curve despite disruptions caused by fintech and new technology providers.  out.  However, innovation in other products such as payments, consumer lending and wealth management can create new opportunities to create consumer value through new forms of approach.

From 5 to 10% of the value can follow a new “access curve”

 The emergence of e-wallets is contributing to increased financial integration at all income levels.  While traditional accounts follow an earnings-based S-curve, e-wallet penetration is much less earnings-driven.

 In China, eight out of 10 smartphone users have a digital wallet.  Alipay and TenPay, emerging from Alibaba and Tencent, together account for 35% of the value of C2B payments in China. 

There are clearly significant opportunities to service consumers who do not have sufficient access to mainstream financial products and services, providing them with new financial products as they access them. 

As of the end of Q1 2020, Vietnam had 13 million activated and used e-wallet accounts.  Total wallet balance is about 1.36 trillion VND, up to 225 million transactions are made (State Bank 2020).  Viettel Pay is one of the most downloaded payment applications in Vietnam.

 With the advantage of a network associated with Viettel Post, Viettel Store (see the successful case study of Viettel Store in the digital transformation process) and service stores covering more than 200,000 transaction points nationwide.

 Companies need to prepare for the next decade of competition as Asia’s consumption landscape is reshaped

 Asia’s consumption landscape is being reshaped by rising incomes, diversification and new sources of growth, as well as a shifting consumption curve.  Companies need to be prepared to reach consumers and compete effectively.  New MGI research identifies three key courses of action that companies should consider:

Reshaping the growth path

Every company has its own growth path, but this can easily become obsolete without a concerted effort to understand and keep an eye on the changing markets every day.  Companies should consider how demand for their products and services is likely to grow and carefully consider the growth angles involved.

 Previously unbanked customers can switch to e-wallets, and vendors can use e-wallets as springboards to expand and offer other products.  Many fintechs have taken action to capture the potential of this new access curve.  Paytm has served many new customers with e-wallets and is now expanding into other services such as deposit, micro-investment, digital lending and insurance.

 One of the main drivers for growth, for banks to accelerate is technology, especially banking services on digital platforms.  This separates the traditional banking segments to create a new engine to promote banking development in the new period.

 If we do not master the technology, we later want to change or upgrade, it is important to ensure the speed of competition will not do.  Therefore, MBBank persists with the way of technology mastering, we always refine the experience, upgrade, and provide new services to customers. MBBank shakes hands with Insider, pioneering the digital transformation race.

 Increase adaptability

Many organizations and banks show no signs of catching up with the trend, being too rigid or “slow” compared to the changing speed of customers.

 According to many studies, customers’ expectations are no longer as strict when comparing different products and services of the same company, or they no longer compare the experience journey between two companies in the same industry. 

 Instead, customers compare experiences across industries, for example, between using an e-wallet service with that of a bank, or even between a mobile technology service and an airline.  So changing, updating and applying technology is important to increase adaptability and please the “gods” so as not to fall behind.

 With a new growth path, companies are considering adopting a more agile operating model, accelerating innovation for stronger market access;  empowering decision-makers, with the initiative, to apply technology to the “future” way of doing banking.  In particular, the reallocation of resources is very important, that is, allocating human resources – empowering, allocating digital resources – “buying” technology to accelerate the process of banking digitization.

 “The future of digital banking and the bank’s digital transformation journey should not only focus on Digital but also focus on Talent and Data.  For Techcombank, Digital – Data – Talent are the three main pillars today.

Human-to-human factors in the banking-financial services industry

 While robots and automation can easily tackle manual, repetitive tasks, only humans can tell what’s really going on.  Sensitivity when communicating with customers, psychological state or expressive nuance in speech is really important, especially when interacting with sensitive customers or those who have little interest in the brand.  A person-to-person touchpoint is necessary for clients to share concerns around financial matters.

 Customers always expect financial institutions and banks to invest in smart technology to continuously improve their experience, and at the same time they also expect that whenever there is a problem to solve, they are  continue with humans.  They believe that only humans are capable of understanding their own concerns and needs, as well as treating them as specific people, with incomplete characteristics.  like others.

 Until technology can completely emulate human intelligence, which will be a distant prospect, the role of humans behind pioneering technologies, with their sensitive capacities and creative abilities, will continue to be the case.  Creating media content that connects with people will remain a paramount requirement in the digital era.

Open up new opportunities

Companies not only need good resilience, but also need a network-wide approach.  The market is increasingly diverse and dynamic, it is difficult for any company to satisfy all the needs of every consumer, and for many companies, a promising future can arise in the relationship.  partners and the ecosystem.  Companies need to decide whether to lead their own ecosystem or join an existing one, depending on the role they can play to be effective.

 Vendors need to be able to navigate new digital ecosystems and handle much larger amounts of data, and often the most effective way to deal with this is to collaborate.  For example, Kasikorn Bank (K Bank) in Thailand has developed a new loyalty program and customer network through the K Plus banking app, the most popular mobile banking app in Thailand.  .
 Within the app, users can make payments, request loans and store other loyalty cards such as AirAsia BIG points and PTT Blue Card, which are compatible with the K Bank rewards program.
 Asia’s dynamic consumer markets require financial services companies to understand and learn to approach and keep changing – socially, demographically and technologically.  The next decade will bring countless new opportunities for suppliers to find the right solutions to reach and service new Asian consumers.

 Banking and finance is a specific industry with a large amount of data from websites and mobile apps, when investing in technology, businesses should consider the ability to collect and segment user data in real time.  An effective technology partner needs to help businesses have a 360-degree view of their users and instantly deploy multi-channel personalized experiences in the same platform and independent of the team. 

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