In many countries, large technology companies are setting the pace in digital banking. In some cases, they are even more popular than conventional banking institutions as financial partners. An examination of the Asian markets gives an insight into what Europe will face, and what strategies European banks can employ to counter this trend.
Whether in Asia, Europe or the USA: Established banks do not compete with the institution next door, but with technology companies. A recent study of almost 152,000 consumers from 29 countries showed that companies such as Amazon, Kakao in South Korea or the Alibaba subsidiary Ant Financial enjoy the most positive reputations. For example, 29 percent of respondents said they trusted at least one technology company more than their bank. More than half of the respondents even trusted at least one technology company more than banks in general. When it comes to loyalty, established companies are in danger of falling behind.
According to Bain & Company, the loyalty of bank customers depends primarily on five factors: Quality, time savings, reduction of uncertainty, simplicity, and sustainability of an investment. They are reflected in the individual “episodes” of the customer experience, which can vary in complexity: The customer needs to replace a lost credit card, pay an invoice online, or buy a house. Customers are most satisfied if they can complete an episode as easily and digitally as possible. More than 90 percent of respondents believe that a direct bank can complete an episode in a time-saving manner. With conventional banks, that figure is less than 30 percent.
Digital banking booming in Asia
In contrast to many European countries, banks in Asia jumped on the digitization bandwagon at an early stage in order to maintain and boost the loyalty of their customers. Singapore-based DBS Bank, for example, strongly encourages its customers to use online services. Services for its mainly digital customers cost the bank one and a half times as much, but the revenue generated by these customers is almost twice as high. Another example is Indonesian BTPN bank, which entered the highly promising mobile banking market in 2016 with the digital bank Jenius. McKinsey estimates that 55 to 80 percent of consumers in Asia are considering opening an account with a digital-only bank.
PayNow: Cooperation for a strong market presence
Payment providers like Alipay in China are paving the way for digital banking. In markets with a weakly developed infrastructure for card payments – such as India and China – third-party providers are the preferred choice. However, banks can hold their own and enjoy success if they merge. For example, nine different banks in Singapore offer their customers the convenient and user-friendly PayNow app to send and receive money: Open banking and a common platform secure a strong market position for traditional financial institutions in a typical Fintech sector. With attractive offers for mobile-first customers, banks are conquering a customer group with high potential. DBS found out that digital customers tend to own more banking products and interact more with their bank.
You can find out more about successful direct banks in Asia and the strategies of technology companies in this market in our Open Banking Whitepaper, which we offer for free download.