Alternative channels of banking gain momentum in Asia
Banks in Asia have a unique chance to build on digital innovation and transform what a bank is. But they must move quickly to capitalize on the enormous potential bottom-line impact. Around the world, conditions for banking’s “digitalization” are now optimal.
Faster, easier connectivity and powerful, user-friendly smart devices are reinforcing profound behavioural changes among consumers, who now reassess and remake their choices almost continuously. At the same time, cloud computing, mobility, big data, and related enterprise-technology innovations are generating unprecedented revenue and cost reduction opportunities.
A McKinsey analysis of the potential impact of digital on several retail banks showed that almost half of profits are at stake. To date, several of the fastest movers have been in developed markets, where new regulatory constraints, higher risk capital needs, and historically low interest rates have compressed banks’ margins. But even Asian banks that have been insulated from some of these pressures are seeing their own form of digital upheaval, reflecting the sheer scale of technology change on the world’s most populous continent—where tens of millions of young, middle-class and affluent consumers are becoming digital-centric.
Indeed, despite the very different contexts, customer expectations in Asian and Western markets are converging on many important points. This is especially visible among the technology-savvy, self-directed customers that are the earliest adopters—and that accounts for much of both the affluent category and Generation Y. These consumers want not just 24-hour access but the ability to use and manage their money by whatever channel they want, wherever they happen to be.
“With the changing lifestyles and with more people coming under the ‘Technology Native’ customer segment, Internet banking and mobile banking are becoming very important from the alternate delivery services point of view. The adoption surely is going to increase, with more and more services getting delivered through alternative channels,” said C V G Prasad, CIO, ING Vysya.
Meet your new digital customer
One of the surprises confronting banks in Asia is how quickly local consumers have adopted digital technologies. By the end of 2011, China and India already ranked first and third in the global league table for number of Internet users.
Mobile platforms have been critical: in China, 65 percent of mobile-phone users regularly access the Internet via their phones, while in India mobile only Web browsers are expected to comprise 55 percent of the total Internet user base by 2015.
Surfing the Web…and mobile
With the rise of mobile comes the rise of mobile banking. In 2011, the McKinsey Personal Financial Services survey found that Asian consumers were visiting branches less often than in earlier years. And the percentage drop recorded in Asia’s emerging markets—26 points—was almost the same as the 29-point fall seen in the region’s developed markets. In mirror image, digital-channel usage increased by 36 percent in developed markets (where people now use digital channels more than branch and telephone banking put together), and 39 percent in emerging Asia, although on a much smaller base.
A 2012 McKinsey survey of Indian Internet users found that, for example, about 70 percent of users who had acquired credit cards in the preceding year used the Internet for product research, as did 66 percent of users who bought health insurance and 53 percent who took out personal loans.
When buying financial-services products, consumers across Asia are following much more complex routes than the old “purchasing funnel” would imply. Between the “awareness” and “maintenance” stages, 83 percent of buyers move across multiple channels—using as many as 5 channels for researching new products, and about 1.8 channels for servicing their existing products. With so many pathways available, ensuring that consumers reach the hoped-for destination—a purchased product or service—requires more attention and effort.
When it comes to digital banking, consumer needs in Asia are increasingly similar. Two very different markets, Hong Kong and India, illustrate a convergence in which convenience and control matter far more than pricing. When asked about what they like about using their mobile devices, Hong Kong respondents to the 2012 McKinsey mobile-payments survey cited familiar factors such as speed and convenience—being able to use multiple payment sources with one device, for instance, or not having to carry credit cards. In addition, over 40 percent liked the access to deals that mobile devices gave them, and the greater control they could exercise over their finances. India’s digital-banking customers showed similar preferences, citing good customer experience, flexibility, and customization as the main features they wanted from digital banking. Pricing came in a distant fourth place, even among lower-income consumers. For wealthier, more urban “digital high value” customers, pricing barely even registered as a concern.
Three options for the future
Meeting these new customer expectations will not be easy for most Asian banks, whose operations and service models have long depended even more heavily on sprawling in-person branch networks than their peers in other regions. Yet examples from Europe and North America nevertheless point to three broad options that together form a spectrum of strategic ambition.
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