Digital transformation crucial for banks

Since the global financial crisis in 2008, leading Asia-Pacific banks have outperformed the global banking sector.

The region is forecast to continue offering growth opportunities but traditional banking powerhouses will need to revisit business models and adopt digital technologies to remain competitive with new non-traditional rivals.

Are Asia's banks ready to respond to the changing landscape?

The millennial generation is far more open to branchless and alternative banks, according to a study by Accenture.

Results show that millennials would be open to banking with technology players such as Google, Apple and Amazon if they offered banking services, revealing a shifting perception of what a bank should be.

A study by McKinsey consultancy revealed that in developed Asian markets, Internet banking is near universal, and smartphone banking has grown more than threefold since 2011.

Consumers most comfortable with digital banking are more attractive to financial institutions than others.

These customers are more educated than other segments, have account balances that are two to three times higher and interact with their banks almost three times as often. They also hold multiple banking products - almost six a customer in developed Asia and three to four in emerging Asia - and are active in online shopping.

A key takeaway here is that today's most attractive customers no longer consider the bank branch as their first point of contact. To remain relevant, the Asian banking industry must interact with customers in new ways - to connect and engage with mobile-first, potentially mobile-only, customers.

RISE OF NON-TRADITIONAL BANKING COMPANIES

Payment or funding services traditionally provided by banks are ripe to be overtaken by mobile payment systems such as Apple Pay, Alipay, PayPal or Amazon Payments.

Braintree, a division of PayPal, is one example of a global fintech start-up in Singapore that provides secure online payments for businesses such as Airbnb and Uber.

Fintech start-ups are hungrily circling the traditional banking heavyweights - which are slower to respond to young consumers' needs, such as crowdfunding, mobile payments, student loans and remittances - and dozens of lean and nimble innovators in Silicon Valley or Singapore are seeing opportunities to fill these gaps.

What is holding traditional banks back from fully achieving digital transformation?

It takes leadership vision and a strong corporate commitment to move on from legacy systems, manual processes and entrenched "old" processes that have served the banking sector well for decades.

For example, in Hong Kong, long perceived as a global financial powerhouse, many banks continue to be saddled with manual processes that go against the grain of the digital transformation phenomenon.

Legacy core platforms continue to be the primary barrier as they are simply not suited to meeting the challenges that banks face in the digital economy. The banking industry's new generation of competitors are not only offering all-digital services but also using strong analytics to understand and serve their customers better.

The key insight for the traditional banking sector is that it is not enough to simply embrace digital technologies and carry on with their current activities.

They are just delivering the same products and services but via different channels such as mobile, tablet or social media, with the net effect of only delivering them slightly better.

Banks must move from siloed digital platforms, processes and initiatives to connected platforms, and from limited analytics to augmented intelligence.

This will move financial institutions from being reactive to proactive and predictive, allowing them to build a value proposition that addresses the needs of their audience.

EMBRACING THE FINTECH REVOLUTION

Fintech has greatly evolved over the past few years and is transforming the landscape.

Start-ups in this sector are bringing superior agility, focus, cost efficiency and a disruptor's mindset.

Financial-services customers in Asia are primed to use digital banking, and research shows that a large portion are already using computers and smartphones to access their accounts.

The rapid growth in digital banking is likely to continue, and entrants will be moving fast to stake their claims.

Banks need to keep up with the changing environment for their customers' sake as well as their own, especially when they are losing profitability.

The writer is general manager for Asia Pacific and Japan at big data analytics company Tibco Software.