A NEW breed of digital-only banks are hitting South-East Asia. They are following the success of European digital pursuits by banking giants such as BNP Paribas in France and Virgin Money in the United Kingdom, which have invested heavily in technology to take on traditional high-street banks.
In this part of the world, CIMB Group Holdings Bhd is marking a crucial milestone by launching its first full-digital bank this year. It will start in Vietnam in the first half of the year, followed by the Philippines by the end of this year.
Through its digital bank, CIMB aims to offer its consumer banking offerings on a digital platform.
Digital banking is moving all the traditional banking activities that are only available to customers in a bank branch onto an online platform, including money deposits, transfers, financial product applications and bill payments.
Another notable digitisation push by a bank in South-East Asia is Singapore’s DBS Group, which is said to have attracted more than two million customers since launching India’s first online-only bank in 2016.
DBS also recently launched a digital bank in Indonesia and has around 70,000 customers, reports indicate.
DBS, in a report in The Financial Times, said that its digital customers were 42% more profitable than “traditional” clients, and highlighted the sharply higher margins banks earn through Internet-based services.
For the first six months of 2017, DBS made a return on equity (ROE) of 27% from its digital customers in Singapore and Hong Kong, compared to an ROE of 19% for its non-digital clients during the same period.
For CIMB, setting up its first digital bank is part of its bigger plan for the digitalisation of its whole banking business.
“We already have a strong presence in Malaysia. We think it is easier to do it (build a digital bank) in other countries and learn from that, and eventually bring it here,” says CIMB group CEO Tengku Datuk Seri Zafrul Aziz.
He points out that the digital transformation is not just about increasing operational efficiency and responding to changing business environments. It is also about improving the customer experience, he says.
Tengku Zafrul declines to disclose any figures on investments into the digital space, but says that while investment in technology is getting cheaper, it is altogether a different ball game compared to setting up bank branches.
“In technology investment, you need scale and getting the right people. As such, the investment could be in the form of us investing in fintech companies or joint-venture partnerships,” he says.
Tengku Zafrul says that at present, more than 95% of CIMB’s customer transactions are through the digital and self-service platforms.
Digital transformation is changing the landscape of many industries, more so for banking, which has been the most resistant to changes in technology.
While the banking industry still has a stronghold in credit issuance and deposit taking, this is poised to change. The ubiquity of mobile phone usage and the emergence of fintech companies in touch with consumer needs and able to provide innovative financial services to the masses is slowly disrupting this space.
The rise of fintechs in areas such as payments is forcing banks to rethink their offerings and customer experience.
A 2017 report by global consulting firm McKinsey entitled “Cutting through the Noise around Financial Technology” stated this: “Physical distribution will still be relevant but far less important, and banks must learn to deliver services with a compelling design and a seamless unconventional customer experience.
“Banks must recognise that customer expectations are increasingly being set by non-banks.”
According to a study by Capgemini and BNP Paribas, emerging markets are expected to grow at a rate three times that of developed economies in terms of digital transaction volumes.
It said digital payments in developing markets grew 21.6% between 2014 and 2015, compared to a 6.8% rise in mature markets.
Meanwhile, non-cash payments in Asian emerging markets are projected to grow by almost 30%, led by powerhouses China and India.
“Expansion in emerging Asia was due to impressive growth across all geographies as increased adoption of mobile payments and wallets generated a proliferation of card use,” the study wrote.
Digital invoicing, virtual payment cards and cloud-based accounting are also seeing popular use in emerging Asian economies.
Globally, banking giants such as BNP Paribas have been pushing big investments to transform themselves.
Last year, BNP Paribas announced its plan to invest €3bil into digital technologies over the next three years, to adapt to customers’ preference for conducting activities online.
The bank closed about 10% of its French retail network from 2012 to 2016.
BNP Paribas launched its digital mobile bank subsidiary Hello bank! in 2013, which is now providing services to 2.5 million customers in France, Belgium, Germany, Italy and Austria.
Jumping on the bandwagon is UK-based Virgin Money, which spent £38.3mil last year developing a digital bank.
Virgin Money expects to begin testing its new digital bank in the second half of the year.
It says that the digital bank will be underpinned by next-generation technology and architecture, offering customers a “universal account” that can be personalised to create a unique proposition tailored to individual needs.
Virgin Money has partnered with banking startup 10X, which was founded by former Barclays CEO Antony Jenkins in November 2016.
Virgin is not the first high street lender to develop a digital side brand. Clydesdale and Yorkshire Banks launched a digital-only current account, called B, early last year.
It was reported that Clydesdale has revealed cost-cutting measures, including closing 79 branches, and will also be shifting existing customers to the technology platform to offer them new services, such as budget-management tools for small business customers.
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