Online banking takes off in Asia

Physical importance: Despite online banking becoming more and more popular, bank customers still look to traditional services like ATMs and branches.

Asian consumers are moving quickly into digital banking and have a clear view of what digital features they are seeking, according to McKinsey’s latest findings which revealed banking through desktops, smartphones, and tablets has become more common in both developed and emerging Asia.

The McKinsey Personal Financial Services Survey on personal financial service usage and behaviour found that digital consumers represent a sizable population in most markets with nearly 700 million digital banking consumers across Asia, notably in China and India.

Digital banking penetration is the highest in South Korea, Australia and Singapore.

There has been a significant increase in the use of digital banking channels between 2011 and 2014, where the number of respondents who use their PCs and smartphones for Internet banking has grown 1.6 times in developed Asia and 3.3 times in emerging Asia.

The report by management consulting firm also indicated that consumers are shifting towards more frequent usage of digital channels. In developed Asia, customers connect with their banks over the Internet or via smartphones more often each month than over traditional channels.

In emerging Asia, traditional channels, especially ATMs, still dominate but customers are using Internet and smartphone banking almost five times more often than in 2011. Across Asia, consumers made fewer branch visits and calls in 2014 than in 2011.

However, a compelling proposition for digital consumers has to go beyond digital channels, McKinsey noted. In developed Asia, four attributes are more important to customers than the quality of digital channels: the quality of basic services, the strength of financial products, brand reputation, and the quality of customer service and experience.

Digital customers in developed Asia are especially certain of the specific features they want, notably, loyalty programmes, discounts offered over mobile devices, and complete online access to their portfolios. Some 83% of the respondents said, at a minimum, that these features might influence their choice of banks.

The survey results are based on a combination of online surveys and one-on-one 60-minute interviews of financial service consumers across Asia.

This year, McKinsey surveyed close to 16,000 consumers covering mass, mass affluent and affluent consumers across 13 markets in Asia including Japan, India and China as well as in South-East Asian countries like Singapore, Malaysia, Indonesia and the Philippines.

The rise of digital banking in Asia has been anticipated for many years, but several factors have combined recently to accelerate this trend. Among the most important changes is the presence of a much stronger ecosystem to enable digital banking, which includes the rapid increase in Internet and smartphone adoption and growth in e-commerce.

For incumbent banks, the stakes are particularly high. Among the consumers surveyed in developed Asian markets, more than 80% said they were willing to shift some of their holdings to a bank that offered a compelling digital proposition. In emerging Asia, more than 50% of consumers indicated such willingness.

Many types of accounts are in play, with respondents saying generally that they could shift 35-45% of saving account deposits, 40-50% of credit-card balances, and 40-45% of investment balances such as those held in mutual funds.

Despite the allure of digital offers, the survey also showed that physical bank branches and ATMs will continue to play a major role in banking across Asia. Incumbents and entrants alike will have to balance needs of consumers and regulators for a physical presence against the cost and reach advantages of digital services.

The rapid shift toward digital banking might suggest the demise of the bank branch, but several factors assure that branches will retain an important role for the foreseeable future. For example, consumers are using multiple channels, rather than turning solely to online or branch services.

Even in developed Asia, where digital banking is near universal, about a third of our respondents visited branches at least once a month.

Across Asia, the majority of banking customers polled said they seek personal advice and apply for products either in person at branches or through call centres. While purchases of some products, like credit cards, are becoming more common online, customers are still seeking personal advice on more complex products, such as mortgages, investments and life insurance, even after conducting initial research online.

Although branches are less grandiose today, McKinsey says, they provide a sense of security that is difficult for an online bank to match.