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Banking & Finance

Where to go with digital banking

Released at: 17:51, 20/05/2018

Where to go with digital banking

Illustrative image (Source: news.zing.vn)

Recent McKinsey surveys provide banks with an indication of what their focus should be regarding digital banking.

According to the recent “Asia’s Digital Banking Race: Giving Customers What They Want” survey, released in mid-April by McKinsey, digital banking continues to experience rapid growth in both emerging and developed Asia. Smartphone banking is outpacing all other types in growth, highlighting the challenges for traditional banks in the region and the opportunities for their online-only counterparts.

This trend is indicative of behavior in Vietnam, which has shown significant advances in digital banking use since McKinsey’s 2014 survey, with digital banking penetration increasing to 48 per cent since and digitally-active customers buying 1.3 times more products than non-digital customers.

The digital banking penetration rate of 48 per cent is lower than the median for Developed Asia of around 97 per cent and 52 per cent for Emerging Asia. The percentage of digitally active customers (those who use digital banking on a fortnightly basis and have made e-commerce purchases in the last six months) has grown significantly since 2014, growing four times (to ~30 per cent in 2017). This trend shows the increased relevance of digital channels for day-to-day customer operations. 

Further, digitally active consumers bought ~1.3 times products compared to non-digital consumers in the past 12 months and own ~1.6 times products, indicating a strong correlation between digital engagement and value generation. The survey results highlight a significant opportunity for digital banking entities: approximately 60 per cent of customers in Vietnam would consider opening an account with a branchless digital-only bank, and those willing to bank digitally would be willing to shift ~30 per cent of their total wallets to the digital account.

The survey covered around 17,000 respondents from 15 Asian markets, with a number of broader findings across Asia. Digital banking penetration has doubled in Emerging Asia, growing 1.5 to 3 times since the last survey in 2014. Smartphone banking penetration has grown at a faster pace than overall digital banking, jumping two- to four-fold in many Emerging Asian countries. Nearly half of Emerging Asian respondents not using digital banking today are likely to do so in future, meaning digital banking penetration is expected to accelerate significantly. The percentage of digitally-active customers has grown significantly since 2014, doubling in Emerging Asia and growing 1.2 times in Developed Asia. 

These trends demonstrate the increasing importance of digital channels for day-to-day customer operations across the region and highlight a significant opportunity for digital banking entities. Approximately 55 to 80 per cent of customers in Asia would consider opening an account with a branchless, digital-only bank, while 35 to 50 per cent of consumers change their purchasing decisions based on evaluations done on digital channels. 

“For banks, these changes represent both a challenge and an opportunity,” said Mr. Vinayak HV, Partner at McKinsey & Company and Head of the Asia Pacific Digital Banking Practice. “What’s clear is that they cannot rely on their existing business models and need to consciously invest to change their businesses in line with rapid changes in consumer sentiment and behavior. Many are already doing this or looking to both protect their existing share and capture newer opportunities. Meanwhile, shifts in consumer behavior is also creating opportunities for newer attackers both platform players and emerging fintechs.” 

McKinsey’s proprietary Asia PFS Survey has been conducted every three years since 1998 and now covers around 17,000 respondents from 15 Asian markets. Each new survey is refreshed to address changes in customer behavior, reflecting themes like digital banking and the use of fintech or non-banking payment solutions. The 2017 edition covered Australia, China, Hong Kong (China), India, Indonesia, Japan, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam. 

 According to your recent survey, entitled “Asian Banking in the Age of Digital Customer”, one of the key findings for Vietnam included digital banking penetration growing to 48 per cent. How do you view this figure compared to previous years?

As with the rest of Emerging Asia, digital banking penetration in Vietnam is on the rise, with the majority of customers connecting via smartphones.

■ What are the key challenges for banks in Vietnam in developing digital banking? 

Although banks are building digital offerings, the survey shows that consumers are much less satisfied with digital offerings than branches. With consumers now comparing their experience on other digital touch points like e-commerce and travel, banks need to up their game on customer experience. While consumers are growing more engaged and digital, they also have many more digital options, including offers from non-banking companies and fintechs ready to fulfil their financial needs. 

In a fast-changing digital landscape, incumbent banks will need to scale up their capabilities in four important areas: digital marketing for customer acquisition and engagement; value-generation through digitally active consumers; the judicious use of customer data to provide a differentiated proposition; and embedding banking in customers’ daily lives for seamless transactions.

 One of the factors in developing digital banking is to build trust and confidence among consumers about the security of online transactions. Do you agree? What is your advice for banks in Vietnam to develop digital banking? 

Yes, one of the biggest barriers to the adoption of digital banking by customers is security concerns, along with the perceived complexity of use. 

Banks actually play a big role in changing these perceptions and converting customers to multi-channels. The survey also shows that the strongest influencer in getting customers to go online is the bank itself: “My bank showed me how to use digital banking” was the most common factor that triggered the first digital banking transaction.

 More and more Vietnamese consumers are turning to computers, smartphones, and tablets to do business with their banks. How do you see the prospects for digital banking developing in Vietnam over the coming years? 

With 30 to 50 per cent of those not using digital banking expressing the likelihood that they will eventually make the switch, growth in digital banking penetration is expected to accelerate in Emerging Asia, including Vietnam.

 What is your view on designing a legal framework to encourage development in this area while avoiding confusion for governing authorities? 

Across countries we see two trends: 1) Regulators are increasingly embracing digital (for instance, leveraging technology for KYC requirements), and 2) Promotion of innovation via “Sandbox” for fintechs (allowing them to operate within the sandbox requirements).

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