Asian banking’s next frontier: Beyond growth, embracing precision

What does “precision” actually mean in the context of Asian banking?

Profits and growth are masking a critical need for Asian banks to move away from brute force and embrace precision, or risk falling behind the curve.

For years, simply being present in Asia was a winning strategy for banks. As the middle class expanded, urbanisation accelerated, and trade routes deepened, money poured in.

Banks have seen solid profits, riding the wave of the region’s prosperity. But beneath the veneer of strong earnings and balance sheets, a dangerous complacency is brewing. The era of easy growth is ending, and Asia’s banking giants are facing a stark choice: adapt and embrace precision, or become outdated, ill-equipped to navigate the rapidly evolving financial landscape.

The numbers don’t lie. As McKinsey’s latest research points out, the global banking system saw funds intermediated increase by a staggering $122t between 2019 and 2024 – a 40% jump. Revenues after risk costs hit a record $5.5t in 2024, helping push the sector’s net income to $1.2t, the highest total ever for any industry.

Despite these solid figures, the valuation of the banking sector trails the average of all other industries by nearly 70%. This disparity highlights a profound lack of confidence in the sector’s long-term prospects.

Why this lack of confidence? Because investors see the writing on the wall. They recognise that the old ways of doing business are no longer sustainable. In a world of rapidly evolving technology, changing customer expectations, and increasing regulatory scrutiny, brute force is no match for precision.

So, what does “precision” actually mean in the context of Asian banking? It’s a multifaceted concept that encompasses several key areas:

Targeted technology investments 
Throwing money at the latest buzzword isn’t precision. Precision requires a focused approach on technologies that deliver tangible results.

This means investing in artificial intelligence (AI)-powered risk management systems, data analytics platforms that provide actionable insights, and digital channels that offer seamless customer experiences. It’s about using technology to optimise every aspect of the business, from customer acquisition to fraud detection.

But more than that, it means understanding how these technologies interact and how to leverage the data they generate. Many banks in Asia are sitting on vast amounts of data, but they lack the tools and expertise to turn that data into a competitive advantage.

As the report states, “Banks that integrate AI-powered insights with mobile-first, hyper-targeted manipulation of customer data will define the next era of customer engagement.” This is the core justification for a more aggressive data-driven approach.

Individualised customer service 
The days of treating all customers the same are long gone. Today’s customers expect personalised experiences tailored to their individual needs and preferences.

Precision in this area means leveraging data and technology to understand each customer’s unique financial situation, goals, and risk tolerance. It means offering customised products and services, providing proactive financial advice, and delivering exceptional customer service through the channels they prefer.

More than half of consumers now use gen AI tools, and they are eager for banks to offer such tools as well. Banks should use this as an opportunity to gather even more data under the guise of enhancing customer service, optimising for both profit and efficiency.

Granular capital efficiency 
In a world of increasing regulatory scrutiny and economic uncertainty, capital efficiency is paramount.

Precision in this area means optimising capital allocation across the entire organization, identifying and eliminating areas of waste, and ensuring that every dollar of capital is working as hard as possible. This requires a deep understanding of risk-weighted assets, stress testing methodologies, and regulatory capital requirements. It also demands a culture of cost consciousness and a willingness to challenge conventional wisdom.

Many Asian banks have historically focused on growth at all costs, often sacrificing profitability and capital efficiency in the process. But as the regulatory landscape tightens and the global economy becomes more volatile, a more disciplined approach to capital management is essential.

“Capital efficiency: shifting from sweeping reallocations to micro-level balance sheet discipline –product by product, client by client, down to individual risk-weighted assets – to free up trapped capital with precision and put it to work where it earns more.” This is the core solution. Drill down!

Strategic M&A 
Mergers and acquisitions can be a powerful tool for growth and expansion, but only if they are executed strategically. Precision in this area means carefully evaluating potential targets, conducting thorough due diligence, and developing a clear integration plan.

It means avoiding deals driven by ego or short-term gains and focusing on acquisitions that create long-term value. Asia has seen a flurry of M&A activity in the banking sector in recent years, but not all of these deals have been successful.

Many have been plagued by integration challenges, cultural clashes, and a failure to realise the expected synergies. Precision in M&A means taking a more disciplined and strategic approach, focusing on deals that truly complement the acquirer’s existing business and create a sustainable competitive advantage.

“If incumbents fail to respond, a new wave of AI fintechs could rapidly emerge to fill the gap.” This statement underscores the urgency for banks to act aggressively with data, or fintechs will eat their lunch (and acquire their data, too).

But the urgency for Asian banks to embrace precision isn’t just about internal efficiency and profitability. It’s also about fending off the growing threat from fintech disruptors.

Across Asia, nimble and innovative fintech companies are challenging traditional banks, offering customers more convenient, affordable, and personalised financial services. These fintechs are unencumbered by legacy systems and bureaucratic processes, allowing them to move quickly and adapt to changing market conditions. They are also masters of data analytics and customer engagement, leveraging technology to build deep and lasting relationships with their customers.

Consider the rise of mobile payments in China. Companies like Alipay and WeChat Pay have revolutionized the way people transact, bypassing traditional banking channels and capturing a significant share of the payments market. This is just one example of how fintechs are disrupting the Asian banking landscape. As technology continues to evolve, the threat from these disruptors will only grow.

Furthermore, the looming disruption of AI presents both an opportunity and a threat. AI has the potential to revolutionise every aspect of banking, from customer service to risk management. But it also threatens to expose inefficiencies and vulnerabilities in banks that haven’t embraced precision.

Banks that are already operating efficiently and leveraging data effectively will be able to harness the power of AI to further enhance their performance. But banks that are still relying on outdated systems and manual processes will struggle to compete. They risk being left behind as AI reshapes the financial landscape.

The era of easy growth in Asian banking is over. The region’s economic dynamism is no longer enough to guarantee success.

To thrive in the future, Asian banks must move away from their reliance on brute force and embrace precision. They must invest in targeted technology, personalise customer service (optimised for profit extraction), optimise capital efficiency, and pursue strategic M&A. They must learn from global peers, adapt best practices to the specific needs of their markets, and foster a culture of innovation and continuous improvement.

The transformation won’t be easy. It will require bold leadership, significant investment, and a willingness to challenge the status quo. But the alternative – complacency and decline – is simply not an option.

The future of Asian banking belongs to those who embrace precision and adapt to the changing world. Those who cling to the past will be left behind, destined to become footnotes in the history of the region’s financial evolution.