RETAIL BANKING | Contributed Content, Singapore
Liew Nam Soon

Seeking growth amidst disruption


Asian banks are focussed on finding growth under the current market conditions, which present opportunities in terms of new areas of business growth, as well as challenges in the form of competition from non-banks and evolving regulatory requirements.

Attractive growth opportunities exist in customer segments like small and medium-sized enterprises (SMEs), wealth management, and the unbanked in many emerging markets. There is plenty of innovation required, including leveraging data and technology to acquire and serve these customer segments to drive new revenue growth.

However, the challenge is that much of this innovation and disruption comes from financial technology (fintech) startups. If traditional banks do not respond adequately, they risk being made irrelevant. The other big challenge is that it is often not a level playing field between banks and fintechs. Compliance has added another layer of cost and complexity to this, making it difficult for banks to compete. However, regulations are evolving to address this challenge.

Ultimately, the winners will be those that can best acquire market share, with truly differentiating propositions while managing costs — of which there is no easy “one-size-fits-all” solution.

Emerging trends in the banking sector
One key trend is banks are looking for growth under market conditions where there is widespread disruption and competition. In the EY Global Banking Outlook 2017, only 11% of respondents expect their bank’s financial performance to improve significantly in the next 12 months. Over the next 12 months, banks are focussed on finding profitable growth through new business models, by leveraging data, technology, managing costs, and working with finfechs; meeting regulatory compliance and reporting standards; and enhancing cyber or data security.

There are a number of positive conditions, including rising affluence and previously unbanked segments in the emerging markets, which provide new revenue growth areas. Initiatives like the One Belt One Road has also had a positive impact on Asian businesses and investments, affording new financing opportunities for banks.

Additionally, there are rich opportunities in SME banking and wealth management. In SME banking, opportunities exist to apply alternative credit models and leverage digital offerings from finfechs to gain access to previously underserved corporate customers.

There are also new underserved consumer segments yearning for banking services like payments, transfers, investments, and savings. Personalised wealth management services is also no longer exclusive to the ultra-high net worth clientele. The mass affluent is also being targeted through robo-advisors and client wealth portals. Quicker onboarding is being enabled through digitalised processes with appropriate controls.

Disruption from finfechs and reaction from incumbents
Many banks in various countries are at different stages of being fully ready for a digital economy. Whilst there is strong awareness that disruption in the industry is real, many traditional banks are still bogged down by legacy systems and mindsets.

There are a number of challenges for banks:

  • Difficult decisions that have to be made on whether to acquire new, develop from scratch, or outsource to vendors or fintechs.
  • Customer front-end platforms, which are sometimes outdated or pale in comparison to those of non-banks. These platforms lose out in terms of customer experience to cater to an increasingly demanding new generation of clients that are also increasingly digitally savvy.
  • Traditional technology vendors who might not provide the right solution to help banks in revamping these systems and platforms — conversely, fintechs may only provide part of the solution and there is a need to “stitch” certain fintechs and traditional techs together.
  • Fintech innovations that are disrupting traditional banking models, and forcing them to rethink their customer acquisition and retention strategies.

It is interesting to observe that many regulators are beginning to level the playing field for financial institutions, applying common and customised regulatory frameworks for traditional banks and fintech players.

This move is helpful to embrace innovation while allowing safeguards for customer data and privacy.

On this, there are a number of key developments, such as:

  • Regulatory sandboxes that provide a safe environment for the testing and development of innovative solutions.
  • Banks are looking to collaborate with fintechs would still have to deal with issues regarding compliance, cybersecurity risks, and integration risks.
  • Fintechs may have the advantage of agility but banks have the advantage of experience, customer base, reach, and scalability.

The new normal for the banking sector
It is quite clear that we are well into a “new normal” for the banking sector. 

The old adage that “customer is king” is no longer a cliché, as customers now have a variety of choices for financial services from traditional banks and fintechs. Customers are spoilt for choice and get to cherry pick at competitive prices.

The EY Fintech Adoption Index 2017 has shown that fintech adoption is anticipated to increase significantly over the next 12 months. Banks have their work cut out for them to stay competitive while keeping an eye on cost and compliance. They need to think about what they can do to make sure they innovate their business models and not be disintermediated in areas like payments, investments, trade financing, wealth management, and lending.

The concept of banks as a main financial services provider could very well evolve and the winners that stay in the game will be the banks can evolve their business models with agility.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Liew Nam Soon

Liew Nam Soon

Liew Nam Soon is Asean Financial Services Market Leader at EY. He has over 20 years of consulting and industry experience in business transformation and implementation of technology and operations. He has worked in industries including retail, private and investment banking, asset management, corporate banking and life insurance.

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