Traditional banks are under fierce rivalry from new competitors, both big tech companies and smaller fintech start-ups. Initially, existing regulators were making it harder for new entrants to challenge banks, but this is starting to change. In Hong Kong, Chinese technology firms such as Alibaba, Tencent and Xioami were recently granted virtual banking licenses. They can now compete head-to-head with traditional banks on a level playing field. To preserve their market share, banks need to reposition themselves in the market and offer customers a better digital experience. Simply hiring a digital team and occasionally implementing stand-alone digital initiatives will fall short.
1. Highlight the unique value proposition
Current product offerings must be restructured and banks need to set up customer-specific solutions which clearly communicate what the bank stands for, how it operates, and why it deserves their business. It is crucial to focus on customer segmentation, as the products and services customers value vary widely across segments. Banks need to devise a strategy limiting some clients’ access to specific high-value services unless they’re willing to pay more.
2. Strengthen customer relationships
Fintechs start out by serving low-cost solutions to niche customer groups. After which, they usually follow a land-and-expand strategy and offer ancillary services or provide access to additional asset classes. A good example is Revolut or Transferwise in the payments and money transfer space. Traditional banks, on the other hand, offer a spread of products and services which they can leverage as a strength. To retain customers, it’s crucial for banks to strengthen their personal relationships with the right customers. Relationship Managers’ (RM) personal service and advice are the best counterstrategy because building relationships with their clients is the best way to reduce churn.
As fintechs are better equipped to charge low prices, banks need to offer price reductions to remain competitive but these discounts should be strategic, using a relationship-based pricing approach to target customers who deserve these concessions.
3. Optimise the product offering and monetisation strategy
Banks should prioritise the monetisation of their advice and wealth planning services, turning them into new, recurring revenue streams. A large number of clients in Asia receive advice for free. Hence, they are currently less willing to pay for it because they do not see the value. In addition, the price gap between self-directed business and contracted mandates is too large. One solution is to offer a low-cost, digitally enhanced entry advisory mandates with personalised investment recommendations sent out via the online channel. To reduce the overall costs, banks should automate advisory processes.
4. Build ecosystems
With the entrance of large technology giants like Apple and Alibaba that combine their tech business with finance, banks need to innovate faster than ever to remain competitive in terms of the value they provide to customers. These large tech companies typically first serve other customer needs such as e-commerce before extending into finance, which gives them a large network advantage in terms of service and customer pool. Banks need to focus their efforts on locking in customers by providing them with their own ecosystem and getting suitable partners like airlines, insurers, fintechs, and retailers.
5. Create an exceptional customer experience
Fintechs excel in offering a simple client on-boarding process. For client servicing, they use artificial intelligence and machine learning, which allows them to target the appropriate customer with personalised services. Banks need to use data-driven insights and service recommendations across the entire customer journey. Smart revenue management software can be used to help RMs analyse the entire client relationship, recommend the next-best products and services, and improve customer retention.
Banks need to develop a prioritised transformation roadmap, rewire the core of their organisation and re-build a new bank from the ground up. Banks need to get hold of the next generation before it is too late. If you lose your potential client base now, they will never come back.
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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Dr. Silvio Struebi is a Partner at Simon-Kucher's Hong Kong and Singapore Office. He is a member of the Global Banking Practice and heads the company's banking operations in APAC.
Desi Soetanto and Ryan Lim are Consultants at Simon-Kucher & Partners.