Smartphone leads as emerging Asia embraces digital banking

Smartphone banking is outpacing all other types of digital growth, highlighting the challenges for traditional banks in the region and the opportunities for their online-only counterparts, according to the latest survey entitled ‘Asia’s digital Banking race: Giving customers what they want” by McKinsey yesterday.
 Key findings from the survey, which covers 15 Asian markets, including Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam.
The survey also focus on the doubling of digital banking penetration 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 2- to 4-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 here is expected to accelerate significantly.
The percentage of digitally active customers has grown significantly since 2014, doubling in Emerging Asia and growing 1.2x in Developed Asia.
 Approximately 55 to 80 per cent of customers in Asia would consider opening an account with a branchless, digital-only bank 35 per cent to 50 per cent of consumers change their buying decision based on evaluation done on digital channels.
Vinayak HV, Partner at McKinsey & Company and Head of the Asia Pacific Digital Banking Practice, said for banks, these changes represent both a challenge and an opportunity. 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 behaviour. 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."
Banking loyalty varies significantly between Developed and Emerging Asia: while around 70 percent of Emerging Asia consumers would recommend their bank to a friend or colleague, only around 40 percent of consumers would do so in Developed Asia.
 For banks, these changes represent both a challenge and an opportunity. 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 consumer sentiment and behaviour. Many are already doing this or looking to partner with Fintech businesses at the risk of being left behind.
 At the heart of this there is also the challenge of education. While many people are fully onboard with digital financial products, education still lacks in many respects. There is some resistance to certain types of products, and in some regions the regulatory landscape can pose a challenge for how services are delivered.
 Meanwhile, yesterday Moody’s Investors Service also announces the latest reported that Blockchain technology has the potential to significantly reduce the costs and time involved in cross-border banking transactions, increasing banks' efficiency but putting pressure on their fees and commissions.
Moody's report focuses on two specific areas in order to assess the potential disruption that Blockchain could cause: cross-border transactions and fee and commission income. The report notes that these are just two of the channels through which the technology is likely to impact bank operations.
"Blockchain has the potential to substantially change how a wide range of financial services are executed," said Colin Ellis, Moody's Managing Director -- Credit Strategy and the report's co-author. "Banks could benefit significantly from the development and implementation of blockchain technologies in terms of enhanced efficiency, cost savings and risk reduction.
"But the adoption of these technologies will also limit processing fees, commissions and gains on foreign exchange transactions, which will pressure revenue."
Swiss banks would be most exposed to reductions in fees and commission, with 50 per cent of their revenue coming from that source. Italian, Canadian, and Israeli banks follow at around 35 per cent. Meanwhile, banks in Asia Pacific, as well as some smaller European periphery countries, are relatively less prone to relying on fees and commissions in generating total revenue.