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Threat or opportunity? boosting digital banking in Asia

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More neo-banks are entering Asian markets to meet the needs of tech-savvy and information hungry customers that expect their banks to serve them wherever they are. This customer-centric and digitally driven approach resonates especially well with millennials.

Meniga, an Islandic digital banking solutions provider, held a panel discussion with Nordic Innovation House in Singapore to discuss digital banking trends in Asia.

The panel covered a wide range of topics based on lessons learned from neo-banks that financial institutions could consider when they plan their digital banking strategies.

The rise of neobanks in Asia

Originally, neo-banks emerged to fulfil one customer need, for example, commission-free FX trades, deposit accounts for millennials or personal finance management. Their offering has expanded since based on customer feedback and technology advancements.

The biggest growth drivers for neo-banks have been the convenience, low fees, P2P payments, easier loan approval and transparency with fewer surprise charges. Neo-banks also reach out to underserved customer segments that fall out of traditional financial institutions’ focus.

A better understanding of customer behaviour through data is an advantage to neo-banks. They can launch features and develop partnerships that their users require much faster than traditional financial institutions. This approach has led neo-banks to win millions of customers in multiple markets in a short period of time.

Regulators play a big part in unlocking the growth potential for neo-banks, particularly in Asia. Hong Kong, Taiwan, and Singapore have already rolled out their virtual banking licensing, Thailand and Malaysia are expected to follow.

Also Read: Fintech to cause decline in Asian banks

However, current laws and regulations may not cover all the challenges with new services and functions from neo-banks, leading to confusion and potential gaps in consumer protection. Regulators are designing the licenses to avoid direct competition with traditional banks, with the aim to meet the needs of underserved Asian consumers and vast SME audience.

Thinking customer first – the era of hyper-personalisation

Putting customer convenience in the centre of banking services is a native approach for neo-banks, but difficult to achieve on traditional banking.

A full digital banking experience for banks’ customers should give them a chance to choose the services they like. For example, Monzo in the UK has a public online service for their customers to suggest directly what features they would like to have in their app, which has influenced Monzo’s service offering.

Banks can enrich personalised customer experience by using innovation and design thinking to create seamless and simple mobile and online experiences. Meaningful engagement in digital banking apps retains banking customers and inspires them to form better financial habits. To increase loyalty, adopting social features like gaming and messaging can help.

Asian consumers are willing to try new features but will require social engagement. Banks can learn a lot from the user experience of Facebook, Fitbit, Amazon and other digital leaders with hyper-personalised log-in pages, real-time engagement and reward systems.

Personalised rewards in the form of cash-backs are an easy and practical way to thank customers for using the app, especially if these rewards are received smoothly by the customer.

There’s a lot of technology out there

With the ability to provide a personal touch, new technologies can greatly enhance user experience. Tracking behavioural patterns to validate transactions in real-time can fasten fraud detection and provide customers with different solutions to banking problems before they happen.

Technology should not, however, drive the conversation on customer service. Chatbots, blockchain and AI solve massive tasks but banks need to keep in mind what is the experience and actual benefits from customers’ perspective.

Finding the right technology to deliver the service requires often experiential innovation. Biometrics and voice offer options to rethink customer onboarding and log-in journey. Rich open banking APIs offer endless possibilities to re-imagine banking services, build meaningful customer engagement and develop new revenue streams, an area that neo-banks are constantly exploring.

The magnitude of data in customer-driven business

Financial information is increasingly available for sharing. With open banking API access, a variety of services can combine data from multiple secure sources to offer innovative solutions.

Data is essential for customer experience and innovation – by understanding data, banks can discover new customer segments and deliver tailored product recommendations at the right time in the right channel.

Data also allows multiple ways to measure the performance of the services, customer engagement and campaigns. Using machine learning and artificial intelligence, banks can deliver proactive advice and recommend products to customers through notifications.

However, transparency is essential to keep in mind when leveraging open banking APIs. Regulations, such as European PSD2 and GDPR, force banks both open up and protect consumer data while giving people real benefits in return for the use of their data.

Steep innovation path for digital banking ambitions

Open banking drives financial institutions to up their game with innovative use of customer data and partnerships. Traditional banks who have focused on holding their customers instead of solving their problems might increasingly suffer loss. According to Gartner, banks face a growing risk of failure if they continue to maintain outdated operating models.

Established financial service providers will have to move faster on digital by building platforms and finding niche products and services.

Some banks have started to develop their digital-only brands and launching new services, like PayNow, a peer-to-peer fund transfer service available to retail customers of nine participating banks in Singapore, and DBS, who launched a digital bank in both India and Indonesia, to stay ahead of the game from neo-banks.

Nevertheless, the challenge stays: can the banks tackle slow internal processes and integration with their legacy systems to launch digital features and products as quickly and efficiently as neo-banks?

This article was first published on e27, on Oct. 30.