Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
Germany
Hong Kong
USA
Switzerland
Singapore
United Kingdom
The consumer use of digital banking has surged dramatically in Asia-Pacific, particularly among emerging markets, according to the latest Personal Financial Services (PFS) Survey by McKinsey & Company.
The 2021 PFS survey revealed that almost nine out of 10 consumers across Asia-Pacific’s emerging and developed countries actively use digital banking. The management consulting firm also found that most people are willing to use digital channels to purchase more banking services.
While active digital banking users in developed countries in the region have remained at 90%, those in emerging markets have grown to 88% in 2021 from 55% in 2017. The survey asked 20,000 urban banked respondents from 15 Asia-Pacific countries. The developed markets included were Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea, and Taiwan. On the other hand, China, India, Indonesia, Malaysia, the Philippines, Sri Lanka, Thailand, and Vietnam were the emerging markets covered by the survey.
In addition to digital banking, the survey showed that fintech tools and e-wallets in emerging markets surpassed the level of adoption among the region’s developed countries.
Fintech apps and e-wallet penetration in developed Asia-Pacific economies were at 43% in 2021, while it was higher in the region’s emerging markets at 54%. According to McKinsey, this trend among emerging markets in the region escalated quickly. It was likely boosted by digital trends, such as the increasing popularity of digital channels for various transactions, like banking and teleconferencing.
The consulting firm also acknowledged the impact of the Covid-19 pandemic on the broader adoption of digital banking. It expects the trend to continue even after the pandemic lets up.
Leaps and bounds: Digital banking adoption in Asia-Pacific
One of the emerging markets in Asia-Pacific that demonstrated a dramatic increase in digital banking adoption is Indonesia. The active use of digital banking among customers in Indonesia has increased to around 78% in 2021 from 57% in 2017. This means that approximately 78% of Indonesians now use digital banking at least once a month via the internet browser or mobile apps. PFS survey respondents say that only 30% of their weekly expenditures involve cash and that 80% of them expect to maintain this practice or further increase their use of digital banking channels even after the pandemic.
Another country that stood out in the survey is Vietnam, which topped the overall increase in digital banking adoption among Asia-Pacific emerging markets by increasing to 82% in 2021 from 41% in 2017. The use of fintech and e-wallets in the country also significantly went up to a whopping 56% in 2021 from a mere 16% in 2017.
The discrepancy between interest and sales
Despite the increase in customer touchpoints via digital channels to 72% in 2021 from 41% in 2017, conversion from the interest in digital products to digital sales has been insufficient among banks in Asia-Pacific.
The McKinsey report indicated that only 20% to 30% have purchased bank products through mobile app or online, despite 70% of survey respondents expressing their willingness to use these digital channels in their bank product purchases.
According to the company, the finding most likely stems from banks having limited digital offerings and ineffective engagement with existing digital users to improve relationships. As a result, new fintech and digital-first companies are filling the gap for the demand.
McKinsey suggested three key areas that existing banks should focus on to address this discrepancy by revamping their business and delivery models. These are customer engagement, overall competitive positioning, and the value of branches.
The firm also emphasised the need for banks to develop their capabilities to implement artificial intelligence (AI)-powered digital-first business model. They need to become a leading innovator to remain relevant and thrive.
Policy changes towards digital banking in Asia-Pacific
In Singapore, over 70% of consumers have expressed their willingness to migrate to digital-first banks, signalling strong competition for established banks in the city-state. The Monetary Authority of Singapore (MAS) has awarded the Grab-Singtel consortium and tech giant Sea Group digital full bank licences.
In addition, Ant Group and a consortium formed by Greenland Financial Holdings, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management received digital wholesale bank licences from MAS. These digital-first firms are expected to begin operations in Singapore in early 2022.
Meanwhile, the Malaysian central bank’s announcement about its decision to grant up to five digital bank licenses in the first quarter of 2022 has generated enough buzz that existing banks are already rolling out their own digital channels and fintech tools. Last July, Bank Negara Malaysia (BNM) said it received 29 applications for digital banking licenses. Among these applicants are Grab, Singtel, Sea Group, and AirAsia.
Compared with Singapore’s requirement of $1.1 bn in capital funds for digital banks to enter its market, Malaysia imposes a much lower requirement at only $72 m.
