Pandemic-driven lockdowns have increased global reliance on and demand for digital financial services such as digital payments and remittance– especially within Southeast Asia.
Boosted by accelerated digital adoption and rising consumer dissatisfaction with traditional bank offerings, not only is the growing digital banking industry expected to generate up to US$60 billion by 2025, but the influence of traditional banks is waning as a result and 18 per cent are projected to shut by 2030.
Many digital banks in the region were created to cater for the sizeable unbanked and underbanked population in Southeast Asia, which is one of the world’s largest.
Their success, as well as the latent opportunity of a previously untapped market, has led to wider acceptance among regional financial regulators and could herald a major democratisation of financial services – as well as driving financial inclusion in SEA.
Staying in the game
Digital banks must survive to be disruptors and drive change. As the incumbent, traditional banks have the advantage of brand trust and recognition, making it hard for digital banks to compete as a newer player.
Some digital banks in other regions have been unsuccessful due to poor funding strategies, focusing on the wrong demographic or failing to inspire customer trust and loyalty, so Southeast Asian digital banks, specifically in the emerging markets like Singapore, Malaysia and Philippines, must avoid repeating these mistakes.
As digital natives, digital banks can leverage technology to lower the cost of funding and provide a better customer experience. For instance, using AI for customer service reduces labour dependency, turnaround times and customer waiting times, resulting in better efficiency and higher customer satisfaction.
Digital banks who have successfully leveraged technology have reported saving 20 to 30 per cent more on their per-account operation costs compared to traditional banks.
Digital banks also need to capture and grow overlooked market segments– such as the underbanked. By adopting a customer-centric vision, they can understand the specialised needs of this demographic and provide a unique value proposition that meets those needs.
This will go a long way towards increasing customer trust and stickiness, thereby helping digital banks build their customer base, scale across the region and further drive financial inclusion in SEA.
Diversifying and personalising lending and financial products
Despite significant inefficiencies in traditional lending systems, resulting in millions of creditworthy individuals being underserved or overpaying for loans, digital banks in other regions have not adequately filled the gap with innovative lending products.
Considering the digital lending industry is projected to be worth US$110 billion by 2025, this is a missed opportunity that Southeast Asian digital banks would do well to capitalise on.
The ‘old wine in new casks’ approach will not be sufficient here: digital banks must innovate to offer novel lending products and experiences to really differentiate themselves from traditional banks.
With data and technology, they can help the unbanked open accounts with no minimum deposits, offer alternative credit scoring assessments for the underserved to qualify for loans, grant loans in five seconds or waive processing or early settlement fees for a higher borrowing limit – all uncommon features among less agile traditional banks.
Digital banks also need not limit themselves to traditional financial products. Southeast Asia’s heterogenous makeup and sizeable population also mean that there are markets for a diverse range of lending products, many of which remain underserved.
Some digital banks in the region have achieved success by innovating new lending products to capitalise on these gaps, such as creating specialised Islamic products and women-focused banking solutions. If digital banks continue to differentiate themselves with more financial innovation, this ensures that more financial needs are being met over a wider demographic distribution by default.
Expanding reach via consortia-driven ecosystems
Digital banks in other geographical regions often operate in vertical structures, which limit their ability to scale and has sometimes led to their downfall.
In contrast, many digital banks in Asia are consortium-driven, which is where partnerships are formed with established companies and associations to provide a myriad of services to customers across super apps or similar platforms. This allows digital banks to reach a far wider pool of customers and makes it easier to onboard them.
Being part of a consortium gives digital banks greater access to more business and consumer data ecosystems. With data-driven technology and analytics, they can be more responsive to changing consumer needs and wants by creating better customer-centric experiences and products that leverage on the strengths of all ecosystem members.
Some consortiums embed digital banking as part of a wider portfolio of everyday services on a single platform, which simplifies and improves financial accessibility – a boon for the underbanked and underserved.
Leading the way for financial inclusion in SEA
The first step to addressing the economic divide within the population is to ensure that everyone has the same access to and understanding of important financial services.
Digital banks play an important role in narrowing the gap by lowering the barriers for the underbanked and the underserved to participate in the financial ecosystem – as long as they can stay abreast of the unique needs of this market and innovate accordingly.
Ultimately, digital banks pave the way for a much-needed shakeup of the financial system and the time is right for them to capitalise on the supportive regulatory climate to improve financial service access.
In this modern age, no one should be deprived of financial services and healthy competition through innovation can only be a net positive for Southeast Asia’s overall socioeconomic growth – not to mention improving lives all around.
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Image credit: antonioguillem
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