The digital banking industry in Asia is still in its nascent stages, however, the industry is presently experiencing the potential onset of a virtual banking trend as we see more and more countries begin to issue digital banking licenses or regulatory frameworks to promote digital banks.
We analyzed the digital banks that have already received a license to operate by their respective financial authorities and those that are in the process of applying for one and we found three major strategies that will drive the industry’s expansion in Asia:
Shifting Traditional to Digital Banking
We see the shift from traditional to digital as the first wave of development in digital banking where companies offer banking services online by automating many of the banks’ existing processes both on the customer interfacing front-end and operations back-end. This provides consumers with on-demand convenience while maintaining a lower cost structure for the bank.
These cost-savings allow these digital banks to offer higher interest rates on deposits and lower transaction fees, which in turn makes them a more attractive option for consumers. For developed countries, the initial target of digital banks would be the younger tech-savvy demographic who prioritizes convenience and higher interest rates.
Banking-as-a-Service and Fintech Partnerships
Beyond the basic value proposition of digital banks, companies under this second category have leveraged new technologies such as blockchain, AI, or cloud computing to offer personalized offerings. Certain digital banks in this category allow for other digital platforms like online travel portals and e-commerce sites to connect to the bank’s API to make exclusive offers. Meanwhile, the digital bank can leverage data collected from its partners to power its proprietary credit scoring systems - allowing for near-instant loan approvals for eligible customers.
Digital banks are also able to package certain aspects of their business model such as back-end operations software or credit scoring system into a B2B product offering that allows other companies to launch their own digital banks. This BaaS strategy is one used mostly by traditional banks in partnership with fintech service providers, as it allows new technology players to offer innovative financial services under the license of traditional banks.
Leveraging a Super-App Strategy
Digital banks under this strategy share similar characteristics to those under the BaaS strategy, the key difference lies in if the digital bank owns the other digital platforms from which it can integrate or collect data from.
A digital banking super app strategy is mostly the domain of large tech companies, as traditional banks generally don’t enjoy technology as a core competency and startups don’t yet have the scale. An example of a digital bank under this category is WeBank by Chinese tech giant Tencent. The digital banks under this category could potentially be the most disruptive threat to traditional banks as large tech companies begin to acquire their own digital banking licenses.
The table below classifies the digital banks of developed Asian economies based on their strategies.
To get an in-depth view on each of the countries and the strategies adopted by digital banks in developing economies, read our full note on Smartkarma in the link below.