A recent study on the evolution of digital banking in APAC region finds that the region is now getting ready for large scale adoption of these challenger banks:
Worldwide, there are more than 400 digital or neo banks providing various banking services more efficiently and innovatively and challenging the traditional banks that shy away from offering such services. And the number of neobanks are just growing. The Asia-Pacific region is today one of the hotspots of not just fintechs but organizations, including financial services organizations, that make use of the prowess of the fintechs.
A study titled ‘Digital Banking in Asia-Pacific’ by BPC Banking Technologies and Fintech Consultancy Group, or Fincog, brings out the fact that an additional 663 million people in the region will start using mobile internet for the first time by 2025, which will drive the proliferation of the fintech ecosystem. It also points out that in the years between 2018-2020 consumer usage rates of fintech services have doubled, and in some instances even tripled, across APAC. This in some ways has helped in the rise of neobanks in the region.
Says the study: “To date, Asia-Pacific is home to 68 neo banks. While this figure lags significantly behind the European and US markets, this is only the sign of a less mature market, which is expected to grow phenomenally once regulations are better defined. Notably, between 2012 and 2021, the market has grown at a CAGR of 37%. India is the leading country in terms of the number of neobanks with 14, while in Eastern Asia, Hong Kong has the highest number of digital banks at 12. On the other hand, China, often considered the global leader in digital banking with its 220 million neo bank customers, is only home to 4 neo banks.”
GENESIS OF NEOBANKS
The study points out to the lack of trust and reluctance on the part customers across the region to switch to an unknown provider as opposed to the incumbent institutions that they trust as the key limiting factors that inhibit people switching to digital banks. Additionally, a significant number of consumers are simply unaware of the existence of these challenger banks or simply did not understand how they operated, it adds.
“However, 70% of Asia-Pacific consumers would be at least willing to consider a financial product offered by a non-financial provider, with a specific preference for digital banking solutions offered by already established retailers, tech groups or telecommunications firms. In rural regions particularly, enabling costs have also been a significant customer barrier,” it explains.
SUPERAPPS – GAME CHANGER
The study also talks about ‘SuperApps’, a phenomenon which is unique to the region, created as a result of the rise of JVs, which emerged due to regulations. SuperApps offer a marketplace of services of the parent company as well as offering products by third-parties, gathered under one umbrella. SuperApps allow consumers to chat with friends on social media, order food from their favourite restaurants, do some online shopping, and take out a loan all within one platform. “These have become so successful because of their ability to integrate an entire customer journey within a single platform, offering significant cost savings and creating an overall sense of trust and high levels of consumer loyalty,” the study says.
The study maintains that the APAC region is ripe with opportunity and could be headed towards leading the global fintech movement. South East Asia specifically, which is growing at unparalleled pace and is currently less established in the digital banking space, appears to be a specifically interesting market to follow, it says.
The study finds that unlike the blanket-approach that neobanks in Europe have adopted to enter multiple markets simultaneously, consumer needs and expectations vary greatly within and between countries in APAC. Therefore, players wanting to enter this field in APAC region, should develop targeted, localized products and propositions, embrace partnership opportunities within an open tech ecosystem and utilize customer insights with a data-driven approach to successfully attract consumers.
Nevertheless, a plethora of opportunities still exists to focus on the vast unbanked and underserved population in the region, who demand low-cost digital services accessible in rural societies, says the study, adding there is an increased need for non-financial services to drive added-value to underserved customers through embedded finance. It, however, suggests that as the phenomenon of SuperApps continues to rule the market, and joint ventures and consortiums continue to be the dominant receiver of digital banking licenses, it is highly advisable that new entrants follow a similar business model.