Digital banks looking to succeed in Singapore cannot simply look to grow their customer base and offer competitive pricing, but will also need to ensure they have a growth strategy that is sustainable. Data, too, will prove vital in enabling these market entrants to differentiate their services from traditional banks and provide richer customer experience.
If there is one thing market entrants could learn from their peers in other markets such as the UK, it would be that focusing aggressively on customer acquisition alone will not be sufficient. They will have to establish a sustainable business model, which is critical for ensuring success is not be short-lived, said Forrester's senior analyst Zhi-Ying Barry, in an email interview.
And with traditional banks such as DBS already investing heavily in and operating their own digital services, new players would have to differentiate themselves through the user experience -- enabled by digital technologies -- they deliver to customers, Barry said.
Singapore last June announced plans to issue up to five digital bank licences as part of efforts to add market diversity and boost the banking system in the country, as it looked to become a digital economy. This meant that non-bank organisations would be able to apply for a licence and offer digital banking services, according to the Monetary Authority of Singapore (MAS), which said it had received 21 applicants for the licences, including seven for the digital full bank licences, with the remaining applications vying for digital wholesale bank licences.
Organisations that have publicly announced their bids included a consortium led by local wellness and lifestyle brand V3 Group and contactless card company EZ-Link, games hardware maker Razer, and internet company Sea, which owns e-commerce company Shopee.
Originally slated to be announced in June, the winning bids will now be revealed in the second half of the year after MAS extended its assessment period for the licences due to the coronavirus outbreak.
And once secured, the success of digital bank licensees would depend on how well these new players are able to understand the challenges faced by small and midsized-businesses (SMBs) faced and their ability to offer hybrid experiences to serve their customers, said Barry.
Adobe's Southeast Asia managing director Simon Dale concurred, noting that customer experience would be key for digital players, which would have to focus on what customers wanted, identify gaps in user experience, and resolve their pain points.
Digital banks in the UK, for instance, were found to stand out for their intuitive design and user-friendly interface, Dale said, pointing to a Forrester study. They also tapped artificial intelligence (AI) to categorise transactions and predict spending patterns, he added.
"Without the limitations of legacy culture, [digital banks] can innovate faster and continually provide useful tools to improve their customers' lives," he noted. These companies could, for instance, simplify processes such as loan application and leverage AI to proactively target potential customers with tailored products and other personalised features.
He added that some of the more successful British digital banks already had amassed millions of customers with their customer-centric approach.
In Singapore, bidding consortium Beyond is betting on the combined strengths of its partners -- several of which, it says, are established companies in Singapore -- to target SMBs. It also will be looking to serve customers across different industries including real estate, construction, mass transport, insurance, and retail.
Led by Singapore's wellness and lifestyle brand V3 Group and contactless card company EZ-Link, the group also includes local property developer Far East Organisation, Singapore Business Federation (SBF), Mitsui Sumitomo Insurance (MSI), and Heliconia Capital Manager, which is a subsidiary under state-owned investment firm Temasek Holdings.
The SMB market, specifically, would be a key target for Beyond, its chairman-designate Gan Chee Yen told ZDNet. He noted that close to 70% in Singapore worked in the SMB ecosystem and these businesses contributed a significant portion of the country's gross domestic product.
The consortium hoped to be a digital bank that was "guided by behavioural economics" and operated on an open platform approach, Gan said.
"We aim to engage and enable [SMBs] to grow through improved access to financing, support to expand into new markets, and more targeted, innovative banking solutions that directly cater to their needs," he said. He pointed to the recent establishment of Beyond Lab, a regional digital academy that focused on enabling SMBs to "learn, co-create, and adopt" digital technologies to improve their operational efficiencies and competitiveness.
"Our collective knowledge and experience working with SMEs and their workforce place us in good stead to serve their needs through a dedicated digital bank," he added. "Tapping on our collective experience and knowledge of the SMB ecosystem and their workforce, we have developed a suite of innovative products and services to build a bank that is inclusive, fair, and equitable in serving SMBs, the SMB workforce, and their families."
Barry also pointed to the wholesale banking segment as an interesting space to watch in Singapore, highlighting the bidding consortium led by AMTD for its potential to bring new products and services into the market. A Hong Kong financial services group, AMTD leads a team that comprises Chinese smartphone manufacturer Xiaomi, crowdfunding platform Funding Societies, and Singapore's utility services provider SP Group.
The consortium's success, though, would depend on how well AMTD can leverage and integrate each partner's unique capabilities, the Forrester analyst said. It would need to build rich ecosystems to help businesses with their daily transactions as well as provide a strategic view of how organisations could transform.
"It's going to be a huge data play for the AMTD consortium as it weaves in capabilities such as IoT (Internet of Things), digital financing, and sustainable technologies from its partners," she said.
Drawing on data to lure customers
And if done right, Asia-Pacific consumers would be willing to shift 35% to 40% of their total wallets to digital-only banking services, Dale noted, citing stats from a McKinsey & Company report. He noted that in mature nations such as Singapore, the proportion of monthly transactions conducted in bank branches, at 12%, already were lower than in emerging countries, at 21%. These numbers presented a significant opportunity for market entrants in Singapore's digital banking regime, he said.
And while consumers were demonstrating a growing appetite for digital banking services, consumers globally remained unimpressed by their existing online banking options. According to the Adobe Consumer Banking Insights, 62% of respondents described their banks' digital offerings as average compared with the rest of their digital lives and 57% said they had never digitally signed a document with their banks.
Dale said: "The challenge, as with all online transactions, will lie in ensuring that security concerns are addressed. Across the different age groups, the Adobe study found that 76% cited security and privacy as key considerations when digitally enrolling for a banking service and 50% reported worrying about the safety of their finances with digital-only banks."
Venky Srinivasan, Oracle Financial Services' Asia-Pacific Japan and MEA group vice president, agreed, noting that traditional banks still had an edge in terms of consumer trust.
He pointed to a study by Oracle & PwC that revealed trust to be an important ingredient in retail banking and on top of which, not in place of, richer user experience should be built.
According to the study, 34% of Singapore respondents did not trust virtual banks with their personal data, as did 38% in Hong Kong and 36% in Malaysia.
Srinivasan noted, however, that the concept of trust was being redefined. "Trust is a commodity and it's more about ease of use, predictability, and reliability," he told ZDNet. With digital players offering new services, and these new entrants ranked highly in terms of customer experience and better rates of returns, he noted that customers were likely to be lured away from their current traditional bank especially if they experienced significant pain points dealing with these incumbents.
In fact, the study found that 61% of Singapore customers who had to put up with one to two pain points while 77% that had experienced three or more pain points were likely to switch to virtual banks.
Dale added that while digital entrants lacked the longstanding reputation and deeper pockets enjoyed by their traditional competitors, they often made up for that in their agility.
Pointing again to their unfettered infrastructure, he said digital players -- unlike traditional banks -- were not held back by the limitations of legacy systems and this was a pivotal advantage.
"Starting with brand a new technology stack, digital-only banks can innovate at a faster pace and should go all-in on delighting consumers with excellent user experience and tailored features that go beyond banking needs," he said. "With a digital-only business model, there's a ton of data available to analyse consumer patterns and needs, which can in turn help the banks offer lower-cost, hyper-personalised services to win customers over."
But while they are more nimble, Srinivasan said these market entrants still need to demonstrate to regulators their ability to comply with regulations and turn this compliance into a competitive advantage.
They also need to utilise and monetise their data as well as demonstrate a path to profitability and an ability to scale their business with new revenue models, beyond the initial customer acquisition efforts, he said.
Srinivasan said: "Success for digital market entrants is not guaranteed unless they can transform into data-driven, high-performance, and profitable organisations. The ability to tie options for e-commerce, transport, and lifestyle into one seamless digital banking experience is vital to attract and retain customers.
"They will need to grow at scale, leveraging data insights to bring financial services products to market at a more competitive price point," he added. "Building trust through safe, secure practices for regulatory compliance will be essential. New digital banks need to make use of KYC (Know Your Customer), risk or compliance data associated with running a new bank to gain business insight. In the area of countering fraud and money laundering, these banks must leverage data analytics and machine learning tools for the detection and reporting of financial crime."
Learning from the lessons of their counterparts in Europe and the UK, he noted that many digital players in the region had looked at three key areas for growth: Focusing on providing a compelling mobile-first experience, rolling out aggressive customer acquisition strategies, and offering competitive pricing.
However, while this has resulted in tremendous growth in terms of their customer base, many of these banks remain unprofitable, he said.
The pressure to offer competitive pricing has resulted in thin margins and, due to their limited offerings, several digital players have struggled to deepen product per customer or wallet share, Srinivasan noted. This should serve as important lessons for their counterparts in Singapore, which should ensure they are able to be profitable and drive value while also delivering a better customer experience, he said. They would also need to establish revenue streams that are sustainable, he added.
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