The banking landscape within Southeast Asia is primed for change with the rise of digital banks. With a high internet penetration within the region, digital banks are offering a valuable alternative to their physical ones, especially in reaching out to the millions of underbanked individuals regionally.
Regulators within Southeast Asia have been receptive to the entry of digital banks. In December 2020, the Monetary Authority of Singapore (MAS) shortlisted four candidates for new digital banking licenses. Malaysia and the Philippines finalised their digital banking frameworks, while Thailand announced plans to follow suit.
McKinsey Asia recently released a report detailing the opportunities for both incumbents and new entrants to enter this space and their observations from the Asian digital banking landscape.
Here are the main takeaways:
- Successful digital banks in Asia often operate under a consortia business model that contrasts to the vertical approach seen in Europe and the US
Consortia do present challenges and complexity of their own, particularly in ensuring alignment between partners. However, they also offer a path to scaling relatively quickly.
The majority of applicants in Singapore’s licensing round were consortia and half of the licenses were awarded to consortiums.
Also Read: Grab, Sea and Ant Group amongst 4 selected for Singapore digital banking licenses
Grab and Singtel secured the digital full bank license while a consortium comprising China-based Greenland Financial Holdings Group, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management obtained the digital wholesale bank license.
On the investment side, investors, particularly venture capital firms, have become more cautious, lending more momentum to consolidation and consortia as funding approaches for digital bank launches.
- On the regulatory front, caution related to economic uncertainty has led some regulators to delay licensing timelines
Singapore’s licensing was delayed by close to five months, while Malaysia’s was delayed for half a year. On the whole, however, the pandemic has not shifted the path for digital banking in Asia.
Virtual banks were launched in Hong Kong and Taiwan in 2020 and the MAS shortlisted four candidates for new digital banking licenses, while Malaysia and the Philippines finalised their digital banking guidelines.
- Digital bank capital requirements are not always lower than those for traditional ones
Photo Credit: McKinsey Asia
- Successful and profitable digital banks distinguish themselves well
Thriving digital banks share the following strengths: A truly differentiated customer value proposition, early revenue generation, quick scalability, cost-efficiency
The successful value proposition extends beyond a visually appealing customer interface. Digital banks need to offer seamless onboarding, fast loan approval and disbursement, round-the-clock customer support among others.
Also Read: Treat your customers like humans, not data
These benefits should stem from more granular customer data digital banks can access and the lower marginal cost of loan disbursement.
- An experienced team can go a long way to securing licensing
The report identified 10 success factors to consider during a licensing application. They can be grouped under three broad categories: an experienced team that can implement a plan; the vision and roadmap for a stable and ultimately profitable and differentiated offering; and following the licensing process and engaging with the regulator.
—
Image Credit: Photo by Robert Bye on Unsplash
The post McKinsey on Asia’s digital-only banks: ‘Consortia present challenges but they offer a path to scaling relatively quickly’ appeared first on e27.