??????? Digital banking has become an irresistible business trend. McKinsey research in personal financial services shows that Asian consumers are becoming more and more comfortable with using mobile and Internet channels for banking services, with their use increasing on average more than 35 percent in the past three years. Correspondingly, we have noted a drop in branch usage of 27 percent across Asia. At a few leading banks, nearly 20 percent of key product purchases are now completed online; across Asia, on average about 25 percent of prepurchase decision-making and 40 percent of postpurchase servicing is conducted through mobile or Internet devices.
??????? Most bankers in Asia agree that this is a big opportunity. The big question is, how do you do it? What are the winning approaches? Digital-banking concepts are in their early stages in Asia and there are few very profitable models at scale yet. But some helpful lessons are emerging.
??????? There are a variety of ways to approach digital banking. For leading banks, there are mainly four interconnected, mutually reinforcing elements: connectivity, automation, innovation, and decisioning. Connectivity refers to how can banks use rapidly growing social networks to build loyalty and competition-disrupting offerings. Automation refers to how to harness digitalization in process re-design for a better customer experience and more effective use of resources. Innovation refers to how should banks continue to renew themselves, given the rapid pace of change in the industry. Decisioning refers to how big data can be used to make better, faster, and more accurate decisions regarding customer purchase choices as well as banks’ decisions on issues such as risk. Exhibit 1 illustrates a simple framework to guide banks’ thinking.
??????? True digital banking amounts to much more than the provision of financial services through mobile and Internet channels.The technology so widely adopted by consumers has powerful capabilities—including greater bandwidth, advanced data security, and stronger privacy protection—that offer new opportunities for banks. Digital banking signifies completely new propositions: not only new products and services but also the possibility of a more sophisticated, digitally enabled sales force and cost savings through end-to-end process digitization.
??????? Digital Banking in Asia: Winning approaches in a new generation of financial services presents McKinsey’s latest thinking on digital banking. Our insights come directly from experience serving clients across Asia; in this volume, wehave focused on the essential dimensions critical to building a digital bank. Here you will find discussions on:
??????? ● Propositions for capturing new customer segments and serving them rapidly
??????? ● How digitization can quickly increase revenue and enable cost reduction
??????? ● Managing multiple channels and the cross-channel customer experience in the new digital environment
??????? ● The IT requirements for enabling digital banking
??????? ● Organizational changes that can help break barriers and rally institutions for digital transformation
??????? We hope you will find this volume helpful as your institution embarks on the digital-banking journey.
Chapter 1：Digital banking in Asia: Are you ready for your next generation of customers?
(Joe Chen, Senthil Durairaj, Vinayak HV, and Kenny Lam)
??????? Executive summary:
??????? ● About 40 percent of Asian mass affluent customers now prefer online or mobile banking; among those under 40 years of age, around half prefer digital banking. Digital-banking consumers number 670 million today in Asia and are expected to become 1.7 billion by 2020.
????? ● Online consumer sales in Asia has exceeded 20 percent in some categories, including electronics. In banking, some leaders are experiencing online sales in this proportion for key products.
????? ● The disruption caused by digitization can create or destroy significant value for banks, depending on their starting positions and how well they respond to shifting consumer behavior and other trends. Experience is showing that 30 to 50 percent of net profit is at risk.
????? ● Banks can create significant value in digital banking using a range of approaches, from digitally enabling their current model, allowing higher salesforce productivity, to adopting disruptive new propositions, such as new consumer concepts for targeted segments.
??????? A generation of digital-banking customers is rising across Asia, hundreds of millions strong. This generation will be the most populous and wealthiest generation in Asian history. Its constituents will want to manage their money and make payments through mobile and online channels, anytime,anywhere. They will want full digital access to the latest offerings and a more personalized set of products and services.
??????? Shifting consumer behavior
??????? As has been evident for the past decade, Asian consumers have flocked to digital technologies, with adoption rates for some devices, especially mobile phones, outstripping Western rates. ATM usage has skyrocketed in Asia, and across age segments the “consumer decision journey” has increasingly moved online. The pattern for most purchases now is that they are researched online and concluded in the branch, but we are beginning to see online purchasing as well. A significant constraint on the progress of this trend is the state of regulation in many countries, which require purchases to be finalized by customers signing documents in branches, in the presence of branch employees. Meanwhile, larger numbers of Asian consumers, especially younger ones, are expressing a preference for interacting through nonbranch channels. This is significant for Asia, where even older customers can be first-time bank users, cautious of physically surrendering their money, and traditionally reassured by a brick-and-mortar establishment.
??????? The story will only accelerate as a young digitally savvy generation matures. This will be the disruptive generation when it comes to banking trends. They have already taken to mobile technology and are comfortable with making payments digitally. Four shifts in consumer behavior signal that the time of the premier digital bank is approaching:
??????? ● Increasing digital usage across Asia. This includes higher penetration of mobile, Internet, and smartphones across markets. The increase in technology usage is changing consumer behavior, including buying behavior, with social networking, peer reviewing of products, and online research becoming the norm. Digital payments are becoming significant in Asia, and the evidence of the digital disruption is mounting in industry after industry.
??????? ● Channel-preference shift. Channel preferences in banking have shifted significantly among younger and wealthier segments toward nonbranch channels. About 40 percent of Asian mass affluent customers now prefer online or mobile banking; among those under 40 years of age, around half prefer digital banking. The Internet is making headway in the generally older affluent and mass-affluent segments, where ATM usage is the norm; for younger generations of Asians, on the other hand, the Internet has become a preferred channel.
??????? ● Multichannel consumer decision journey. The path toward purchase—from awareness to research, subscription, and maintenance—has already become a multichannel journey for Asian consumers. In the awareness stage and especially the research stage, most buyers are consulting multiple channels and returning to multichannel usage in maintaining their products after purchase. Evidence from Europe indicates that banks will be able to boost flagging customer loyalty and increase share of wallet by offering an integrated and seamless customer experience across channels.
??????? ● Digital sales. With the right regulatory environment, more sales of deposits and loans are expected to shift to direct channels, in line with shifting consumer preferences and behavior trends in e-commerce, similar to what has occurred in more mature Western markets (Exhibit 1).?
??????? Implications for banks
??????? McKinsey analysis has demonstrated that the advent of digital banking will create as well as destroy significant value, with 30 to 50 percent impact on profits or losses, depending on the bank’s starting point and how it responds to these digital trends (Exhibit 2).
??????? Channel-based segmentation to identify consumer readiness in Asian markets makes it plain that most consumers are already using or are interested in using alternative channels, including ATM, online, mobile, and phone banking. Yet few Asian players have developed low-cost comprehensive service offerings focusing on self-directed customers.
??????? Given these trends, we estimate that while the digital-banking opportunity in Asia is small today it will likely grow rapidly, at twice the rate of other bank revenue pools, especially as the number of Asian consumers coming on line rises (Exhibit 3).
??????? Getting the bank ready
??????? As technology adoption continues to reshape consumer habits as well as business models, the consequent rapid change in the dynamics of several industries has become a top-of-mind theme for banks across Asia. Our conversations with Asian players reveal that many are struggling with the implications of this trend and the choices it demands. Banks can minimize the potential value-destroying effect of the coming digital disruption by fostering digital awareness in their top leadership and by building a digital strategy that is integrated into their overall strategy, regardless of the bank’s starting point.