EVENT COVERAGE: SFF PANEL 1
Better rates, lower fees will not be enough for digital banks to make a profit Those who can tap into their parents’ customer base have the best chance of success. “If we look at the digital banks that are profitable today, most of them, almost all of them belong to parent groups that have already invested over the years in building that customer platform and building that customer ecosystem that the digital offerings can then write on top of,” Chew explained. “Advertising the acquisition costs to customers of other products and services that the parents have built up, and then putting a financial product on top of that–that makes a huge difference in terms of the path to profitability for the new player,” Bain & Company’s expert added.
If done right and done well, digital banks would pave the way to financial inclusion and security in digital financial services
SINGAPORE
N
o, building a successful digital bank will not come about by wading into an interest rate war with incumbent banks. Neither will targeting just the younger demographic work. These are just some of the myths dispelled by senior executives of Southeast Asian banks and industry experts in a panel discussion on driving digital banking profitability during the Singapore Fintech Festival 2022. “A lot of people think that the way for digital banks to win is to compete on the basis of better value, and value in terms of better rates, lower fees, and that will be the way for digital banks to win. That’s a myth,” Seow-Chien Chew, Senior Partner, Bain & Company, told attendees of the conference. “Initially, perhaps, there might be more competition on the basis of value to gain customers. But over time to win more sustainably, I do think the basis of competition is going to be around customer experience.” This is one advantage that digital banks have over incumbents, Chew said, sharing that Bain & Co’s study on banks’ net promoter scores–a
38 ASIAN BANKING & FINANCE | Q1 2023
If you look at how many [digital banks] are truly profitable, the sobering truth is you can count the number today on two hands
measure of customer satisfaction to banking service providers– found that digital banks and new banking players tend to actually perform better than traditional incumbent players. “If digital banks and also incumbent banks can make that the real basis of competition, that becomes a much more sustainable way to win in the longer term,” she added. Nepo babies win The real warfront, however, lies not with their peers or their incumbent rivals, but rather with their own ability to make a profit. “I think the difficult question here is around profitability,” Chew said. “If you look at the world today, there are hundreds of digital banks. But if you look at how many of them are truly profitable, the sobering truth is that you can count the number of profitable banks today on two hands.” Chew named customer scale acquisition as the most important factor that will determine whether a digital bank becomes profitable or not. In this regard, neo banks, which are the brainchild of larger corporates, tend to win.
Incumbents are learning Incumbents are not sitting pretty doing nothing either–and are more than capable of learning new tricks, as noted by Darren Buckley, Chief Retail Banking Group Officer for Vietnam Technological and Commercial Joint Stock Bank or Techcombank. Buckley highlighted his 35-year career working with incumbent banks, noting that in 2005, a bank he worked in was able to put live into the market a mobile phonebased, fully digital unsecured loan proposition that was fully digital, for an average application time of 17 minutes. This, he said, dispels the myth that before digital players came into the fray, incumbent banks have not done any steps to make leaps in the digital space. Nowadays, traditional banks have been trying to focus on customer journeys and delivering very targeted solutions on seamless customer journeys. He conceded that it is true that traditional banks haven’t always been so good at it. However, they are learning, he said. “FinTechs have been great in coming in and taking specific pain points, and saying, “Hey, look, there’s a better way to do this. There’s a more seamless, intuitive way to deliver a solution or a service or an experience to banking clients.” But that doesn’t mean that traditional
