Despite Asia’s impressive growth in recent years, a new report details how the Asian banking industry faces tough choices as the sector’s momentum begins to fade.
McKinsey’s latest Future of Asia report sheds light on how the Asian banking industry needs to reinvent its model or face possible extinction.
However, there is still hope. With the willingness of consumers in Asia to adopt and embrace fintech and digital bank offerings, the banking industry can still make timely moves and grasp the opportunities for change that are still accessible.
As a major engine of growth for the global banking industry, Asia generated pre-tax profits in excess of US$700 billion in 2018 alone. And while Asia still accounts for more than a third of global banking profits, its share has shrunk from nearly half in 2010.
And as margins thin and GDP growth in emerging Asian economies slows, Asia’s share is expected to continue to shrink. Events, such as the ongoing Coronavirus trauma, hurt and expose the somewhat inflexible fragility of traditional banking models.
To stay relevant, the McKinsey report suggests banks must change by deploying cutting-edge tools, technologies and capabilities across several essential areas.
To compete with big tech companies on speed, productivity and customer experience, banks will need to adopt modular platforms that allow continuous integration and interoperability with core systems.
Unhindered by wieldy legacy technologies, big tech players, such as Apple, Amazon and Alipay, are making headway into the financial services space.
Therefore, banks also have to adapt to new ways of working. This will require not only flexibility in acquiring, upskilling, and integrating new talent profiles, but also shifting to a new operating model and corporate culture.
Data and analytics are now key to providing a better customer experience, but developing a superior data-and-analytics programme requires vision and commitment.
To earn a good return on the investment, it is crucial that Asia’s banks give employees the tools and skills they need to formulate their own data queries for strategic planning and the day-to-day management of strategic goals.
This requires a combination of strong governance and autonomy to enable individuals across the entire organization, from sales and service to risk management and digital innovation, to excel in a data-driven environment.
And to capture new consumers in the new age of open banking and digital ecosystems, banks will have to open their doors to non-traditional financial partners who can add value.
Linking with e-commerce sites can enable banks to expand their lending business while keeping risk costs low. In Singapore, for example, OCBC Bank (Oversea-Chinese Banking Corporation) offers home mortgages through the personal finance portal MoneySmart.
Additionally, to enable and continue growth and extend market reach, Asian banks must make adroit acquisitions.
A case in point was the acquisition by DBS, Singapore’s largest lender, of ANZ’s operations in five countries. Given the importance of scale in achieving higher returns and, consequently, higher valuations, carefully executed mergers and acquisitions offer an attractive option for increasing market share and consolidating scale, capabilities, and talent.
Finally, banks must recalibrate their recruitment strategy to focus on sourcing the best artificial intelligence (AI), digital and analytical talents, while combining reskilling and redeployment to build their workforce of the future.
Malaysia’s Maybank, for example, has launched a learning programme to help employees acquire relevant skills for the next phase of their careers, with sessions on coding, algorithm programming, AI, and machine learning.
McKinsey estimates that if Asia’s banks implement these plans, they will free up between 10% and 20% of their capital, and potentially generate up to US$100 billion in new revenue for their industry.