Philippines, May 19, 2020 – Digital banking in the Asia Pacific (APAC) is set to be widely adopted with over three in five customers (63%) willing to make the switch to neobanks and challenger banks in the next five years, according to the Fintech and Digital Banking 2025 report by Backbase and IDC. The report also found that the region is expected to see 100 new financial institutions by 2025, ushered in by liberalization of several markets and issuance of new banking licenses. The Philippines stands out in the region and is poised to have the largest market share migration to digital banking as customers move toward digital-first banks.
In the Philippines, 70% of customers who are active on digital apps believe they do not have options for “value add” banking products. However, new capabilities from Big Techs, fintechs and neobanks can help to close the financial inclusion gap. By 2025, the unbanked and underbanked segments in the Philippines are expected to cut by half to around 20% of the bankable population. Today, incumbent banks across APAC are faced with the pressing need to up the ante on digital-first banking due to intensified customers’ need for availability, access, and control of digital channel interactions.
The report found that incumbent banks have not been able to take advantage of potential ecosystem partners as they still hold traditional views of the value chain. 80% of the top 250 banks in APAC still prefer to own the entire value chain of banking, with third party-contributed business at a mere 2%. Meanwhile, the average age of legacy core banking systems in the top 100 banks in APAC remains at 17.5 years, far behind the rapidly developing digital economy of today.
On the other hand, more than 35 neobanks or new digital challengers across APAC are built on agile innovative best practices — way ahead of incumbents in terms of flexibility, self-service capabilities, customer needs, and personalization. Consequently, with the emergence of new players and further digital disruption in the industry, 38% of traditional banks’ revenues are at risk by 2025.
As the banking industry goes through a period of accelerated pursuit to be digital-first, the report found that APAC banks must unleash the potential of personalization at scale and be more customer-driven and platform-oriented.
By 2025, 80% of customers in the Philippines will open new bank accounts with other banks, diluting “primary bank” relationships. The report also found that 60% of bankable customers are willing to shift to other players that are more digital. Incumbent banks should deliver unique products through leveraging customer data analytics as more fintechs and distribution partners accelerate their customer adoption with personalization content and frictionless experiences within digital channels.
The key focus will be on digitization and implementation of artificial intelligence (AI). By 2025, 44% of the top 250 banks across APAC will complete their “connected core” transformation — working on platform-based and componentized modernization, and API-enablement. 48% of banks in APAC are also expected to leverage AI or machine learning (ML) technologies for data-driven decisions.
In the area of customer onboarding, in the Philippines there is an opportunity for banks to reap returns with electronic know your customer (KYC) and customer identity integration, coupled with investments in workflow automation on digital platforms. Supported by a modern digital platform that enables data sharing, functionalities, and processes with third parties, banks can significantly accelerate onboarding of new customers.
Digitization provides a multitude of benefits to core banking systems. For instance, in retail and consumer banking, instantaneous delivery of products, services and information is certain to meet the growing demands of consumers. Further, automated processes and lower cost of operations can enable banks to better serve their corporate clients. Lastly, AI and ML also bring intelligence to wealth management decisions, boosting productivity.
Riddhi Dutta, Regional Head of ASEAN & India at Backbase, said:
“For an emerging market like the Philippines with high internet users and large underbanked population, digital banking is a key area of investment. Especially in the current pandemic where customers are turning to digital solutions, banks need to be flexible and quick to offer omni-channel digital platforms which cut across the entire customer life cycle. With digital banking increasing in popularity, a focus on customers and digital core platforms to simplify online banking processes for Filipinos is crucial to facilitate the digital transformation movement in the Philippines.”
Michael Araneta, Associate Vice-President of IDC Financial Insights, Asia Pacific added:
“Being digital-first calls for the integration of digital technologies with the comprehensive transformation of business processes, engagement strategies, channels, and business models of banking. With the insights from the report, banks and neobanks can be well-positioned for the future.”
Backbase’s Digital-First Banking Platform powers seamless customer experiences, unifying data and functionality from core banking systems and innovative fintech partners. We believe it is vital that banks evolve and maintain superior digital experiences in order to retain privileged control of the customer relationship, drive efficiency, stave off new competition and continue to grow.
More than 100 large financials around the world have benefitted from Backbase’s omni-channel, Digital-First Banking Platform, including ABN AMRO, AIB, Barclays, Banamex, Bank United, BNP Paribas, Central1, Citi bank, Citizens bank, CheBanca!, HDFC, Hiscox, IDFC First, KeyBank, Lloyds Banking Group, Metrobank, Navy Federal Credit Union, PostFinance, RBC, Societe Generale and Westpac.
Industry analysts continue to recognize Backbase’s front runner position. Backase is named a leader in the Celent 2020 Modern Digital Banking Platforms report and awarded Backbase three XCelent eXemplar awards for Technology, Functionality and Service. Celent also named Backbase a leader in Onboarding & Origination Solutions in the 2020 Retail Banking Customer Acquisition Platforms report, awarding Backbase with two XCelent eXemplar awards for Technology and Functionality. Backbase was named a Leader in the Forrester Wave (TM): Digital Banking Engagement Platforms, Q3 2019. The 2019 Ovum Decision Matrix also lists Backbase as the Ultimate Digital Banking Platform Market Leader.
This study is based on IDC Financial Insights review of digital banking strategies of 55 banks from 6 key Asia/Pacific markets (Australia, India, Indonesia, Philippines, Thailand, Vietnam), 20 challenger banks, and 40 fintech disruptors. The study was conducted in 4Q2019-1Q2020. IDC also made reference to its reports on Digital Banking from the past five years to understand the evolution of digital banking strategies.