Today’s financial services landscape is changing at a faster rate than ever before. The rules of the game are evolving as new entrants seek to disrupt the industry and attack the market share of established players. A recent McKinsey report on the Asia Pacific (APAC) banking sector begins by asking: what do consumers in the region really want?

A valid question, and one frequently asked by banks around the world. For those operating in the APAC market, the answer is constantly shifting.

With a rapidly changing demographic and phenomenal economic growth rates, the opportunities and challenges for financial institutions in the region are huge. A key driver, of course, is the dramatic rise in demand for mobile and digital banking services.

With 80% of consumers willing to move banks to those with a more compelling digital proposition, this will act as a key differentiator. Traditional retail banking is under threat in the face of digital innovation, and those that fail to reinvent will be left behind.

Mobile, agile, versatile
Recent years have seen technology adoption across the APAC region grow at an astonishing rate. Smartphones are becoming a part of everyday life – with Thailand in particular boasting a smartphone penetration of 130% at more than one per person for the population of 69 million.

The banking industry is just beginning to tap into the opportunities associated with mobile devices, but it is already becoming a key driver in influencing a customer’s choice of bank, as the way consumers manage their money is revolutionized.

The adoption of mobile and digital banking has been accelerated by shifting demographics in countries such as Vietnam, Thailand and the Philippines. With a growing proportion of the population under-30, banking customers are more digitally savvy than ever before.

These digital natives differ greatly in their banking requirements from the older generations, looking to manage their finances while on the move, at work or at home. In other words – their bank branch is not where they bank. With the likes of Citigroup anticipating demand for digital banking in Asia to more than double by 2019, the major players in the market are braced for change.

In catering to these needs, APAC banks hold a unique advantage over the larger international players: they are not hindered by the costly baggage of outdated legacy systems. These systems, which sit at the core of most major banks globally, can often be decades old and cause serious headaches when looking to integrate with a new front-end offering.

Not weighed down by legacy technology, the regional players can adapt more readily to the needs of their customers and potentially leapfrog those banks which are slower to react to consumer demands. This agility, combined with relatively low barriers to growth from a regulatory sense, could see them eat into the market share of larger competitors over the next five years.

But all is not lost for the larger players operating on legacy technology – they can engage in core system transformation projects to revolutionise and reinvent their operations. An efficiently-managed project can enable banks to upgrade their core systems to support the front-end services required to remain competitive in the market. While banks must be aware going into such a project that it can often prove a lengthy and complex process, it can produce significant dividends in the long term.

Multi-channel out, omnichannel in
The swift adoption of mobile and digital is ushering in a move towards an ‘omnichannel’ mindset among retail banks in the region – financial institutions are becoming less product-driven and more customer-centric.

While many sought to bolster their digital and mobile footprints over the last few years, they are now investing heavily in world class technology in a bid to keep up with the expectations of customers.

But this is where many firms try to run before they can walk. A truly omnichannel approach relies heavily on the core processing system supporting it. Too many invest in shiny new front-end offerings without thinking about how it integrates with their core systems.

Temporary solutions may paper over the cracks in the short term, but this is unsustainable and means that a more complex surgical process is required in the long term. Full core transformation projects may seem a daunting prospect, but if managed properly can deliver real benefits across the business once completed.

Utilities level the playing field
It can be challenging for smaller banks to find the budget they need to create the innovative services that will help them stand out from the crowd.

In this case, collaboration through shared financial utilities can help smaller players make cost savings by outsourcing non-differentiating back-end processing, and reallocating funds to the creation of shiny front-end services.

More and more banks globally are recognising which segments of their businesses are non-differentiators, and outsourcing these services to a third party provider. While utilities are a mature concept in other industries, we’re only now seeing the financial sector adopting them – primarily driven by the shift from generating revenue to reducing underlying costs.

This frees up valuable resources which can be allocated to differentiating activities that create genuine competitive advantage.

Clearly, banking customers across APAC are quickly warming to the idea of digital and mobile banking. As demand grows for these non-traditional banking channels, banks which adopt an omnichannel approach – underpinned by a top class core system – will be well set for future success.

Brian Birt, Managing Director, ASEAN & North Asia, FIS