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How Asia is reinventing banking for the digital age

Fintech innovators, digital-first banks and traditional banks will compete for an outsized share of four fast-growing, data-intensive businesses: consumer lending; lending to small- and medium-size enterprises (SMEs); wealth management; and transaction banking.

OVER the past decade Asia's banking sector has led the world, not only in global banking profit pools, assets, and market capitalisation, but also in building new business models centred on digital innovations. Tech giants Alibaba and Tencent have established a stronghold in banking, scaling digital payments and lending in China before expanding to adjacent markets. Not to be outdone, aggressive traditional banks, including Singapore's DBS, Indonesia's BTPN, and the State Bank of India, have reached new markets with digital-only "virtual" banks. Ping An, a Chinese financial conglomerate, has remade itself as an ecosystem company, providing loans and investments, as well as insurance, across digital platforms for healthcare, housing, and more.

With fintech innovators and digital-first banks taking market share from traditional banks, each organisation will have to fight to survive. The winners will compete for an outsized share of four fast-growing, data-intensive businesses: consumer lending; lending to small- and medium-size enterprises (SMEs); wealth management; and transaction banking. We estimate that across Asia, these businesses have the potential to generate a total of US$100 billion in new revenue each year. The future of Asia banking is indeed bright. But many of Asia's banks are poorly equipped to seize any of these opportunities. They face an existential choice: either reinvent themselves for the digital age or disappear.

Reinvention is a difficult undertaking requiring strong commitment throughout the enterprise. It is best organised around four pillars: technology architecture, advanced analytics, talent, and partnerships/M&A. We take a closer look at each pillar below.

Technology architecture

In the digital world, customers have come to expect continual improvement in the overall experience. This means ever faster response times and better integration with applications across diverse platforms, with the assurance that interactions and data will be kept safe and secure. To stay abreast of these expectations, banks have moved to modular platforms, using APIs and digital "workbenches" that allow for continuous integration and interoperability with core systems, ensuring that innovative applications can be scaled without disrupting service. New technologies also require new ways of working, and banks must be careful to build a new operating model and culture in which business and technology competencies are more closely intertwined.

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Advanced data analytics

More than ever before, customer data and the ability to extract actionable insights from data are a bank's core assets. They are both the cornerstone of superior customer experiences and the key to higher productivity. Most organisations, however, still struggle to generate an adequate return on their investment in data collection, storage, and analysis. Our research shows that the missing links are often a carefully crafted enterprise-wide data strategy and an investment roadmap tying each use case to budgeted returns. Priority should be given to projects that have the greatest impact on customer experience and value to the bank, and models should be refined to improve performance. Upgrading risk scoring engines, for example, should figure at the top of a bank's analytics agenda, as powerful machine-learning algorithms trained with robust data sets can help banks pinpoint underpenetrated segments and set sustainably competitive rates on mortgages, credit cards, and other products while also reducing the burden of non-performing loans. In corporate banking, one priority would be to use advanced analytics to improve liquidity management services, optimise netting arrangements for on-us transactions, and anticipate changes in customers' product needs and usage.

Talent management

Now is the time for Asia's banks to build the workforce of the future, as automation is expected to disrupt up to 40 per cent of all banking activity and have an impact on half of banking jobs by 2030. This shift is pushing banks into new, often unfamiliar territory, and many are developing new approaches to recruiting, reskilling, and redeployment. In order to enhance their appeal to "digital natives" with superior technology skills, banks are forging ties with fintech and academic communities and establishing a track-record for technological innovation. A crucial factor in attracting millennials is for the bank to be clear about its "why" and to give employees an opportunity to make a difference, to help build a better future for Asia.


In this age of open banking and digital ecosystems, banks are turning increasingly to partnerships to extend their footprint, deliver superior products, and gain access both to new customers and to new types of data. For example, three of the big four Australian banks have invested in Data Republic, a data hub through which organisations can store, exchange, and collaborate on aggregated data projects in a secure environment. Siam Commercial Bank had partnered with Julius Baer to deliver global investment opportunities to Thai customers. In some cases, a merger or acquisition is the better approach. Kotak Bank extended its reach into southern India with its acquisition of ING Vysya and entered the lower end of the market with its acquisition of BSS Microfinance. Given the central role that partnerships and M&A have come to play in achieving an organisation's strategic goals, it is important to establish a dedicated group to plan and manage the process, from financial and strategic due diligence to managing shared costs and benefits to post-merger integration.

Asia banking has embarked on a journey of radical transformation. The way forward is fraught with existential challenges for every banking organisation, but just as iron sharpens iron, we believe that the industry will emerge stronger and leaner than ever, with a new sense of purpose as stewards of Asia's financial system.

  • The writer is a senior partner at McKinsey; he leads the firm's Financial Services Practice in Asia and emerging markets.

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