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It's game over for traditional banking as we know it

Funds are flowing into disruptor banks, which millennials welcome. Laws are favouring the newcomers too.

A quick response (QR) code is displayed on an advertisement for Ant Financial Services Group's Alipay, an affiliate of Alibaba Group Holding Ltd, at a Takeya Co Ueno Select shop in Tokyo, Japan. Tech-led banks win favour with millennials.

Historically, traditional banks believed that their captive customers, relatively strong balance sheets, compliance expertise and distribution were high-enough barriers to stop any material impact from insurgents. This is no longer the case and there are three reasons why.

Firstly, the incumbents can't ignore the vast swathes of funding flowing into the challengers - digibanks such as WeBank, Kakaobank, Timo, MyBank, Volt and Open - and this is only set to grow exponentially this year.

Secondly, these challengers are gaining traction with millennials, who are in favour of propositions that are simple yet beautifully designed and transparently communicated and delivered.

Lastly, the introduction of new licensing regulations aimed at levelling the playing field has also played a role in initiating this paradigm shift. Outside of the conducive regulatory regimes in the UK, Australia, Germany and, surprisingly, Macau, what is happening in Hong Kong with new virtual licences is particularly interesting.

Such licences are creating opportunities for the Chinese tech giants, fintechs and even banks to change the rules of the monopolistic game. Licences will be granted soon and the impact to banking could be quite profound, especially considering the number of non-banks that are rumoured to have applied.

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In fact, it's not just the digibanks. We are starting to see fintechs and tech-first companies from adjacent verticals, such as lending, payments or wealth management, move into banking; Grab, Paytm and Transferwise are examples.

There are three types of "challenger banks" disrupting and evolving the banking model - the scaling digibanks building out their retail propositions in Asia and expanding into lucrative adjacencies such as SME banking and banking-as-a-service; the tech giants leveraging their core customer base to move into financial services; and incumbent banks launching digital-only subsidiaries.


The tech giants are moving into banking, leveraging their existing customer base (Ant Financial, Wechat, JD Finance, Kakao Bank, Line, Grab Financial Group). They are exploring new commercial models with a move away from fee-income-based models, focusing instead on data acquisition, cross-selling opportunities and ways to add value to core business models.

Building on new tech stacks that are open and API-based is providing a source of competitive advantage. Most are experimenting with new tech to provide greater efficiencies in delivery and greater customer experiences. A focus on the frequency and value of interactions with customers is the major difference.


Some incumbent banks are building brand-new subsidiaries that are digital-only banks to reduce cost base involving customer acquisition, IT infrastructure and so forth, provide enhanced offerings to customers, future-proof their business and seamlessly comply with regulatory requirements.

The driver is to compete with the tech giants and, to a lesser degree, fintech startups.

Over time, the play here will be to cannibalise their existing business and gradually migrate customers across to the new subsidiary that has lower operating costs, cheaper customer acquisition and customer on-boarding.

The key source of value is to capture, store and extract data centrally.


Startup banks are offering retail banking propositions and slowly expanding their offerings across borders and also into the SME segment. These banks are desperately trying to build scale and profitability and most have struggled to do so in retail banking.

These players are now developing platform strategies for stronger value propositions through connecting third parties to deliver financial products for existing customers, such as N26's partnership with Transferwise, moving into SME banking, account aggregation and providing banking-as-a-service products for incumbent banks, such as the partnership between challenger bank Starling and RBS.


On the surface, it appears that the tech giants have a clear advantage with their superior tech stacks, captive customers and alternative commercial models.

What is unclear is how regulators will impose new rules to curb their game and how this will play out for the tech giants.

The incumbents are fielding brand new teams and injecting new tech talents, but this is still nascent, with traditional mindsets prevailing. The successful creation of a brand-new digital-only bank would ultimately cannibalise the core business, so these players still have a political and cultural mind field to navigate.

The digibanks are the new kids on the block, but millennials are fickle. The question some might face is: How long would it be before the VC money runs dry or an economic downturn takes place?

No doubt there are challenges for challengers all around and the implications are huge. To overcome their respective challenges, these players must focus on three key strategies:

  • Increasing the touch-point with the customer and measuring this as daily active use and smart interactions;
  • Retaining deposits in current accounts (as liquidity that banks rely upon); and
  • Evolving the operating model to scale (reducing the cost of customer on-boarding and service provision).

Which challenger will you bank on?

  • The writer is global content director at Money20/20.
    On March 19-21, Money 20/20 Asia will take place at Marina Bay Sands in Singapore.

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