Singapore's banks need to face digibanks' challenge

AS WE approach the end of this long year fraught with disruption, it is only natural for us to look to 2021 with hopes for a return to normalcy. But even as many industries recalibrate and adapt to the events of 2020, Singapore's banking industry faces significant changes that will undoubtedly test its future readiness.

The Monetary Authority of Singapore (MAS) recently granted four digital banking licences - two digital full banks (DFBs) and two for digital wholesale banks (DWBs). This much-anticipated announcement came after MAS deemed that 14 of the 21 applications it received met its eligibility criteria. Though only four applications ultimately proved successful, this much interest from so many new and competent players foreshadows continuing disruption in the banking domain.

We are seeing fierce competition from newcomers adept at distilling and learning from aggregate data and thus it is imperative for existing banks to immediately meet this new challenge by modernising their customer experience, accelerating their digital strategy, and transforming their business with the right technology - or risk being left behind.

GREAT EXPECTATIONS OF MODERN BANKING

The rise of digital-only banks, or neobanks, is a classic case of businesses responding to demand for more innovative products and a better overall customer experience.

According to a recent study by Visa, 65 per cent of Singapore consumers would consider using a digital-only bank. This reflects another report that 63 per cent of consumers across the Asia-Pacific were willing to switch to a neobank by 2025, a year by which there is expected to be at least 100 new financial institutions based in the region.

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Many of these consumers cite dissatisfaction with their current bank as one reason for their receptiveness to neobanks. A PwC survey found that 71 per cent of Singapore consumers have at least one pain point with their existing bank, and that those with at least three such points were most likely to open a digital banking account.

Research from IDC and Thought Machine, a cloud-native core banking technology firm, found that common pain points included a lack of real-time service and personalised products, and overly complex IT systems that slow down banks' ability to solve these quickly and cost effectively.

Businesses are also increasingly open to using digital banks, with 88 per cent of small and medium enterprises (SMEs) stating that they would consider making the switch. SMEs cite many of the same pain points as individual consumers, from high fee structure and poor terms on corporate products to inconvenient banking platforms.

These findings are a warning sign for banks to take action before it is too late. With MAS already announcing that it will review whether to grant more DWB licences, more players may be on the way in the coming years.

THE FUTURE OF BANKING IS HERE

There are several reasons why many banks have not sufficiently addressed their customers' known pain points. Some worry about perceived risks and costs of updating decades-old technology and legacy platforms and switching to cloud-based solutions; some cite their strong market standing and see no need for immediate significant change, and prefer a continued commitment to incremental improvement.

Whatever the reason, existing banks that are complacent risk becoming irrelevant. By 2025, 44 per cent of the top 250 banks in the Asia-Pacific expect to have completed their "connected core" transformation, and 60 per cent of all regional banks plan to integrate fintech solutions and enrich transactions from their core systems. Furthermore, the Thought Machine-IDC research found that banks unprepared to begin migrating to cloud-native platforms are vulnerable to acquisition in as few as two years.

THE PATH FORWARD

Digital services alone are not enough to meet the challenges presented by neobanks. Banks must understand that product and service agility are highly dependent on advanced back-end capabilities. They need strong technology partners to lay the right foundation for completely transforming their banking system. Full cloud-based solutions can be the answer to meeting new competitors head on.

Several major global banks have already successfully adopted this limitless core banking technology, including Lloyds Banking Group, SEB, and Atom Bank. Hong Kong-based virtual bank Mox, which is supported by Standard Chartered and powered by Thought Machine's core banking platform, attracted 35,000 customers in its first month of operation. Goal-oriented spending, shopping calculators, and instant remote onboarding are just a few of the key features that spurred this incredible customer response.

This is exactly the type of digital-savvy approach banks in Singapore must embrace to remain on top of an increasingly competitive - and rapidly changing - banking industry.