Podcast transcript: Key trends accelerating Asia-Pacific banking growth in 2022

Andrew Gilder

Welcome to the EY Next Wave Banking in Asia Pacific Podcast. I'm Gilder your host and EY Asia-Pacific Banking Capital Market sector leader. In this series, we'll feature insights and analysis on topics impacting the Asia Pacific Banking Sector as it reinvents itself to be leaner, more agile and customer centric than ever.

Gilder

 Welcome everyone to the first episode of the EY - Next Wave Banking in Asia-Pacific Podcast. In this episode, we discuss why there is an increased need for banks to be agile and change ready, why banks need to hyper-personalize their solutions and customer experiences, what the transformational trends mean for consumer banking, the role of fintechs and neobanks in creating threats and opportunities for the existing players, as well as how banks can continue to grow in Asia Pacific as they look to expand their presence and capture a larger market share. Today, I'm joined by two of my colleagues and EY leaders: Bellens, EY Global Banking Capital Market Sector Leader, joins me from New York; and Liang, EY Financial Services Strategy and Transactions Leader joins me here in Singapore, as we discuss the key trends accelerating banking growth in APAC in 2022. Welcome Jan and TC, it's great to have you both on the podcast.

Gilder

So, let's start with a question around what banks are doing as many markets around the Asia Pacific region, with a few exceptions, really start to emerge from COVID, and the economies of those markets are really starting to revitalize. Banks have proven to be incredibly resilient through the crisis or the pandemic with very low credit losses, much lower than we had expected, to be honest. And they're now really starting to turn their attention to the growth agenda. Maybe Jan, starting with you, what are we seeing in terms of strategies that banks are deploying with a backdrop of rising interest rates, a tailwind from rising interest rates, what are some of the strategies that we're seeing banks deploy to capture those growth opportunities? And what are a couple of good examples?

Jan Bellens

Thanks, Andrew. Yes, indeed, with all the change happening over the last two to three years, resilience has been a key word. And I think to capture some of those new opportunities, growth opportunities that are on the horizon, banks will need to be a lot more agile as well. So, combination of resilience and agility will be critical. What are some of those opportunities? I think there will still be plenty. We will still see corporates changing their supply chains, and changing their supply chains at pace and at speed. And that creates challenges for some markets, but also creates opportunities in others. If those suppliers change shift, that always creates opportunities for banks to capture some new opportunities in perhaps some markets that previously were less attractive or less important to them.

Bellens

The second, I think we see opportunities in the capital markets. Volatility is still high, so we still see opportunities in the equities, in the equity space. And as you point out, already, interest rates are growing. So, there's also opportunities to capture deposits and opportunities in wealth management that come with that as well.

Gilder

Okay. One of the other things that we saw during the pandemic was the acceleration of digitization through necessity, really, as customers had no other options in how they interacted with their financial institutions. Maybe turning to you TC, maybe some commentary on that accelerated technology innovation and what we've seen from that.

Tzu-Chung Liang

In the market, we are seeing banks focusing on the customers using technology as an enabler. So, we see three big trends. One is actually the changing customer preferences during COVID. The need for less human intervention or interactions during the COVID restrictions, for example, branch closures, lockdown in certain cities. So, we see an acceleration in the uptake of online banking, even by the less tech savvy customers, and also the need for EKYC processes to enroll new customers. And secondly, I think banks are actually adopting a customer centric strategy versus a product strategy. Banks need to align to the customer's specific needs, enhance the delivery model, and provide tailored financial solutions. So, thinking about what the customers’ needs versus what the banks are currently offering, and whether the banks are actually meeting the needs of the new consumers or the younger consumers. Typically, older consumers may care more about interest rates and branches, but younger consumers probably put more value on digital capabilities and access to newer trends, such as digital assets.

Liang

 And last but not least, I think technology has accelerated innovations. So, we see personalization with use of big data analytics to enhance the profiling and segmentation and also to provide tailored value propositions. And this is where the digital players are pretty strong at.

Gilder

Okay, thanks, JC. And you mentioned consumers there. One of the things that really fascinates me in consumer banking is how experiences that customers have in other parts of their lives are influencing the way they consume banking products and wealth products and other financial services products. Think about the way we consume food now through delivery platforms or movies through online platforms, and so forth, how's that influencing the customer expectation on their bank? Perhaps starting with you, Jan.

Bellens

Yes, Andrew. I think that's a big driver of digitization and hyper-personalization. It actually means that a lot of consumers are no longer looking or are actually keen to make the effort to look for a financial product. Am I going to look for a mortgage, when I buy a house or an apartment? Actually, my moment, my experience, my moment of truth is actually I want to buy an apartment and I want to do it as easy and as smoothly as possible. The mortgage is a financial product that underpins the transaction. And that, embedded finance, is a big movement. And I think people are looking for experiences, they want to buy things, they want to experience things. And I think we will see more and more towards that embedded finance drive, where financial services are the underpinnings of those acquisitions or those experience rather than a destination in itself. And I think that's going to be a big change on how the banks operate in the market, and actually how they sell and serve as their products.

Gilder

In our recent consumer banking survey, we noted that 27% of the respondents to that survey had a relationship with a neobank. But TC, in Asia, that number was quite a bit higher- 35% people had a relationship with neobanks. Maybe some comments on why is that different in the Asia region and what are the trends that we're seeing that drive that.

Liang

In Asia Pacific, I think we've seen two themes emerging. The first one being super apps. For those of you who are familiar with China, you will know Alipay app, which is more than a financial services app. So, besides using it for payments and financial services, it is also a lifestyle app with a wide range of use cases. The same applies to WeChat by Tencent. It is much more than social messaging app and can be used for payments and financial products as well. Closer to home in Southeast Asia, we have Grab. The Grab app has expanded from transport, ride hailing to actually food delivery, groceries at GrabMart, to shopping, as well as financial services.

Liang

The second theme that we're seeing is actually ecosystem. We see a trend whereby financial institutions players are actually building their own ecosystems, mainly to increase the stickiness of consumers within its ecosystems or they are participating in multiple ecosystems. One of the key objectives is actually to reach and acquire new consumers.

Gilder

So TC, do you think this comfort with the super apps is driving some of the increased uptake in neobank usage in APAC?

Liang

Yes. And I think in APAC with the super apps, as well as the ecosystems that they are building, the neobanks becomes part of the ecosystems that they are using in terms of expanding their reach and the use cases that they are giving to the consumers.

Gilder

So, let's talk a little bit more about the fintech sector and neobanks, because they're really, really starting to tilt the competitive landscape, particularly in this region. Obviously, TC, you and I sitting here in Singapore, we've seen the granting of digital bank licenses a couple of months back and even more recently in Malaysia. So, we're seeing new players that are coming into the market, not from a traditional banking background, and big players that are going after more than one market. So, not just single market entry, but multi market entry. In Australia, we saw a wave of neobanks, some of those have now been acquired by traditional banks, and some of them we've actually seen them handing back their licenses. So, what's going to be different in the ASEAN market as to what we saw in the Australian market? What's the dynamic and how do you think it's going to play out in this part of the world?

Liang

Yeah, I think there's two factors I'm looking at. One is in ASEAN, the regulators are just starting to issue digital bank licenses in recent years, as you have mentioned, right? We are seeing a wave of digital banking licenses being issued by Southeast Asian countries. For example, Malaysia just announced last week the issuance of five digital banking licenses, whereas MES in Singapore issued for licenses in December 2020. And looking at successful applicants, we will notice that the consortium involving Grab and SingTel has been awarded licenses in both Malaysia and Singapore. This actually showcase the ambition not to be just a single country player, but more of a regional sort of financial services players. And as we mentioned, Grab actually has an ecosystem that they can tap on to make neobanks or the traditional banks successful. And on top of that, I think in terms of their ecosystems and their digital wallets proposition, it can actually help in terms of the adoption of the new digital bank, financial services, and actually reduce the cost of acquiring or upselling customers.

Liang

And the second point here is around young consumers in ASEAN are increasingly looking to fintechs for the better digital capabilities, as well as access to digital assets, for example, cryptocurrencies. While many traditional banks are still assessing the digital asset strategy and whether to offer such asset classes to his consumers, which are deemed high risk, fintechs are actually penetrating this gap to actually offer innovative products and offerings to attract the younger customers.

Gilder

So, coming back to you, Jan, for the people listening to this podcast, many of them might be sitting in a traditional bank. They might be leaders in a traditional bank and incumbent bank. What does all this mean for them? How will the customer expectation change with these new entrants coming into the market? And I guess more importantly, if I'm a traditional banker, how do I respond to that competitive landscape?

Bellens

Andrew, I think that's a real challenge. And I think as TC already highlighted, our consumer banking survey shows that there's a real segment and generation of customers that really are big on digital and mobile adoption, and also big on adoption of new products, such as digital assets. But at the same time, in traditional banks, there's still a large group of customers that want to be served differently, that might want to be served in a more traditional way. So, it's really critical for these consumer banks to make sure they can actually hyper-personalize their offering, and can actually play both worlds. And that has great implications for talent and for technology. You still want to make sure that you can actually serve your customers in the branch with people that drive great customer experiences and provide great service.

Bellens

And all of that I think is underpinned by talent. Talent that also gets digitally savvy, and that stays close to the customer. And then a flexible technology platform that can serve those customers that still want to use branches or more traditional means of interacting with the bank, and those that are fully mobile and fully digital.

Gilder

Yeah, digital assets, you mentioned, we'll come back to that shortly in a regulatory context and we're going to do a deep dive into that topic in a subsequent webcast. Maybe just turning to the broader market in APAC. I still think the APAC market is one of the most attractive in the world at the moment. There's still lots of opportunities, despite the rocky road we've had over the last couple of years. What's the sentiment around the opportunities in this part of the world? So, if you were a banker or advising a banker, what pockets, either by market or by product line, where do we see those opportunities?

Bellens

Thanks, Andrew. And yes, there's still a lot of interest from international banks in the region. There are still great growth opportunities across the market that's well recognized also by a lot of the global banks. I think one particular domain in banking and wealth management that has gotten a lot of attention is actually the wealth management space. The wealth creation over the past decade in Asia has been tremendous. And that's been driven by entrepreneurs, corporates, and so on. And I think that wealth management space will continue to drive a lot of growth going forward. It's really lifting all consumer segments. People are becoming more affluent across all of the markets. And that creates also similar challenges to consumer banking, which is you have some older generations where wealth preservation will be important. And then you have a new generation of entrepreneurs and affluent professionals that are using different tools to manage their wealth. So, great growth opportunities, but again, that challenge of hyper personalization will be critical.

Gilder

And TC, maybe bringing you in here with a lens on the neobanks that we've been talking about in the fintechs, how do you see them playing it in this space, if at all in this region?

Liang

Currently, we do not see high net worth individuals going to the neobanks and fintechs for their private banking needs. In ASEAN, I think currently the fintechs and neobanks are actually going after the mass market with a large consumer base to acquire and to service. So, this is one area whereby the banks actually have an advantage due to the trust and the brand name. And they should be focusing on, you know, gaining market share. However, fintechs and neobanks are typically agile and quick to respond, should they be able to come up with innovative products that their customers base asked for? They can possibly encroach on the private wealth with these new products.

Gilder

And what about generational change? So, as wealth starts to transfer from the older generation to the generation that are more digitally native, I guess, will those new entrants start to be able to penetrate that segment of the market?

Liang

Yes, generation shift is actually a very key factor that banks should take seriously, because studies have shown that younger consumers are definitely much more digitally savvy. They tend to value digital capability and the experience itself. They are also more receptive to new products and new innovative products. So, product innovation and responsiveness are actually key to cater to this new generation shift. So, banks need to be quick to identify the new consumer needs and react to them or probably they will risk losing these customers businesses. For instance, if banks do not offer digital asset services, younger consumers will actually look to fintechs or alternative platforms for what they need. For example, we see PayPal now actually allows consumers to actually buy, sell and use crypto within its mobile wallet.

Gilder

Let's stay on digital assets, but in the context of the regulatory environment, because it's certainly getting a lot of focus from regulators, not just in this region, but globally. What's the direction of travel, Jan, for regulators and how can banks take some proactive steps to prepare for what might be coming down the pipe on the regulatory agenda?

Bellens

Yeah, Andrew, as you point out, indeed, regulatory standards for digital assets are very divergent and different across different jurisdictions, which poses, of course, challenges. But I think, on digital assets, they will be moving at different speeds, but I would say that the genie is out of the bottle. This is not going to go away. Although in some jurisdictions, as you know, it has been now severely restricted. But I do believe that this will not go away. There's interest from consumers, there's interest from institutions. So, I would certainly believe that this should be on the radar of all global institutions, and that they should look at exploring ways on how can, of course, within the framework of regulation, what services and products can I offer? And even if there's still some restrictions, how can I safely experiment, perhaps in a sandbox, with this trend, because as I said, I believe the genie is out of the bottle. It will move at different paces, but it will not go away. So, I would certainly urge banks to be ready and make sure that they have understanding talent and some of the technologies to underpin what might come in the future.

Gilder

And TC, what are we seeing more locally in the APAC region?

Liang

In the APAC region, I think just looking at, let's say Singapore, in a recent Singapore MES interview, the approach that they are taking is to be adaptive, continually evolving, as well as consultative, as this is a fast moving space. So, I think in terms of key risks in this space, in the digital asset space, includes the money laundering, as well as terrorist financing risks. And the way I look at it is that most banks actually have very strong controls and processes in this risk areas. And actually, they can take advantage of the strengths when entering into this revolving digital asset space.

Gilder

Yeah, we could probably spend quite a lot more time on the regulatory agenda, but as I said, we will come back to this topic in subsequent podcasts talking about alternative delivery models for financial crime, how to take cost out of the risk function, sustainability and ESG, and the regulatory environment around that. So, look out for future podcasts on those topics. So maybe, we've covered a lot of ground today, and deliberately so because this is the first in the series. It's clearly a fast-moving environment. We've talked about agility a number of times. Maybe to wrap up, starting with you, Jan, if you could give one piece of advice to bank leadership that may be listening today about how would they navigate through this complex environment, what would that be?

Bellens

I think, Andrew, it's great to hear that you and the team will be covering in this podcast going forward, because I think that highlights what is happening in financial services then in the world. There's a lot of change that is continuous and I think that's really what I would urge banks, large institutions, typically with thousands of employees, to think how do I make my organization permanently change-ready? I think that goes back to that agility point, but how can I make sure that both my people and that my technology platforms are so change-ready that I can deal with what is coming in terms of challenges that continue on the geopolitical front, for example, but also in terms of how I can quickly capture some of the opportunities when they unlock themselves either because of regulatory change or because of rapidly changing consumer preferences. So, being changed ready permanently I think is the key thing. There's no such thing as, 'I'm going to transform myself and then, all of a sudden, I have moved from point A to point B,' because point B, unfortunately, is shifting all the time. So, it's being change-ready on a permanent basis.

Gilder

And you, TC?

Liang

I think the current bank CEOs can leverage the trust that consumers already have in the banks. But on top of that, I think they can start behaving like fintechs, for example, to take advantage of technology, to actually transform its customer's journey and processes to be easier, faster and better for its consumers. And in addition, and also probably to offer new innovative products to cater to the generational shift, that the younger consumers may be wanting in the future.

Gilder

Thanks, TC, and thanks, Jan. So, we've covered a lot of ground today. To summarize, I'd say Asia still presents a huge opportunity for growth. The competitive landscape is complex, and it's continuing to change. And finally, agility is always going to be key to success. So, as I said, as this was the first podcast in the series, we started at a level of overall themes. In subsequent podcasts, we'll be diving into a bit more detail. Upcoming topics will include things such as sustainable finance, workforce of the future, and engaging with customers. We at EY are working on many of these complex topics. So, feel free to come and talk to us, and thank you for listening.

Gilder

You've listened to EY Next Wave Banking in Asia Pacific Podcast. To learn more about EY, our people and our latest thinking, visit us at ey.com/en_gl/banking-capital-markets. If you would like to have further conversation on what you have just heard, or learn more about joining our team at EY, please contact us via the details found in the description. And finally, don't forget to subscribe to our podcast on Apple podcast, Spotify or wherever you listen.

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