1: The bank of the future – driven by consumer behavior
Banking services are aligning ever more closely with the priorities and behaviors of digitally savvy consumers. Capco’s recent Bank of the Future survey of nearly 5000 Asia-Pacific consumers revealed that three-quarters of respondents now use mobile apps to access banking services, and a large majority say their confidence in online banking has grown over the last two years – fueling the demand for better, easier, and more personalized online banking services. However, our survey also revealed that consumer confidence has grown alongside a willingness to trust ‘Big Tech’ firms at least as much as banks to provide those services.
This points to an intensification of the strategic competition in digital banking markets between incumbents, newly licensed virtual/digital-only banks, fintech companies, super apps and ‘Big Tech’ firms. This will center on the creation of seamless, tailored customer experiences, in ways that only advanced digitalization can accomplish. Across the Asia-Pacific markets in our Bank of the Future survey, a large majority of consumers said they would be attracted by an app that gave them better visibility of all their financial products and that also provided personalized insights. For example, in Singapore, 20% found this ‘extremely attractive’, an additional 36% ‘very attractive’, and 38% ‘somewhat attractive’.
The comparatively positive economic outlook for the Asia-Pacific region should allow financial industries the opportunity to push ahead in delivering the convenience and value that consumers want. However, the drive to improve the customer experience will play out as banks refocus on costs, fintechs come under even more pressure from investors to make a profit, the region’s regulators set out and pursue roadmaps for further digital transformation, and Open Banking gains momentum. Open Banking may well move up the agenda for many regulators over the next year, and banks should consider how to incorporate the shift towards open APIs more fully into strategic planning – taking on board lessons from global markets that have moved ahead relatively more rapidly, such as the UK.
This points to an intensification of the strategic competition in digital banking markets between incumbents, newly licensed virtual/digital-only banks, fintech companies, super apps and ‘Big Tech’ firms.
2: Insurance and health – renewed focus on value and outcomes
Asia-Pacific health insurers are likely to continue to leverage new technologies and customer connectivity to transform themselves into health enablers, rather than simply financial protection providers. Over the next few years we could see significant steps towards ambitious digital health ecosystems focused on making more accurate predictions about health and early interventions, enabled by virtual clinics, existing ‘wellness and wearables’ programs, biomarker analysis, AI-driven remote diagnostics, and more integrated online/offline treatments, as well as remote monitoring and care for the chronically ill.
One question for the first half of 2023 is the degree to which insurers feel able, in a more uncertain environment, to take advantage of weaker insurtech funding to invest strategically, forge better-value partnerships and attract the right in-house tech talent. A longer term challenge is how to build ecosystem partnerships that can harvest and share different kinds of health, wellness, environmental and other data – and then combine this data to generate AI-enabled predictive health-related insights while preserving the trust of customers.
3: The (continued) rise of the ecosystem
The rise of super app ecosystems across the Asia-Pacific region will continue in a more testing investment environment. Customers want the convenience and ease of lifestyle super apps that offer a single portal to the day-to-day services they use, such as ride hailing and food delivery, with integrated payments and an increasing number of other financial services such as credit and insurance. So far, banks have been faced with a choice of ignoring the super app phenomenon, acting as a service provider in the background, trying to build a role as a more prominent strategic partner or, more rarely, creating their own super app.
The key question is the degree to which existing players now have a first-mover advantage, or whether we will see new opportunities to build ecosystems in response to the consumer desire for convenience and hyper-personalization. Financial services players, meanwhile, know they have a strategic need to become more involved in individual customer lifestyles and to offer more personalized and convenient ways to access financial products and services – or they run the risk of being disintermediated. The next twelve months could turn into a year of opportunity for financial institutions looking to formulate a more proactive super app and ecosystem strategy.
Customers want the convenience and ease of lifestyle super apps that offer a single portal to the day-to-day services they use, such as ride hailing and food delivery, with integrated payments and an increasing number of other financial services such as credit and insurance.
4: Demographics - Wealth and women
The importance of demographic and social trends, including a growing wave of intergenerational wealth transfer to digitally savvy millennials, will continue to be recognized through the year, with one factor gaining prominence – the increasing role of women in making financial and wealth management decisions.
At present, women in APAC accumulate about three quarters the amount of wealth (76%) accumulated by men by retirement age – a significant gender wealth gap. However, in 2022, for the first time, the collective wealth of Asian women surpassed the wealth of women in any other region aside from North America, and will continue to grow faster than in other regions. That’s going to make it increasingly important for financial institutions to address the needs and ambitions of women as financial decision-makers and investors, to understand their priorities and approach to their finances, and to build a greater diversity into the financial institution’s own business and development teams.
5: Sustainability – credibility is key
Asia-Pacific’s financial institutions know they must move rapidly on sustainability, with many using 2022 to flesh out their stance on decarbonizing bank portfolios and increasing green financing. However, it is now time to focus on making each institution’s approach to sustainability-related products and net zero targets more robust and credible and communicating this more effectively to customers, investors and regulators.
The vulnerability of the Asia-Pacific region to climate-related risks means the pressure won’t let up. Capco’s Bank of the Future survey found that between a quarter (23%: Singapore) and a half (52%: Thailand) of respondents in five key Asia-Pacific markets say that a banking service’s sustainability credentials are ‘extremely important’. Meanwhile, a UN report released during COP27 in November urges banks and other non-state entities to communicate progress towards net-zero targets using verified, comparable information. Over the next year, financial institutions should consider setting out robust climate-aligned finance frameworks and developing clear approaches to sustainability data management and the sustainability taxonomies now being launched across the Asia-Pacific region.