The promise of new digital challenger banks is to enable greater financial inclusion in South-east Asia and disrupt the current banking sector.
This is dependent on them achieving scale and building sustainable, profitable businesses.
The number of digital challenger banks worldwide has grown significantly over the last decade, to a cumulative total of over 200, attracting about US$15 billion in funding. This growth has been particularly strong since 2015, with almost a three-fold increase in the number of firms encouraged in part by supportive regulatory policies.
Upcoming digital challenger banks in Singapore have a tremendous opportunity across the broader South-east Asia region, which is set for strong economic and demographic growth in the coming decade.
By 2030, the Asean-5's GDP is projected to reach US$4.3 trillion, making it the world's sixth-largest economic bloc.
In terms of population, the Asean-5 will be home to 540 million people, putting it as a collective market behind only China, India and the European Union.
As for access to financial services, South-east Asia has seen some of the steepest improvements in bank account penetration and usage.
This is supported by advancements in internet infrastructure, high-levels of digital literacy and smartphone adoption.
Nonetheless, there remains a significant underbanked and unbanked population, especially in developing markets. For example, more than 50 per cent of Indonesians currently do not have a bank account, in a population of 270 million people.
Likewise, approximately 68 per cent of adults in Vietnam and 65 per cent in the Philippines are unbanked. South-east Asia thus offers a compelling market for new banking entrants.
We identify three imperatives for digital challenger banks to succeed.
Be customer obsessed
Digital challenger banks need to place the customer at the centre when designing their products, services and features. Across South-east Asia, this could mean being laser-focused on addressing unmet needs by providing basic financial products to the unbanked, based on low or zero-fees, or lending to small and medium-sized enterprises (SMEs) and micro, small and medium enterprises (MSMEs).
By identifying the right customer priorities, digital challenger banks can develop services that set them apart from traditional banks, which act as a "hook" to capture mindshare.
Customers must be able to sign up for an account from anywhere in a matter of minutes, making the onboarding process fast and frictionless. To enable customers to effortlessly carry out their banking needs, an engaging UX/UI that is simple, transparent and visually appealing is a pre-requisite.
Value-added services such as personal financial management should be integrated with insights gained from spending behaviour. Products offered should be personalised and provided in a relevant context.
Beyond banking, lifestyle products could also be integrated into the digital challenger bank's app to promote interaction and engagement.
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