Technology and e-commerce disruptors such as Google, Alibaba and Apple are considered the biggest threat to banks, followed by payment players and Neo-banks, says Asia’s bankers.
In markets where mobile payments have already taken root, banks and payment processors are battling tech companies on two fronts. They are working to retain their own retail card and current-account customers and attract new users to their apps and e-wallets. They also need to get and keep merchants on their side if they are to reap the economies of scale from a high-volume, low-margin sector, according to a study by The Economist Intelligence Unit commissioned by Swiss software firm Temenos.
The survey, entitled «A Whole New World: How technology is driving the evolution of intelligent banking in Asia-Pacific», found that competition is intensifying between established retail banks and the technology and e-commerce disruptors that threaten to carve up the payment solutions market. Big tech giants Google, Alibaba and Apple are considered the biggest threat to banks (32 percent), followed by payment players such as PayPal, Ripple, and Alipay (28 percent) and Neo-banks such as Volt Bank, Varo Money and Monzo (25 percent).
With these threats top of mind, 37 percent of Asia-Pacific bankers see mastering digital marketing and engagement as their top strategic priority by 2020.
Asia-Pacific bankers are acutely aware of the race they find themselves in against technology giants that have the capital and scale to take market share from established players. Neo-banks are not far behind and have the flexibility to outmaneuver major banks on the margins. To remain relevant, retain customers and appeal to the evolving demands of younger generations, banks must master digital engagement, and quickly, said Martin Frick, Managing Director of APAC at Temenos, in a media statement on Tuesday.
To counter the possibility of losing customers to non-traditional banking competitors, some banks are following a “2 app” approach in order to counter non-traditional banking competitors. For example, Singapore’s DBS bank has its traditional banking phone app and PayLah!, an app that is used for transactions and lifestyle services. With over 1 million users for its PayLah! app, DBS DBS believes more users would come on board for its trusted data privacy and security measures.
In contrast, big tech competition could struggle to ensure the trust of traditional bank users because of the high possibility of data leaks that have occurred in the past in the tech industry.
One of the main issues being brought forward from the survey is how to regulate banking effectively across the APAC region. The survey highlighted the dangers of a deregulated banking environment with the dominance of the WeChat Pay and AliPay duopoly in China. Sopnendu Mohanty of the Monetary Authority of Singapore argues that a common data policy would be beneficial for the APAC region.
A regional regulatory banking policy would be effective in creating a balanced and transparent intelligent banking industry, the survey highlights. The European Union’s General Data Protection Regulation could be an inspiration for how to push forward such regulatory oversight in the APAC region. These standards would be easier to implement in the digital economy than in the physical economy.
Regulation across the region has developed disparately. In Australia, open banking is being driven by the government to increase competition within established regulatory frameworks. In other parts of Asia-Pacific, such as Singapore, open banking is primarily being driven by the players themselves propelled by their desire to remain competitive and resulting in a need for retrospective regulation. In China, tighter licensing and data protection rules are set to diminish Alipay and WeChat Pay’s duopoly across the broader region.
