Disruptive Trends of Digital Banks in Asia Pacific and Australasia: How to Win the Profit Battle

March 2023

Benefiting from growing smartphone penetration, supportive regulations and so on, a growing number of digital banks have been launched, challenging the incumbents. However, among all digital banks, less than a quarter are known to be profitable. Key common characteristics among them are strong ecosystems, close engagement, unsecured lending focus, lean operations and transformed agile organisation.

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Key Findings

Digital banks differentiate with digital operations

Digital banking (mobile and internet) serve as key channels as part of the omnichannel offering from incumbent banks.

Targeting young and digital-savvy consumers, digital banks have a unique model that can operate fully digitally from acquisition, credit decisioning, service and engagement.

Four key factors facilitating growth of digital banks

Key factors supporting development are growing smartphone penetration, improving digital identity infrastructure, supportive legislation, and fast-growing fintechs.

The spread of COVID-19 changed customer behaviour towards digital, supporting adoption of not only digital banks but also incumbents’ digital banking, as well as e-wallets and BNPL.

Five key drivers determining profitability

Key drivers include a large ecosystem, strong engagement, unsecured lending focus with sound risk management, lean operations, and organisational transformation.

Engagement and unsecured lending contribute to revenue growth, while ecosystem and lean operations largely drive cost reduction. Organisational transformation facilitates implementation of strategic initiatives.

Huge business opportunities in the digital bank revolution

Business opportunities have emerged not only for digital banks but also for incumbent banks, big techs and fintechs to directly drive the digital transformation of the banking industry.

Different markets have different regulations. Some have dedicated digital bank licences, while others allow big techs to acquire smaller banks to convert them into digital ones.

 

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Scope
Key findings
Why relevant for digital banks, incumbents, non-bank consumer businesses and fintechs?
What are the differences between digital banks and traditional incumbent banks?
Four key types of digital banks for consumer banking
Four key engines enabling digital banks to take off
Increasing smartphone penetration in emerging markets to extend reach of digital banks
Digital identification (ID) to facilitate remote onboarding and authentication
Favourable regulations introducing digital banks to promote competition and inclusion
Tapping fintechs’ banking modules to accelerate time to market
More than 30 digital banks in this region are profitable
Strategic framework of digital bank profitability
Ecosystems are critical for digital banks’ acquisition and usage
Engagement: Gamification leveraging cartoon characters
Games to make banking fun
Customer engagement: personalised services to suit individual needs
Unsecured lending with alternative data reconciled with ecosystem identification (ID)
Lean operations: technology-driven cost competitiveness to challenge incumbents
Organisational transformation to drive agile operations
Advice to four different types of businesses
How to build ecosystems if founded without large ecosystem parent companies
Examples of ecosystem partnerships
How to establish partnerships if without large ecosystem parents
Tinkoff builds its own super-app ecosystem in Russia and plans to expand into Asia
Key incumbent banks’ companion app strategy to defend against challengers
Banks can leverage convenience stores and supermarkets for usage and acquisition
Seven Bank’s global network of proprietary ATMs
Digital banks may tap offline agents to serve unbanked populations in rural areas
Build or buy: To determine based on each bank’s own priorities
Survival in potential financial crisis
Key takeaways
Key Definitions
13 researched markets for consumer finance in Asia Pacific and Australasia

Payments and Lending

This is the aggregation of Financial Cards and Payments, Mobile Payments, Transactions, and Consumer Lending.

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