Digital Banking in Asia

        Market and competitive factors will determine whether the bank’s digital strategy will involve creating new digital customer propositions now or digitally enabling the current model for the time being (Exhibit 4).

        Pursuing digital enablement of the current business model

        Banks can support the digital adaptation of the present business model in a number of ways. These include a few important cost levers: improving the channel mix to reduce distribution costs, reducing administration and operating costs through automation, and optimizing IT spending through use of the cloud and agile development. Revenue levers use technology to increase effectiveness across a few elements of the sales process:

        ● Improved value per customer through consumer insights and analytics. Banks can use analytics for microtargeting by aggregating data to form a single, enriched customer view. A robust analytics engine cangenerate “next product to buy” offers and present customers with prefilled application forms.

        ● Manage consumer interactions across multiple channels. Banks must integrate across channels: this entails generating digital demand with smart tools, intuitive product choices, and use of direct channels for customer self-service.

        ● Increase frontline productivity and multichannel productivity for fulfillment. Deliver leads to sales staff through mobile devices; calculate and customize offers, including using digitally enabled pricing optimization; and provide payment solutions and technology-enabled rewards.

        Creating new digital customer propositions

        Ultimately, banks will need to adopt new propositions that serve their savviest, digital-friendly customer segments. The preferences of these constituents will eventually become the new normal. Whether the move to a fully digital-banking model is made sooner or later will depend on the nature of the bank’s business today and the degree to which early movers and nonbank attackers are threatening the bank’s customer base. Several banks have already launched digitally focused models competing in the same market as their owner, as well as independent banks competing in other countries than their owner, with varying levels of success.

        We have identified a number of consumer segments whose constituents are educated, increasingly digitally aware, and already involved in multichannel banking:

        ● Digital rich.These affluent consumers have an undergraduate college education or above and constitute the professional talent of leading Asian companies or multinational corporations. Some members of this group are also second-generation entrepreneurs, who are more educated and computer literate than their pioneering parents.

        ● Digital middle.These upper-mass and mass-affluent consumers have at least a college education and provide the professional and middle-managerial talent in Asian and multinational companies. The group also includes service entrepreneurs.

        ● Generation Y. Asia’s future digital-banking customers are now 15 to 30 years old; they are students and young professionals, some in their first jobs, and they are exceedingly digitally savvy. They will form the preponderance of the base for the digital bank of the rapidly approaching future.

        ● Digital SMEs.The number of small and medium-size enterprises (SMEs) that are using the Internet and other forms of digital technology will only increase across Asia. These nontraditional SMEs will eventually become the norm and will be looking to use a digital-banking platform designed to serve their needs.

        Each of these segments has unique characteristics that must be considered when developing the offer. The fundamental ingoing thesis is that significant unmet needs can be addressed through an innovative digital proposition.

        Strategic positioning

        Channels and offerings

        To position itself strategically in its market, each bank will need to find a value proposition targeted to the segment the digital bank is trying to address.

        A digital bank could enter the market with a simplified core offering of four or five relatively simple products and have one or two “hook” products such as a competitively priced deposit or strong trading platform. Banks may want to present customers with an “Apple-like” experience, offering an intuitive interface and a no-defect and no-customer-leakage culture, with real-time processing capability and a test-and-learn environment.

        In addition, banks can offer a personalized Web experience, so that customers can receive recommended products based on their digital data (such as browsing behavior). A social and mobile-centric dimension could make sense for some banks, in which the latest digital technologies and platforms would be used to enhance their reach and offering. Banks could also offer customers “immediate satisfaction” on their Web sites, with rich content management, paperless real-time transacting ability, and self-directed analytics.

        For some banks, integrated multichannel access will become a core feature of their value proposition, including a light physical presence and agents to enhance the customer experience, as well as to promote trust and branding. Compelling cross-category offerings can be developed, for example, which might blur the line between retail banking and retailing. The digital bank can and should be a highly creative space, fostering affinity and loyalty with fun ways to engage younger customers (such as selectively “gamifying” aspects of the banking experience). A cross-partner ecosystem allowing for creative collaboration and the formation of heterogeneous communities and integrated applications will be important for the maturing social-media generation. The point is that digital creativity will become an attractive customer proposition as digital adoption increases across customer segments.

        Three strategic archetypes

        In our experience, banks have positioned themselves to take advantage of the digital opportunity with three main archetypes. Banks have chosen these models according to the conditions governing their market, including where their market is along the digital-development curve and the vulnerability of their base to competitive pressures:

        ● Branch-centric, product-focused model.A follower strategy in digital.Most incumbent banks have retained branch- and product-centricity because the traditional universal-banking value proposition is strongest for them. Their sales and servicing model remains branch-based, with direct channels used as a complement and mostly for servicing. This model represents the follower strategy in digital and relies on a broader customer base across all segments and higher price premiums for value.

        ● Multichannel client-centric model.A leader strategy in digital.This intermediate model is still branch-centric, but it deploys sophisticated online and mobile offerings. Direct channels are used as the major servicing channels; for most banks that have developed this model, direct acquires a growing relevance for sales. This strategy is the aspirational model for digital banking: it derives value from a higher market share of tech-savvy customer segments but without price loss; it offers higher cross-selling success and higher share of wallet with lower cost to serve.

        ● Self-directed digital-centric model.A shaper strategy in digital.Some highly innovative European banks have adopted this very low-cost but comprehensive service offering focusing on more self-directed customers. The model relies on innovative direct channels for sales and uses a complementary light “showcase” physical presence for customer acquisition.Of the three archetypes, it has the lowest cost base for acquiring and serving customers. It is the model used by leading digital banks today, and its prevalence will expand as more countries move along the digital-development arc. The model represents the attacker acquisition strategy and has taken a disproportionate share of Generation Y and tech-savvy customers to date.

        The time to move is now, but in which direction?

        The evidence that increasing use of technology is changing consumer behavior is everywhere in Asia. One of the observed changes that is affecting banking is that the consumer decision journey has become increasingly multichannel. While Asian countries may be at different stages of evolution toward complete digital-banking readiness, most consumers in Asian markets are already using or interested in using alternative channels to interact with banks. We estimate that the number of potential digital-banking consumers in Asia will grow to approximately 1.7 billion by 2020.

        The digital future for banks, which will soon be confronted by that rising tide of maturing digitally savvy Generation Y customers, will come in the form ofthe end-to-end digital bank. But right now, competitive pressures and market forces demand a near-term digital strategy. This could involve creating those new digital customer propositions sooner rather than later, by which the bank will digitally remake its traditional banking offerings, channels, and processes. However, the “no regrets” move for most banks is a less radical shift, in the digital enablement of the current business model. In this near-term strategy, technology is deployed to reduce costs and increase effectiveness across elements of the sales process.

        Top managers are giving thoughtful attention to getting the digital strategy right in the here and now, since they are aware of digital’s disruptive potential. Our analysis of the impact suggests that, depending on the starting point, digitization can create or destroy value of 30 to 50 percent of total profit or loss. Already, three basic strategic approaches along a continuum from branch-based to digital-centric models have emerged. Most incumbents have understandably retained a branch-based approach—a prudent follower strategy that takes account of the preferences of and investment in the existing customer base. The impetus for the end-to-end digital bank that is now being pioneered by innovative attackers will, however, only become stronger as the young digital generation gets older and wealthier. Satisfying their expectations will eventually become the inescapable market paradigm.

Chapter 2：Managing the multichannel journey

(Kenny Lam)

      Executive summary:

      ● Historically, banks have approached channel management from the perspective of how channels can best serve the bank. To withstand pressure from new players, banks must approach channels as their customers do.

      ● With the proliferation of digital technology and mobile devices, the consumer decision journey has changed. Consumers now move freely among channels, often turning to multiple channels throughout the journey.

      ● To become leaders in digital, Asian banks must rethink their strategy for managing multichannel and address several areas: customer experience, branch formats, and data and analytics.

      ● Banks that successfully manage multichannel will capture the loyalty of new and emerging customer segments in developed and developing Asia.

        A great deal of confusion surrounds the term digital banking. Often, digital banking is equated with Internet banking. Although digital in nature, Internet banking is a channel for conducting transactions. In contrast, digital banking touches all of a bank’s channels—from the branch to the ATM, direct sales force, call center, Internet, and mobile. This distinction is important, particularly as consumer behavior continues to evolve and become increasingly multifaceted.

        The extent to which the Internet and mobile devices have altered the consumer decision journey is well documented. Today’s consumer may first learn of a banking product through social media, research it on a mobile device, visit a branch to purchase the product, use a laptop and the Internet to conduct transactions, and address service questions with a call-center representative. A consumer’s interaction with a product is no longer an isolated event limited to a single channel. Nor does the consumer decision journey follow a simple linear path.

        Digital banking, therefore, is not limited to enabling mobile, developing a striking application, or building a robust Internet-banking platform. To succeed in digital banking, Asian banks must strategically manage multichannel and take the following three measures: create a seamless customer experience, rethink the branch, and use data strategically. 

        Create a seamless customer experience

        Our research shows that more consumers are moving away from branches to digital channels. McKinsey’s 2012 personal-finance survey of Asia showed that among consumers in developed Asia, branch and telephone use declined by approximately 27 percent, and Internet and mobile use rose by about 36 percent since 2007. The shift is even more significant in the pre- and post-purchase phases of the consumer decision journey, where consumers increasingly rely on digital channels for research, transactions, and service. Although a growing number of consumers navigate multiple channels, they do so instinctively and continue to think of the decision journey as one experience.

        Banks, on the other hand, think about channels with respect to roles. When faced with the question of how to manage multichannel, banks consider the role they want a channel to fulfill and then assign the channel that specific role. For instance, a bank may view its direct sales force as its sole channel for selling credit cards and mortgages and its call center as the channel for troubleshooting Internet-banking problems and answering basic product questions. Consumers think differently. They turn to channels that are familiar to them and convenient at that moment, rather than consciously selecting a channel for its prescribed function. And we believe that to succeed in digital, banks must create a seamless multichannel experience that mimics the consumer’s actual process.

        The customer experience can be influenced by a number of factors, many of which are intangible and driven by perception or emotion. Traditionally, banks have focused on the functional factors that affect a customer’s experience, such as products, online tools, and discounts tailored to the customer’s needs.

        However, our research suggests that since the economic crisis, consumers place greater importance on intangible factors such as trust, value, and service.

        To create a seamless customer experience across channels, banks must focus on the customer and the intangible factors that influence him or her. Banks that succeed in digital employ a unified interface across all channels, so that a customer’s preferences and activities transfer across mediums. The customer experience—including sales-conversion opportunities and service interactions—is highly personalized. Communications with customers are one-to-one and happen in real time, regardless of the channel. A central Internet-banking platform ensures functionality remains reliable regardless of the customer’s preferred device. These measures can help create a unified and consistent experience for customers, who in turn feel trust in and loyalty to the bank.

        This example from a Taiwanese bank illustrates how to create a seamless customer experience. A customer has a question, and so he visits the bank’s Web site to do some research. Having reviewed the customer’s recent online activity in the bank’s system, the relationship manager (RM) calls the customer to follow up. When the customer arrives home from work later that evening, he realizes he needs further clarification on product conditions. His RM has left for the day, so the customer’s call is automatically rerouted to the bank’s call center. At the call center, the agent assigned to this customer speaks with him, investigates the question, and because she cannot answer it, she sends the details in an e-mail to the RM. The next morning, the RM calls the customer with the answer. While the customer’s question has traversed the bank’s channels, the experience feels unified and natural to him. The bank’s staff, on the other hand, turns to its centralized data and analytics system to address the customer’s individual needs in real time. And the bank is able to better serve this customer by drawing on the data and insights it has gathered across channels.

        Rethink branch formats

        While research suggests that consumers are moving away from branches, banks still own a significant number of them. Asian banks in particular were founded and expanded on the branch model. For many banks, the question of how to strategically manage branches is complicated by the fact that a majority of consumers still purchase products and open accounts in the branches. China,India, and Indonesia, for example, have been branch-based societies for many years. Still, some of the most innovative banks are rethinking how they use physical channels, and we believe they are correct to do so.

        Our research shows that rather than reducing branches, banks are transforming them into centers. Focused on serving specific customer segments, the centers are strategically located in the micromarkets where these customers live and work. The centers tend to be modeled on three formats:

        ● Wealth-management center.This physical channel caters to affluent customers who need high-touch services beyond retail banking, such as estate planning, investment management, and legal and tax advice. For many banks, one-to-one interactions with high-net-worth individuals yield the most product sales. To serve this segment, a bank must redesign the branch’s physical space and alter its organization to include more specialized RMs.

        ● SMB center.This center delivers business-focused products and services to private-business owners. Services include professional advisory on topics such as financing and capital-raising strategies, supplier and vendor management, and cash management. In some cases, these customers may also need asset- and wealth-management services. Some banks are uniting asset- and wealth-management services and SMB services at one physical center.

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