Digital banks require data-driven capabilities for profitable growth

New research from Oracle identifies key lessons digital banks in Asia need to heed to deliver better banking. The report ‘Beyond Digital - Data-driven Strategies to Grow, Scale and Profit’ uncovers important areas for digital banks to consider as they compete to gain market share.

The report examines the evolving landscape for both digital and traditional banks in three key Asian markets: Hong Kong, Singapore and Malaysia.

Key observations from the report include:

Digital banks need to look beyond the digital customer experience to utilise data in a unified way, focusing on addressing risk and regulation barriers to growth.

Banks should focus on reaching underserved segments, such as small and medium-sized enterprises (SMES), harnessing valuable data insights to improve SME lending experiences.

Progressive regulation like Open Banking and issuance of virtual banking licences will be a key driver for a new wave of digital-only banks. Building trust through safe, secure practices for regulatory compliance will be essential.

The modern disruption of traditional banking is due to the growth of tech giants entering the financial services space, the emergence of alternative banks and new open banking regulations. Also key is the issuance of virtual banking licences, where in APAC, Singapore, Hong Kong and Malaysia are leading the charge.

“Traditional banks are facing increasing competition in service innovation, which reinforces the need to redesign conventional banking models. Virtual banks may be nimble compared to the incumbents. Still, they face three immediate challenges: they need to demonstrate to regulators their ability to comply, they need to monetize data and they need to turn compliance into a competitive advantage,” said Oracle Financial Services Group Vice President JAPAC and Middle East Venky Srinivasan.

Digital banking propositions globally have done a great job of the on-boarding process. They now must prove themselves across the customer lifecycle with complex products such as SME banking, mortgages, investments and finance management – where satisfaction drops significantly.

The report details how banks can transform into data-driven organisations that meet regulatory and customer demands and considers their implications for banking best practices.

“The landscape has changed so rapidly that traditional banks are working at breakneck speeds to determine the best approach to remaining competitive amidst the advent of new entrants. There is immense opportunity for both traditional and new digital banks by harnessing the right technology and use of data effectively to deepen their offerings and their share of the customer wallet,” said PWC APAC Digital Banking Leader Harjeet Baura.

Pwci found that in Asia, sentiment toward virtual and non-traditional banks differs between various groups and within regions. Higher-income groups and people under 40-years-old typically express the strongest interest in digital banks, such as in Malaysia, where 81 percent of high-income residents favoured a non-traditional financial solution. That number was significantly higher than in Hong Kong, where only 63 percent of high-income residents desired a digital banking solution. However, despite the gap, the sentiment signals an opportunity for both traditional and virtual banks to serve current and future customers with the personalisation and products they desire.

The report spotlights several areas where banks can focus on delivering a better experience for customers across the financial lifecycle, including the underserved segment of SMES, the use of data to turn compliance into a competitive advantage and fighting financial crime.

Serving underserved SMES

With traditional banking, individual banks can open a digital account in the same day. But for SMES, despite the demand for rapid funding, they face regulatory hurdles and delays unlike their individual counterparts. According to the report, the average ‘Time to Decision’ for SME onboarding within traditional banks ranges anywhere between five days to one month.

‘Time to Cash’ can take between 25-55 days. Banks must focus on how to reduce turnaround times and deliver a seamless experience. By harnessing valuable data insights, using analytics and APIS, banks can quicken and automate processes to improve SME lending experiences.

Open ecosystems to redesign banking around customer

Open Banking ecosystems present a significant opportunity to respond faster and more accurately to new demands across all stages of the financial lifecycle. It is critical for banks to tap these and give consumers fewer reasons to explore alternatives outside of the bank’s ecosystem.

Pwcii research reveals a strong appetite for non-financial services like e-commerce or financial education from bank customers. In various parts of Asia, health, travel and discount coupons top the list for non-financial services sought on e-commerce platforms. In Malaysia, 71 percent state these types of offers are the most desirable, followed by 60 percent in Singapore and 59 percent in Hong Kong.

Therefore, the ability to tie options for e-commerce, transport and lifestyle into one seamless digital banking experience is vital to attract and retain customers.

Building data into banking blueprint

To ensure long-term profitability, banks should use data-driven tools to reshape their business models and achieve hyper-personalisation. The move to a unified data foundation to manage, monetise and mobilise data, along with the use of open APIS, can boost customer value by increasing choice.

With data at their fingertips both digital and traditional banks need to leverage data insights using agile technology stacks to optimise capital allocation and mitigate risks. This applies to virtual banks with a growth trajectory to ensure that risk and profitability are aligned strategically. Data-driven tools enable the mastery of data, which is needed across all levels and departments to get a real-time picture of the bank’s business.

Turning risk and regulatory

compliance into a competitive advantage Digital banks will need to consider how they can ensure compliance with less headcount and no physical presence. One of the critical design considerations of a digital bank is how it can design and automate processes to achieve compliance by design.

Researchiii shows that 66 percent of global banking executives consider aligning financial performance and risk data very important or critical to success. Digital banks will need to enhance the flow of information across risk, finance and treasury, to deliver better business insights. Finance and risk leaders must be empowered to reduce risks and meet strict compliance requirements.

Ensuring trust with safe, secure practices

Money laundering and fraud remain a drain on the banking system with an estimated US $ 800 billion – US $ 3 trillion laundered globally each year. On top of that, a new banking regulation is introduced somewhere in the world every 12 minutes.

Both traditional and non-traditional banks must leverage data analytics and machine learning tools for the detection and reporting of financial crime.