McKinsey Asia report: Banks need to move from transaction points to interaction hubs

McKinsey recently published a report on digital banking trends in Asia. The report highlights increasing customer willingness to embrace Fintechs and non-traditional banking players in both developed and emerging Asia. Consumers are also willing to consider digital only banks. Unsurprisingly, there is a clear drive towards digital banking.


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Fall in Branch Transactions

The striking statistic that has been unearthed is that bank branches now account
for only 12 to 21 percent of monthly transactions. This is probably a bit misleading or skewed because of the unbanked population in several parts of emerging Asia. When this population gets an economic identity one would hope that they would directly go digital. However, there will certainly be a good proportion who would stick to conventional banks.

As mentioned in several of my posts in the past, the leap frog moment is perhaps waiting to happen with the unbanked in emerging Asia due to the mobile penetration. Also, Smartphone banking penetration has grown at a faster pace than overall digital banking, jumping upto four times in many Emerging Asian markets.

Emerging v Developed Asia

Emergence of Non-Banking Fintechs

40-50% of the population in developed Asia use non-banking Fintechs and most of Emerging Asia penetration ranges from 5 to 15 percent. However in two countries China and India, these Fintechs have had a penetration of 67% and 39% respectively. Thanks to Alipay, Tencent and PayTM. Alipay and Tencent take do about 94% of $6 Trillion worth of mobile payments in China. About a Billion consumers perform digital transactions across these three firms in these two countries.

The report also touches upon the digital marketing strategy that Banks and Fintechs could take to reach out to their consumers. The growing trend, however seems to be to offer financial services that is part of customers’ lifestyle.

There are also several firms that offer non-banking services and then once they have behavioral data from customer transactions, could launch their financial services. Also, many service providers are relying on customer databases (For example, Aadhaar in India, Social Media and Ecommerce in China) to gain insights and offer contextual products.

Using non-banking databases is not just a trend in Asia, but also seems to be a trend in Europe, UK and the US. Also, digitally active customers buy more products than non-digital customers. Spain’s BBVA have had their digital banking sales across the banking group grow from 10% of total sales in 2015 to 33% in 2017. This was primarily due to the engagement that their banking app managed to create.

Arunkumar Krishnakumar is a Fintech thought leader and an investor. 

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