Where’s digital banking in Asia headed over the next 5 years?

• The West used to lead the global banking industry in innovation, but now Asia is tilting the scales
• Asia banks are reinventing themselves to survive given how a generation of digital-banking customers is rising by hundreds of millions strong

Over 40 of the world’s 100 largest banks by asset size are Asian, and account for approximately half of the market capitalization of the top 100 banks globally. The continent has been the world’s largest regional banking market for a decade, generating pre-tax profits in excess of US$700 billion and accounting for 37% of global banking profit pools as of 2018. Not only has banking in Asia caught up and begun to surpass their Western peers in scale, but consumers’ tech-savviness has created opportunities for banks to deliver new innovations and take the next leap ahead.

McKinsey reckons that as incomes continue to rise and the middle class grows to include two-thirds of Asian households, personal financial assets in the region will total US$69 trillion by 2025, representing approximately three-quarters of the global total.  Asia’s best-known fintech innovators, including Alipay and WeChat Pay, lead the world in scaling digital payments. 

According to McKinsey’s Global Payments Map, digital payments in China account for approximately 99% of the country’s non‑cash transaction volume and 45% of digital payments worldwide. Asia has also proven to be fertile ground for the development of digital banking, with numerous companies making the transition from a technology platform to a digital bank. 

In China for instance, Tencent’s WeChat offers loans through WeBank; in South Korea, Kakao Talk launched a digital bank⁠ — Kakao Bank ⁠— in 2017; and the Japanese e-commerce group Rakuten has expanded into credit cards, digital banking, investments, and insurance. Traditional banks have also launched stand-alone digital banks as a way to reach new markets and to acquire new customers at a lower acquisition cost.

Soon enough, the most successful banks will rely less on traditional services and revenue streams. Instead, they’ll depend more on the ability to see customers’ financial needs from end-to-end, and to meet those needs in a connected, seamless, and frictionless way. There are a few factors that will significantly inform digital banking progress through 2025.

Physical decline

Inevitably, the relevance of brick-and-mortar banks will continue to fade, slowly but steadily, giving way to the overwhelming use of digital services via mobile, computer, and other devices. Experts believe that physical banks are unlikely to disappear entirely in the decade ahead, but that many remaining banks will have to repurpose to serve niche needs, as general financial services become increasingly available online.

Thinner wallets and cardless payments

For consumers, it’s beneficial to maintain access to a variety of payment options, but those options will include cashless – and more will ditch paper money for the convenience of mobile payment. Not only are electronic transactions generally more convenient and efficient for individuals, but digital financial ecosystems also deliver significant advantages to businesses, governments, and economies at large. 

While we may encounter difficulty in convincing some that cards will soon be obsolete, Asian markets will lead this trend, given how more than 50% of transactions are made using digital wallets. The massive growth in payment-capable IoT devices and accompanying services are the primary drivers of this trend.

Competition with non-banks

Despite ongoing debate between lawmakers, regulators, and executives, software-as-a-service (SaaS) companies like PayPal, Stripe, and Venmo aren’t considered banks. Increasingly, however, they will serve customers’ financial needs in the same way traditional banks do today. The rise of super-apps like China’s WeChat and AliPay, Singapore’s Grab, and Indonesia’s Gojek will also continue to disrupt the financial world.

Micro-personalization

As it is, big data and AI-driven analytics bring about a new paradigm in financial services, it will have banks to treat every customer as if they are its single greatest priority. Instantaneous borrowing, proactive product suggestions, detailed guidance on purchases, budgetary recommendations based on factors like real-time location, spending profile, and much more are poised to be the new standard for financial institutions’ approach to customer personalization.

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