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It is clear that, with the rapid development and adoption of the Internet and mobile technology, customer expectations for banking services have been dramatically transformed. To cater to these new market forces, emerging digital banks are offering services to three distinct segments of traditionally overlooked customers: the unbanked, underbanked, and underserved.
Slow to match changing customer needs and demands, traditional banks now face significant challenges in terms of customer acquisition and retention, ultimately impacting their market position and profitability.
In the Asia Pacific (APAC) region alone, by the end of 2020, eight virtual banks had launched in Hong Kong and the Monetary Authority of Singapore (MAS) had awarded four digital banking licenses. Elsewhere within the region, Bank Negara Malaysia — the Central Bank of Malaysia — is planning to release five digital banking licenses in 2021, and the Bangko Sentral ng Pilipinas (BSP), the Central Bank of the Philippines, released its "Guidelines on the Establishment of Digital Banks" in December 2020. BSP actually awarded the first full rural bank license to Tonik Digital Bank back in 2019, which finally launched on March 18, 2021.
In short, a new generation of banks is evolving across Asia. The Boston Consulting Group (BCG) confirmed this in its report "The Rise of Digital Banking in Southeast Asia," published December 2020, noting that 46 banks in digital form had already been launched by domestic and regional banks, as well as by some non-financial institution players, especially big tech companies and companies with an established ecosystem.
Customers can complete everyday banking needs exclusively online, using the Internet or mobile technology, with 100% digital delivery covering all products and services. This includes electronic Know Your Customer (e-KYC) capabilities, which provide customers with a frictionless experience when joining a new service.
New digital banks also offer a superior customer experience: this is an essential part of their offering. State-of-the-art User Experience (UX) design, instant and hassle-free services, precise marketing with a hyper-personalized loyalty program, and responsive customer service are also all core to digital banks.
New players use a modular technological design, advanced analytics, and agile governance, providing services that can rapidly respond and scale as demand changes. A cloud-native focus, open architecture, and data-driven processes are the key pieces that complete the puzzle.
Although some players in China have demonstrated a very successful business model — WeBank, for example, which was the country's first digital-only bank, or Alibaba's MyBank — digital banks always face risk when it comes to profitability.
After interviewing and talking with multiple influencers in the Asian market, we have recognized that the key drivers to profitability are a combination of a well-defined strategy, an innovative product, efficient revenue streams, and a low cost structure enabled through regulatory control, technical principles, an ecosystem, and big data analytics.
Every digital bank will be expected to comply with all banking regulatory requirements, as well as the risk management principle and best practices, guiding financial institutions in establishing a robust technical risk management framework. This is quite challenging for those digital banks operated by non-financial institution players — who have little regulatory knowledge nor experience — and therefore it benefits them to partner with technology suppliers who do have extensive experience in implementing technical solutions, with a high level of compliance, for customers in the financial industry.
Huawei always makes compliance and security the first priority in every aspect of service development and delivery. In addition to internal legal, compliance, and security teams, we also engage strong local compliance partners to conduct an independent assessment and provide additional assurance and support for customers. For instance, the first digital bank to launch in Hong Kong Special Administrative Region of China (SAR) was supported by Huawei and local compliance partners, who helped to build a reliable and compliant cloud platform.
In C-suite level conversations with traditional banks, focused on key topics for digital transformation, one of the most serious and frequent issues raised has been the constraints of low-level legacy systems. In short, it has become abundantly clear that the adoption of agile and advanced technology stacks is critical for digital banks. For instance, for Singapore's DBS Bank, architectural screening checks are mandatory for new applications (through questions such as: "can it function in the cloud?" "can it work as a micro-service?" and, "is it Application Programming Interface [API]-ready”) to ensure that the bank does not mistakenly invest in obsolete technology.
Huawei — named by DBS as its Most Valued Technology Partner of the Year 2020 — has provided full stack cloud services to DBS in Singapore, Malaysia, Hong Kong SAR, and Thailand. Alongside fully scalable, fully reliable Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) solutions, we have also provided flexible opportunities for banking customers to trial new Financial Technology (FinTech) solutions published in the HUAWEI CLOUD Marketplace, requiring only minor investment, empowering DBS with the capability to apply an agile operations model more productively.
Digital banks must establish a strong ecosystem, pooling data from a wide range of communities to feed into an increasingly personalized product and services offering. For example, another of Huawei’s customers — SEA Group in Singapore — has been able to mine information from e-commence and gaming platforms to gain insights on spending, transaction histories, demographics, ratings, and review preferences from a wide range of different customer groups. We are committed to helping our customers build their own ecosystem by bringing in a large, powerful, and diverse group of FinTech partners from both China and across the world. These partners bring a full suite of capabilities to the table, covering core banking systems, payments, digital onboarding, and conversational intelligence tools, to enable and fully support Asia's digital banking industry.
Big Data Analytics
Data is the foundation and bedrock for personalized intelligence, with advanced analytics on transactions, customers, and other data types allowing digital banks to build an understanding of customer desires and expectations. To take just one example, Indonesia's United Overseas Bank (UOB) launched its digital bank — TMRW — operating according to a mobile-first approach. With a full set of banking solutions, TMRW recorded an astonishing 500% year-on-year growth rate in 2020. One of its most highly regarded features is the ability to analyze then predict cash flow in accounts, including patterns for upcoming payments. This allows customers to track their spending and receive personalized savings advice as and when they want it.
The big data platform that Huawei provides is a one-stop intelligent data operations platform that features a complete data governance process across the entire lifecycle, integrated with a highly customized Artificial Intelligence (AI)-driven data analytics solution. This has already been implemented for the fourth largest bank in Malaysia, giving new levels of personal financial management capability to the bank's mobile customers.
Digital banking allows customers to benefit from a variety of innovative financial services and offerings. In support, Huawei offers a full stack of technical solutions to help digital bank players bring a next level financial experience to life, realizing new potential for customers and banks alike.