// . //  Insights //  5 Themes Shaping The Future Of Asia’s Digital Banks

With the global economy taking a downturn and investors tightening their liquidity, profitability has become top of mind among Asian digital bank CEOs. We dive into the key risks and challenges shaping the road ahead for digital banks, exploring the opportunities for growth, regulatory implications, and the lessons learnt along the digital bank journey.

Insights are drawn from the Asian digital bank CEO strategic roundtable at the Elevandi Insights Forum, chaired by the Monetary Authority of Singapore, Synfindo, Affinidi, and the Asian Development Bank. The roundtable brought together for the first time, CEOs from leading digital banks across Asia, as well as Oliver Wyman experts.

While many topics were discussed, they are best summarized across five key themes.

The evolution of financial services

With a bleak global economic outlook and liquidity drying out, profitability has shifted to be front and center of mind for Asian digital bank CEOs. While reaching the underbanked or unbanked is a key driver to gain traction within the market, lending has proved to be the secret sauce towards a winning and profitable strategy for digital banks.

However, in order to unlock the full potential of lending, digital banks have to be creative to overcome the hurdle of the underbanked or unbanked not having traditional data points for underwriting decisions. To help them achieve success, some digital banks have turned to incorporating alternative data sources to better price the risks associated with lending to these types of customers, and thereby make informed underwriting decisions, such as approval and pricing.

Innovations in digital banking enabled by technology architecture

Innovation is key for bringing value in terms of products and services to digital bank customers. Hence, the foundational architecture of a digital bank needs to be modular to allow rapid testing and launching of new products, and secure exchange of data with ecosystem players. Achieving this successfully would enable digital banks to reap various benefits. For example, they would be able to consume and share data across organizations and ecosystem players to hyper-personalize products and services. They could also leverage alternative data from ecosystem partners to underwrite loans for the underbanked and unbanked and utilize open architecture for the ease of connecting to ecosystem partners so as to expand their distribution channels for banking services.

While the benefits are apparent, Asian digital bank CEOs have identified several common pitfalls. These include developing unique propositions due to customization, keeping vendor costs low as a main driver towards profitability, and launching product differentiators at the start to help them rise above the competition.

Open and trusted data in digital banking ecosystems

Open and trusted data, such as a national identity database, enables digital banks to reap the benefits of an open ecosystem to effectively serve their underbanked and unbanked target customers. The pros range from simplifying banking processes such as onboarding, and reducing risk by utilizing a unified identity database to prevent fraudsters from using fake identities, to reducing service costs by leveraging trusted sources instead of having to undergo hefty compliance processes.

Governments and regulators need to quickly establish these digital utilities if they have not already done so, in order to reap the full benefits of digital banks and the open ecosystem.

Talent as a key driver of success

Attracting talent is one of the most pertinent challenges that Asian digital bank CEOs need to solve. With talent being a key driver of success, Asian digital banks must develop the right talent value proposition to attract and retain the best talents. The participants concurred that several key areas they wish to focus on are building and maintaining the right work culture, developing a core employer proposition that is compelling to the target talent pool with flexibility based on the employees’ preferences, and utilizing greater performance-based incentives to attract and motivate the right talent.

Regulatory and policy changes in banking

Regulators have taken a positive step forward with the issuing of digital banking licenses. However, further evolving regulations would enable countries to embrace even more benefits from digital banks and improve the banking industry as a whole. While regulation changes could be introduced in various shapes and forms, a conducive regulatory environment for digital banks would include supporting efficiency to lower unit economics by embracing sandboxes to drive innovation, and enabling better collaboration and infrastructure within a country and across the region, thereby facilitating a level playing field with incumbent banks.

The report is authored by: Umang Moondra, CEO, Synfindo; Sourav Ghosal, Head of Strategy, Synfindo; Varsha Jagdale, GM, Financial Services, Affinidi; Dan Jones, Co-head of Retail and Business Banking, Asia Pacific, Oliver Wyman; Tek Yew Chia, Vice Chairman, Singapore and Head of Insurance, Asia Pacific, Oliver Wyman; Gaurav Goel, Principal, Oliver Wyman; Sean Casey, Engagement Manager, Oliver Wyman.