Digital banking to flourish in APAC by 2025: study

Over three-fifths of clients are willing to switch to neobanks.

Digital banking in Asia Pacific is likely to take off in the next five years with over three-fifths (63%) of clients willing to switch to neobanks, according to a report by software provider Backbase and global market intelligence firm IDC.

The region is expected to see 100 new financial institutions by 2025, spurred by liberalisation of several markets and issuance of new banking licences, the report said. The coronavirus pandemic has shed a spotlight on digital banking readiness as 70% of clients see transactions as “tedious”, whilst only 30% of the customer base are active on digital banking channels due to the sector’s focus on legacy systems.

“Today, incumbent banks across APAC are faced with the pressing need to up the ante on digital-first banking due to intensified customers’ need for availability, access, and control of digital channel interactions,” the report added.

However, incumbent banks have not been able to take advantage of potential ecosystem partners, with the majority (80%) of the top 250 lenders still prefer to own the entire value chain with third-party contributed business at a mere 2%. The average age of legacy core banking systems in the top 100 APAC banks remains at 17.5 years, the report wrote.

On the other hand, more than 35 neobanks across the region are built on innovative practices, ahead of traditional banks in terms of flexibility, self-service capabilities, customer needs, and personalisation. Consequently, with the emergence of new players and further digital disruption in the industry, 38% of traditional banks’ revenues are at risk by 2025.

Digitisation and AI implementation will likely be the focus, with 44% of top 250 banks completing their “connected core” transformation by 2025. Less than half (48%) of banks are expected to leverage AI or machine learning technologies for data, the report said.