Banks have been at the epicenter of economic growth in Southeast Asia, as evidenced by the fact that nine out of the top 20 companies in the region (in market capitalization) are banks. Southeast Asia is undergoing a gradual but massive shift driven by digital technologies, and in anticipation of the enormous emerging opportunities, the banks are in the process of building up their digital capabilities. They are now offering cool mobile apps, providing tablets to their employees, making mobile wallets available and providing many other features to help their consumers manage transactions smoothly. It appears as if banks are gearing up for the future, with the objective of digital transformation remaining central to their present and future strategy. With this thought in mind, we started analyzing the annual reports, quarterly results, and investor presentations of the nine banks in the region in the hope of getting some interesting insights into the future of the banks. Nevertheless, our efforts reveal some grim findings:
- Only one bank outlines digital as a well-established company-wide strategy
- Three banks mention ‘digital’ in their financial reports on an ad hoc basis, but digital transformation is not a well-established strategy
- There is no mention at all of ‘digital’ by five banks in their annual or quarterly reports
Financial reports serve as the foundation for any firm, highlighting the company’s vision and its future strategy. It is astonishing to discover that Southeast Asian banks are yet to embrace digital transformation in a holistic way. The regional banks have enjoyed relatively healthy revenue growth in the past, but the digital lip service may not work anymore as purely transactional banking isn’t going to cut it in the future. Banks will soon face challenges from multiple factors:
- The center of power is shifting from banks to digitally enabled consumers. Yes, it’s true. The consumers do research outside of traditional banking channels and only contact banks after they’ve made their decision. Consumers increasingly expect banks not only to recognize and respond to their expectations but also to reward them for their attention throughout the relationship.
- The intimate and effortless experience provided by other industries has spoiled consumers. Consider, for example, the experience that consumers get with Uber, GrabTaxi, Google, and Facebook and compare it with the financial sector – you suddenly find the banking sector is digitally cold. The consumers now want similar experiences to those offered by other industries from their banks.
- Non-banking players pose a serious threat as they take on new meaning in the minds of consumers. From telecom operators to consumer retailers and travel agents, e-commerce players are using digital technologies to make inroads into retail banking. For instance, SingTel's (Singapore) mobile payment service for smartphones provides cashless payment services for consumers at more than 20,000 locations. Kaskus, an e-market forum in Indonesia, is looking to become a third-party digital payment provider. Payments that account for 20-25% of banks’ revenue are currently being challenged by the new entrants.
Connected consumers are generating an enormous number of digital fingerprints. For a bank to be truly digital we believe it must be able to make meaning and monetize value from the digital fingerprints of its customers, partners, and employees. We call that the Code Halo strategy. Code Halo is the new business principle describing the way in which banks need to create value by decoding the data generated by our digital lives. It is all about integrating banks’ products, services and processes with consumers’ digital information to create that ‘wow’ experience.
The banks in Southeast Asia are at a Digital Transformation crossroads from which successful banks will move beyond a purely transactional relationship with consumers and forge a deep relationship with them by leveraging physical and digital value chains, while creating new business models. Those banks that miss this turning point will soon find themselves being left behind.
These are just the early days of a profound shift occurring in banking. Everything is going to be changed by the way in which banks connect the physical value chain with information and code.