Personalisation at scale key to sustaining profitability of digital-only businesses

Fintech, e-commerce and social media platform companies that attract and engage consumers at scale are starting to transform the banking landscape in Southeast Asia. By embedding financial solutions in a seamless user experience, they are creating and delivering a level of value to customers who have never experienced it before. Making banking truly invisible, sans-operations, and with unit-cost economics that is unbeatable, at least by the traditional commercial banks.

Armed with different business and operating models, a new wave of digital banks has also entered the market during the COVID-19 pandemic, particularly in the merging markets of Indonesia, the Philippines and Vietnam to serve the underbanked, and challenge the incumbents. 

More recently, developed markets in regions like Singapore, Malaysia and Thailand introduced new licencing regimes to allow digital banks to join the fray and improve financial inclusion. Tech-driven companies like Grab, Gojek, LINE and Sea Group have entered into consortia and joint ventures to win licences to operate as virtual or digital-only banks.

Meanwhile, incumbents in markets such as Indonesia have acquired stakes in smaller banks and turned them into their own bespoke digital-only subsidiaries, and bigger banks have set up wholly-owned sub-brands to drive their digital-only businesses and ventures. 

Fintechs and platforms bring unparalleled innovation and speed, onboarding millions of financial services users, many for the first time. These fintechs are the disruptors providing viable alternatives to consumers, small and medium-sized enterprises (SMEs), and the underserved market. 

A report from the World Bank Financial Inclusion Index for ASEAN (excluding Singapore) showed that penetration of financial products among the population aged 15 and up increased from 47% in 2017 to 58% in 2021. Malaysia and Thailand have the highest financial inclusion rate at 88% and 96%, respectively. There still remains a large, underserved segment. Up to half of those considered banked are underserved, and this spells opportunity for new entrants.

A study by big tech giant Google and Singapore state investment company Temasek showed that digital financial services will generate about $38 billion in annual revenue by 2025, representing 11% of total financial services revenue in SEA, and half of it will come from digital lending. The digital payments market is estimated at $1 trillion and digital lending is estimated at $110 billion in SEA alone.

However, these disruptors are facing their own disruption as market conditions churned over the last 12 months. Confronted by a double whammy of rising inflation, interest rates, and a collapse of tech stock valuation in the past year, they have had to grapple with a liquidity crunch, made worse by rising costs of funding. All of these factors have seriously impeded their path to profitability, and a new investor sentiment that favours tangible bottom line performance: returns on tangible equity, over growth of monthly active users.

In The Asian Banker’s Global Top 100 Digital-only Banks ranking, 29 out of 100 were profitable in 2021. The average time to profitability of leading digital banks is two to three years, with an average return on equity (ROE) of about 16%, higher than the banking industry average. Those focused on personal finance, wealth management, or SME banking are among the most profitable and 55% of these digital-only banks are in Asia. 

Against the new emphasis on sustainable profits, digital-only businesses have to double down on their understanding of customers, their behaviours and preference, to create and deliver better and unique values.

Christian Kapfer, research director at TABInsights said industry executives in a study opined  that customers expect tailored experiences and personalised service to entice and engage them more. The resulting sticky relationships will grow customer loyalty and lifetime value, as well as strengthen bottom line performance in the long run. 

Bryan Carroll, CEO of TNEX in Vietnam said the main competitive advantage of a digital bank is the ability to sum up all customer interactions, and the opportunities for value propositions. He said traditional organisations must recognise that products continually evolve, and disintermediation is now the norm. He said: “The only true modes in digital, if we want to get ‘fintech’ about it, are personalisation and innovation at scale.” 

Kevin Lam, head of TMRW, the digital-only banking platform of Singapore-based UOB said a new brand position was launched at UOB with a strong focus on personalisation. One of the three key strategic priorities of the bank is to exemplify what hyper-personalisation and digital adaptive banking is. Lam said: “UOB TMRW wants to be the world’s most engaging digital bank.” 

Gunneet Singh Bally, group head of retail channels at Security Bank in the Philippines warned of the increasing lack of product and service differentiation due to ‘commoditised personalisation’. He said: “Personalisation has to move beyond a level wherein a product proposition can be personalised to an individual requirement.” He cited as an example a personalised card on a digital platform that can structure payment fees and charges, and create preferences digitally. 

Nick Wilde, managing director for Asia Pacific at Thought Machine said customers, especially the young generation, expect banks to provide a similar level of personalisation to what they experience through e-commerce and social media. He said: “You’ve got to not just deliver at scale, but to personalise and customise at scale and that’s a challenging thing. But the newer technologies are offering a path forward.”