White Papers and Reports

Who Needs Silicon Valley? China Leads Asia’s Diverse Digital Banking Markets

If you want to see what universal digital banking looks like, skip Silicon Valley or London’s fintech hubs. China’s Alipay and WeChat Pay show how to do smart, mobile-based banking on a massive scale. Regulators are now adapting to new customer demands.

The Asia-Pacific retail banking market is diverse, reflecting the different levels of social, economic and financial institutional development. It ranges from the near universal coverage found in the more developed markets of Australia, New Zealand, Singapore and Hong Kong to the emerging market of Cambodia, where only 21% of people over the age of 15 have a bank account. It also includes India, where government policies have pushed inclusion by shifting state transfers, pensions and benefits directly into accounts or onto biometric smartcards. Accordingly, Indian account ownership has jumped from 35% in 2011 to 80% today.

However, bankers in The Economist Intelligence Unit’s survey see common themes. Within the Asia-Pacific region, changing customer demand will have the biggest impact on retail banking in the next three years. Regulatory trends are less of a concern in Asia-Pacific (40%), compared to Europe (46%) and North America (56%). Bankers in Hong Kong and Singapore seem to benefit from the more tech-friendly “try it and see” approach of their own regulators. Both the Hong Kong Monetary Authority (HKMA) and the Monetary Authority of Singapore (MAS) have opted to create “regulatory sandboxes” to encourage innovation. These sandboxes allow banks and FinTechs to trial their ideas while involving only a limited number of participating customers. However, the situation is very different in Australia, where bankers have come under fire from the regulator due to poor risk management, high fees and widespread mis-selling.

An April 2018 report by the Australian Prudential Regulation Authority into the Commonwealth Bank of Australia (CBA) made clear that “a widespread sense of complacency has run through CBA, from the top down”.2 The subsequent loss of 20m customer account details only compounded the likelihood of significant reputational damage.

Although Australia has not been Asia-Pacific’s leading example of customer-centric, innovative, fast and frictionless banking to date, this may change with new competition from smaller players. New competition should accelerate the digitalization process that could help restore the reputation of Australia’s bigger banks. The environment will also change with the federal government’s required phased implementation of open banking commencing in July 2019 by the big four: the CBA; the National Australia Bank; the Australia and New Zealand Banking Group; and Westpac.