Banking in APAC: Where are the banks and where are they going?
Asia is attracting a lot of interest from financial services executives as the continent seems to be way ahead of the rest of the world. We asked Zennon Kapron, Founder and Director of Kapronasia, one of Asia's leading providers of financial industry market research, a few questions about what he thought and his views on what Asian bankers are concerned about and where they are headed.
Asia is attracting a lot of interest from financial services executives as the continent seems to be way ahead of the rest of the world. We asked Zennon Kapron, Founder and Director of Kapronasia, one of Asia's leading providers of financial industry market research, a few questions about what he thought and his views on what Asian bankers are concerned about and where they are headed.
In terms of innovation in financial services, Asian banks seem to have gained a certain lead over banks in the rest of the world. Is this your impression as well? Why do you think that is?
Asian banks have their work cut out for them in serving retail customers across the region. The Asian population is very digital with nearly 70% of the population on average having a smartphone. This digitization gives customers access to wide range of online financial and non-financial platforms. Increasingly these customers, especially the younger generation, are demanding the same ‘anytime, anywhere’ service they get from their entertainment platforms. Luckily for the banks, financial infrastructure in many countries is quite strong. Nearly every market has a national real-time payment infrastructure and modern digital banking services. That is not to say that banks don’t have competition. Apps like Alipay and WeChat have shown the risks of having a complacent approach to the market, which keeps the banks on their toes and innovating.
Many neobanks are appearing in Asian countries. Will they find their place? Which ones do you think are best equipped to succeed?
Asia’s digital banks are struggling. In markets like Australia, many of the VC-backed digital banks have either been bought out by a traditional bank or folded. Digital banks in HK, and likely Singapore, will only survive because they have deep pocketed backers. Fundamentally, the zero-interest rate environment brought in a fervor around anything digital and the general consensus was that a completely online bank without any physical branch or ATM presence would be able to capture significant market share. What they underestimated however is customers’ habits and the ability of traditional banks to innovate. In addition, many of the digital bank business models were built on the prediction of having hundreds of millions of dollars in customer deposits, which just hasn’t happened.
You meet a lot of bankers. What do you think is keeping them awake at night at the moment?
It’s difficult to feel bad for bankers, but over the past few years in a low interest rate environment, banks did well, but margins were somewhat constrained. Now that interest rates are going up, margins are increasing and bankers have become a bit more upbeat. That said, regulation and macro-economic certainty is a concern for everyone in the financial industry and certainly is a concern for Asia’s banks and bankers.
There is a very Asian phenomenon called super-apps that is attracting a lot of interest in Europe. These apps are often offered by transportation or e-commerce companies. In your opinion, should we expect super-apps by banks or insurance companies in the near future? Is this a goal for Asian banks and insurance companies and will they be able to compete with the leaders there?
Alipay and WeChat Pay became ‘super-apps’ due to a very unique set of circumstances in China early in the 21st century. The mainland Chinese financial system in the early 2000s was very archaic and had a lot of issues. The tech giants figured out a way to solve many of those pain points and grew very rapidly in the process. Since their success, every tech or financial firm wanted to become a super-app. The reality is though that trying to make the leap to become a super-app is like becoming a world-class violinist. It’s easy to say that that is the goal, but there are no shortcuts to getting there, you need to put in the work. Similarly, in the financial industry. Too often we are distracted by new technology or the latest trend, and we forget about the basics. The first iteration of the Alipay app didn’t have blockchain built-in or any AI – it was designed to solve the simple issue of trust in e-commerce. We lose focus of the basics and try to do too much too fast and it’s for that reason, unless cultures and attitudes change in these companies, we’re unlikely to see another super-app in Asia any time soon.
There is a lot of talk about cryptocurrencies. Do you think they are about to become mainstream in Asia? And are traditional banks ready to take advantage of this boom?
Certainly, in wealth management centers like Singapore, banks need to be on top of crypto as there is a significant demand from HNWI and family offices as it is something that both segments are allocated capital to. The real question is how regulators will look at crypto usage in the retail space. So far, the risks of completely opening have outweighed the rewards of the same. Until that equation changes, banks will do enough to serve some segments, but we don’t see them diving in completely.
There is a lot of innovation in payments and a lot of money being spent on funding fintechs in the payments space. This suggests a revolution or at least a big change. What do you think payments will look like in 5 to 10 years?
The irony is that if we do everything right, we won’t even see payments in a decade and they will be seamless and invisible. When you take an Uber, you care about the destination and the time, but the payment just happens. Current payment innovation along with AI and an increased focus on embedded finance will mean that payments will largely disappear and just become part of everything else that we do.
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