Financial Services Practice

Navigating the new era of Asian retail banking

Retail banking in Asia is on the cusp of a new era. By 2015, more personal financial assets will reside there than in Europe.

August 2013 | By Kenny Lam and Joydeep Sengupta

In just a few short years, Asia will be the world’s second-largest wealth-management region, behind only the United States. The area's retail-banking revenue is surging, growing at 9 percent a year since 2010. By 2020, it is expected to reach more than $900 billion.

To help banks tackle the challenges of this evolving region, McKinsey published Retail banking in Asia: Actionable insights for new opportunities, which includes 8 distinct articles. The articles, combining insights from McKinsey’s proprietary data with the lessons of our extensive experience supporting clients throughout the region, offer new thinking and practical advice for executives interested in this market.

The new era in Asian banking will bring substantial opportunities, but capturing them will not be easy. Rapidly shifting consumer behavior will force banks to revisit or even completely revamp their business models. New regulatory requirements and high-risk customer segments will add to the cost of doing business, putting downward pressure on returns. Non-traditional competitors will enter the market, vying with established ones for their revenue pools. Attackers from outside the banking industry have already begun encroaching on it, using direct payment as their main entry point.

Among our findings:

  • Unlike the early days of digital banking, when consumers valued low prices above all else, today customers want greater control over their finances, fair and transparent pricing, and a single, consistent, engaging experience. Findings presented in “Digital banking in Asia” suggest that banks must make digital banking an integral part of their new operational models, not a stripped-down version of the products and services offered through traditional banking channels.
  • One of the surprises confronting banks in Asia, also presented in “Digital banking in Asia,” is how quickly local consumers have adopted digital technologies, particularly mobile. In China, 65 percent of mobile-phone users regularly access the Internet via their phones, while in India, mobile-only Web browsers are expected to comprise 55 percent of the total Internet user base by 2015. With the rise of mobile comes the rise of mobile banking. In 2011, for the first time in its 13-year history, the McKinsey Personal Financial Services survey2 found that Asian consumers were visiting branches less often than in earlier years. Even in markets where financial-services consumers are still purchasing most products in person, the Internet is playing an increasingly crucial role in the decision-making process.
  • Banks are at last seeing returns on their investment in multiple channels, but physical bank branches are not necessarily a thing of the past. They will continue to play a role in emerging markets—but in a new way. In “Is the branch obsolete in a multichannel world?” we advise bankers to understand the particular economics of their markets before making broad-based decisions about the size of their networks. To take advantage of the shift to multichannel, retail banks should consider changes to four aspects of the branch: locations and format, network density, staff size, and staff expertise.
  • As in many parts of the world, “customer-centricity” is a much-discussed term in Asia, but many banks haven’t been able to turn this vague concept into something concrete. “Creating the customer-centric retail bank” presents three specific business models that can help make a bank’s efforts much more impact focused. Our research found four important changes in customer behavior and expectations across Asia:

1. Loyalty drivers are shifting. While price and accessibility of branches and ATMs were once the biggest concerns of customers, they are now table stakes. Quality of service and staff is becoming much more important.

2. Use of multiple banking channels—branches, ATMs, online, and mobile banking—has become a reality for Asian consumers. This increases the demand for seamless information flows across those channels.

3. More than 60 percent of emerging Asia’s consumers would prefer to consolidate relationships if a bank is able to offer seamless service.

4. Consumers show decreasing loyalty to their financial institutions

Retail banking in Asia is evolving quickly; the region’s emerging countries will soon have attracted more revenue in absolute terms than the developed ones. To win in this market, banks must understand their customers, their competitors, their own business models, and their regulatory environments. Getting it right will be essential if banks are to survive the battle that’s already under way.

To download the full compendium of articles, Retail banking in Asia: Actionable insights for new opportunities, go to Insights & Publications.

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