From communications to shopping, the smartphone has reshaped the way most people do everyday activities. But despite the growth of smartphone usage around the world, there has been a lag in users using mobile devices for banking compared to other online means like desktop computers. Around 59% of participants in a recent global consumer banking survey by Deloitte revealed that they used their mobile banking app at least once a month compared to 73% for online usage.
However, the potential of mobile banking is too significant to ignore as several digitally focused banks around the world are adopting a mobile first strategy, looking to engage with customers via apps. Virtual banks, which unlike their traditional counterparts engage solely with their customers digitally without a physical branch, are also starting to emerge. The likes of China’s WeBank and Germany’s N26 are just some of the high-profile names looking to reshape the way we interact with banks.
In some locations in Asia, the idea of virtual banking has gained traction with regulators from the financial hubs of Hong Kong and Singapore actively exploring the idea of a fully digitalized solution. Just earlier this year, the Hong Kong Monetary Authority (HKMA) announced the granting of eight virtual banking licenses to institutions backed by telecom companies, technology companies and traditional banks. These new virtual banks in Hong Kong are set to be officially launched in 2020.
While the introduction of virtual banks appears to be good, at least on the surface, for the average consumer, there are some who believe these new institutions can play a greater role within the overall economy.
“The arrival of virtual banks is expected to have a greater impact in the SME space, with many in Hong Kong currently underserved and hungry for credit. SMEs may be tempted to switch their accounts as they will likely start to see an improvement in their ability to open bank accounts and obtain access to finance through the new virtual banks. In response, many traditional banks will seek to accelerate their IT and systems transformation, invest in new technologies, and upgrade their digital platforms to compete,” states Paul McSheaffrey, partner, head of banking & capital markets, Hong Kong at KPMG China.
Virtual banks need to be cautious in growing their userbases to ensure that they don’t overstretch themselves when acquiring new customers. Key to this would be being able to monetize their userbases by offering financing or investment services.
Other alternatives could focus on creating “customer stickiness” within their apps by offering a higher deposit rate compared to traditional banks or by forging promotional partnerships with the likes of e-commerce sites, ride-hailing apps, and F&B companies. A strong business model and profitability will be essential for justifying the further development of virtual banks.
However, not all traditional banks seem to be too worried yet with the digital banking head of one international bank sharing that “at the moment the customer services of some virtual banks are very limited. Normally their customers would check their account balance or do fund transfers. It’s very simple, transactional needs, which certain customers may be satisfied with. We are providing full banking services including credit card and including wealth management services.”
Whether traditional or virtual, the race is on for providing the best customer experience to attract users and gain market share. For the overall banking sector, McSheaffrey predicts “the year 2020 may also see an increased focus on customer intimacy in the corporate market. Banks that are able to leverage the data to predict behavior and create personalized experiences for their customers will give themselves a chance of long-term survival.”