McKinsey predicts digital banking customers in Asia to reach 1.7 billion by 2020

Hong Kong – The number of digital banking consumers in Asia would reach 1.7 billion by 2020, with China, India, and ASEAN seeing the biggest gains, said a new report by global management consultants McKinsey & Company.

Titled “Asia Digital Banking: Winning Approaches In A New Generation Of Opportunities,” the report highlighted the enormous business opportunities that digital banking presents for Asian banks, as well as the risks to traditional business models.

The report showed that in China, the number of digital banking consumers will leap from 380 million in 2012 to 900 million in 2020.

Kenny Lam, a Hong Kong-based partner at McKinsey and head of Asia Retail Banking Practice, presented the report on Thursday. He said McKinsey’s research found that Asian consumers are becoming increasingly comfortable with using mobile and Internet channels for banking services, with their use increasing on average more than 35 percent in the past three years.

“McKinsey’s research also observed a drop in branch usage of 27 percent across Asia. At a few leading banks, nearly 20 percent of key product purchases are now completed online. Across Asia, about 25 percent of pre-purchase decision-making and 40 percent of post- purchase servicing is conducted through mobile or Internet devices, ” Lam said.

The report showed that over the next three years, the combined impact of digital banking initiatives could boost net profits by up to 35 percent-45 percent for banks that learn to get it right. The value creation potential is very high, especially in emerging Asia, where banks lag well behind their leading Western counterparts in automating banking processes.

McKinsey’s analysis shows that up to 20 percent-30 percent of net profits are at risk in Asian banks that are unable to leverage digital technologies. For example, banks in mature Asian markets have invested in refining their operating models over the past few years, yet much remains to be done to follow through on the promise of a fully digitized customer experience. Only 5 percent of processes are fully automated and only 25 percent of processes are technology enabled, in the banks examined in McKinsey’s report.

Asian banks that fail to heed the call of the digital consumer may also lose market share to unconventional players. Banking customers in most Asian markets are young, comfortable with mobile technologies, and less dependent on conventional banking infrastructure. Alipay, for instance, a leading Chinese third- party online payment provider, served more than 800 million registered users as of July 2013, and facilitated around 8.5 million transactions each day in December 2012.

“Asian banks still lag behind their counterparts in the rest of the world when it comes to digital banking services. There’s enormous upside opportunity for banks that can figure it out, as well as considerable risks for those that don’t. It’s not a matter of whether Asian banks should go digital, but when,” Lam said. Source: Xinhua