Surviving Battle of Digital Disruption

Date: October 2019
Author: Somkrit Krishnamra and Kanchanok Bunsupaporn

Businesses are all exposed to digital disruption. Particularly for Financial Services Industry, especially banking sector. Many players have adopted digital technology in order to streamline internal processes and to connect to customers, through online channel or mobile application, hence reducing bank branches but still able to reach more groups of customers. This also enables advanced analytic technology to be used for risk management and lending decision. We call these players, “Challenger Bank”.

Challenger Banks offer financial services through online channel or mobile application. This reduces costs, contributing higher returns, and better satisfy consumer needs. They can be divided into 4 categories; 1) traditional banks with full banking license, such as SCB who provides services through SCB Easy App; 2) Neo Bank without own license but cooperates with licensed banks such as Baixin, an online bank initiated from a cooperation between China’s CITIC Bank and Baidu, one of the three tech companies in China or BAT including Baidu, Alibaba, and Tencent; 3) Beta bank, a subsidiary of bank, offers services through its parent bank such as Finn, a subsidiary of JPMorgan Chase; and 4) players from other industries who offer different forms of services such as telecommunication businesses that are granted e-money license like TrueMoney.

Growth rate has been remarkable. Allied Market Research has forecasted that Challenger banks’ customer base globally will expand as much as 52.6% CAGR during 2017-2020, especially in the UK, Germany, and China.

China has fastest growing Challenger bank market. There were several major IT companies, namely Alibaba, Tencent, Baidu, and Xiaomi, that started to operate such business under MyBank, WeBank, Baixin, and XWBank, respectively, leveraging on advanced technology including AI, Big Data, or Cloud computing. Thus, this reduces the need for physical bank branches and staffs, lowering costs of credit approval to less than 1 USD.

Turning to Thailand’s banking sector, banks should look for a new way to take advantage of existing endowment that competitors like non-banks do not possess, i.e. branches located throughout the country. According to Deloitte Insight on “Recognizing the value of bank branches in a digital world”, which suggests improving customer services experience at the branch. The survey found that bank branch is still important in the digital era, especially for transactions related to complexed financial instruments. In addition, branch can still satisfy consumers better than mobile channel as branch remains a symbol of trust, which is the most important foundation for banking business operation.

Therefore, players should focus on adding value to bank branches, as well as establishing seamless connections between customer services at branch and through digital technology in order to enhance consumer experiences. This can be done through 3 strategies as follows.

1. Omni channel strategy creates seamless consumer experiences between online and offline channels. The survey suggests 70% of respondents view that as very important when deciding on their main bank. Banks should integrate real-time data from all channels. For example, if customers fill an information form through online channel, bank branch should be able to retrieve that information.
2. The sense of community strategy offers a superior experience than just depositing, withdrawing or general financial activities by transforming branches into café. Nearly 31% of respondents are likely to visit branch more often if branch has café for relaxing or working. Capital One, one of US major financial institutions, has opened a branch with café inside, Free Wi-Fi is also available.
3. Embracing human touch into technology strategy One-third of respondents are likely to visit branches more if branch offers convenient digital services such as having self-service screen and robot to service customers. Branch staffs are still available to assist when necessary. HSBC is another bank that introduced Pepper robot to provide customer service at Manhattan branch.

In the midst of the digital disruption, banks should adapt quickly, whether by applying advanced technology and developing mobile banking continuously, as well as utilizing existing branches. This offers banks a competitive edge over non-bank competitors, as consumers still prefer having human interactions and bank branches can perfectly meet this requirement.