Australian banks are fast-tracking the implementation of customer engagement strategies to make up for lost time, as over 50% of the recommendations made by the Royal Banking Commission had not yet been implemented as of early 2021. This finding was revealed in the second edition of the Fintech and Digital Banking 2025 (Asia Pacific) IDC InfoBrief, commissioned by Backbase.

Digital banking fitness has been the key factor in the resiliency of financial institutions and being able to recover from pandemic-related setbacks. The InfoBrief highlighted that digital banks across Asia Pacific (APAC) enjoyed three times the growth in customer bases in 2020/2019, compared to traditional banks.

Incumbent banks have also had to accommodate at least a 50% growth in the quantity of digital customer transactions and interactions. It is expected that organizations will reinvigorate digital transformation initiatives and undertake a comprehensive realignment of customer engagement projects.

New competition in an evolving banking landscape

Incumbents and new entrants alike will be jockeying for market share, and will look to compete on the basis of being digital-first. While the APAC banking landscape saw the departure of some neo banks and fintechs due to COVID-19 challenges, we will still see 100 new challengers across the region by 2025, according to IDC.

With new challengers presenting stronger post-pandemic propositions, there will be at least two digital banks in every APAC market that will pose a significant challenge to incumbents.

That said, 80% of banking assets in Australia will still be owned by the Big 4. While some challengers saw earlier market share wins, these successes were not sustained.

Some fintechs that had gained sufficient size by 2019 also found success, gaining more market share than expected. Fintech categories that have typically shown success include payments, wealth advisory, alternative data, lending platforms, and account origination.

Traditional banks double down on digital

Meanwhile, traditional banks are increasingly focused on responding to changing consumer behaviours. By 2025, 20% of customers’ retail transactions are expected to be conducted through mobile, with 90% of Australia customers “open” to mobile transactions. Indeed, digital banks across APAC saw three times the growth in their customer bases compared to traditional banks in 2020/2019.

Innovation initiatives are expected to re-accelerate in 2021 and will most likely have a higher chance of success as banks restructure their agile and DevOps teams. 50% of Tier 1 banks already have agile frameworks in place. Investments in digital channels have paid off: banks have growing strength to acquire new customers, expand share of wallet, and push more products.

44% of the top 250 banks in APAC will leverage platforms with componentized modernization and API-enablement. Technology spending on governance, risk, and compliance saw double-digit growth in 2020/2019, while other areas of investment lagged behind.

Growth priorities for 2025

One result of the economic downturn is a more humanistic type of customer centricity, as banks needed to communicate with customers in empathetic, trustworthy and reliable ways that are complemented by digital innovations.

There has been an increased integration of human agents into customer engagement strategies, as contact centres saw surges in usage. The latest edition of Fintech and Digital Banking 2025 (APAC) found that 60% of banks in Asia Pacific will leverage artificial intelligence (AI) or machine learning (ML) technologies for data-driven decisions, compared to 48% from the previous year.

In Australia, the use of AI for customer management is expected to increase revenue in retail banks by 20%, and in wealth management by 15%.

A back-to-basics trend has also overtaken the need for new revenue sources. Banks in Australia – including challengers and incumbents – will focus on the basics of origination and servicing on core products such as deposits and loads. Similarly, banks across the APAC region will be focusing on digitalizing their core business of lending with some focus, subsequently, on deposits.

New capabilities will be acquired from fintech partners: IDC predicts by the middle of 2021, 50% of lending decisions in retail banking will be supported by fintech propositions, underscoring accelerating bank-fintech collaboration.¹

Regional Vice President for Backbase, Australia & New Zealand, Malcolm Macnaughtan, said: “It is clear from this report that the shockwaves sent by COVID-19 throughout the banking and fintech landscape in Australia and the wider APAC region will continue to be felt for years to come. Australian banks will need to develop modern architectural foundations that enable them to aggregate customer data to develop hyper-personalized customer experiences. Our top priority at Backbase is to help Australian banks refresh their digital-first strategies, deepen their relationships with customers, and win new business.”

This study is based on IDC Financial Insights’ review of digital banking strategies of 65 banks from key Asia/Pacific markets that represent more than 65% of the total share of assets in each market. The study also looked at 100 challenger banks and fintechs under the Challenger Bank Program of IDC Financial Insights Asia/Pacific. The study was conducted in 4Q2020-1Q2021. IDC also made reference to its reports on Digital Banking from the past five years to understand the evolution of digital banking strategies. Download the InfoBrief here: www.backbase.com/fintech-and-digital-banking-2025