Do ‘digital-only banks’ have a future in Asia?
Blog: Enterprise Decision Management Blog
Imagine a scenario where banks offer their services digitally; not as an ad hoc feature but as a fully integrated mobile experience. A digital-only bank that allows customers to do everything on their smartphones, from opening a new account to making payments, settling credit card bills to resolving disputes, all without having to go to a physical branch.
If this vision sounds premature, then perhaps it’s time to update your view of what’s happening worldwide. This was the bold proposition offered by McKinsey & Company’s Sonia Barquin who presented at FICO’s Asia Pacific Chief Risk Officer Forum held this week in Thailand.
Banks worldwide are fighting back against fintech start-ups looking to cut their lunch with low-cost banking offerings. Barquin pointed out that some global banks are developing digital-only offshoots while others are bringing the philosophy and business model to their main bank offering.
Sonia encouraged the participants to be imaginative –and why not? Especially when she says her research shows that more than 80 percent of banking customers in Asia’s developed markets are willing to move part of their holdings to banks with a solid digital-only banking proposition?
While the financial benefits of the model for banks are obvious, the big question is, how do banks approach this massive undertaking? And especially the more traditional banks who have only just started to integrate many aspects of digital into their operations and offerings?
FICO’s decisioning technologies are clearly an advantage for banks considering an all-digital play. FICO has experience helping banks to quickly build digital offering which transform their business. Our experts at the CRO forum openly shared some great insights on how advanced technology can be leveraged in multiple areas of digital banking:
- Instant credit decisions: Consumers expect an ‘instant’ experience on their mobile phones. FICO has been pioneering credit scoring for more than 60 years and now has the technology to assess the vast majority of consumers with some basic credit information. This empowers banks to issue credit cards, personal loans and other credit in the mobile channel with confidence. FICO is also working on solutions for those outside the traditional banking system, who may have a smartphone. As part of its financial inclusion efforts it is employing a range of partnerships and technologies to grant credit based on alternative data.
- Pricing and loan optimization: FICO has been perfecting analytics that enabled banks to identify that sweet spot or optimal pricing for deposits, mortgages, car loans and other products. Finding the right balance between customer satisfaction and profitability needs to happen quickly when applications are happening online. FICO’s optimization algorithms and knowhow allow banks to make a variety of offers based on the customer’s risk profile, long-term value, loan term preferences and more.
- Detecting fraud in real-time: Less exposure to fraud and financial crime when you are identifying customers online and not in person is critical. FICO’s real-time predictive analytics has been used for more than 20 years to help catch credit card fraud. This same technology is now being incorporated into FICO’s cybersecurity and financial crime solutions, so banks can spot out-of-pattern and suspicious behavior.
Ultimately, the digital-only banking model will not only require a behavioral shift among Asian consumers, but the opportunity for banks will require the deep integration of data and analytics into banking operations. The key to eliminating risk in the business model is to enable banks to make consistent, data-backed, and analytically powered decisions, and ultimately make the smartest choices. Once that happens, the digital-only proposition for banks could be a real game-changer in Asia.