A New Landscape For Retail Banking

The rise of virtual banking across APAC has redefined the way retail banking operations flow, affecting their real estate portfolios and space optimization.

02 Oct 2019

By Manish Kashyap

Luxury Redefined

A New Landscape For Retail Banking

Key Takeaways:

  • The rise of virtual banking across APAC has redefined the way retail banking operations flow, affecting their real estate portfolios and space optimization
  • But, we don’t expect to see virtual banking as a replica for retail banking. Retail banking will evolve to serve different parts of the market
  • Overall – a new banking landscape is ahead of us and operators who can optimize different bank formats will remain competitive

The transformation of retail is underway in Asia Pacific. With data-driven insights in their artillery, retailers have sought to reshape the shopping experience through personalization and placemaking. Likewise, the retail banking industry has also embarked upon a journey of reconfiguring branches into experiential hubs. The emergence of virtual banking has sparked a makeover in retail banking outlets, which now serve a larger purpose of enhancing customer relationships and brand identity. Naturally, this has led to a reengineering of retail banks’ real estate portfolios and space utilization.

The Expanding Realm Of Virtual Banking

The virtual banking ecosystem has gone beyond providing simple online banking functions and now traverses capital markets, asset management, insurance brokerage, and advisory. Its purpose is not merely to replicate the function of a bank branch. Virtual banking can offer new services and reach new customers, for example, those who can’t access conventional banking systems or younger consumers who are less inclined to visit branches. In response, the retail banking terrain now needs to create new experiences for customers, e.g. visualization of portfolio performance on smart tablets and offering a space for meetings between clients and remote customer services representatives.

The rationale behind the ascension and expansion of virtual banking is clear. It occupies online rather than physical real estate, paramount in a region and an age where internet and mobile phone penetration is on a rapid rise – resulting in considerable overhead reductions for retail banks. The recent closing of 200 branches by a leading commercial bank in Thailand, in its push for greater digitalization, supports our understanding that this is happening. As simple, routine transactions shift to online platforms, staffing costs can also be reduced. But, the role of the conventional teller has now grown into a crucial element in banking operations. These employees have a greater role to play as a brand advocate through their face-to-face interactions and the assistance they provide at self-service stations.

Virtual Banking In Asia Pacific

The catalytic nature of virtual banking is perhaps most pronounced in China, where “pure online banks” are filling gaps in the market. Backed by Alibaba Group, “MYBank” targets smaller enterprises and the rural market, which is indicative of how virtual banking can bring new market participants into this new era of banking. Additionally, through virtual banking operators’ ability to determine credit worthiness through user generated data, customer predictions and analyses can be conducted to detect fraud, allowing for responsible, inexpensive and time-efficient micro-lending. Micro-lending is only a start. When usage increases, more data for projections materializes and cross-selling opportunities for credit cards, insurance and other products can arise.

Elsewhere in South Korea, two virtual banks arrived on the scene in 2015 - Kaokao bank and K bank. Figures released by the local regulator reveal that the two players combined attracted over seven million new customers and provided an estimated USD 7.5 billion in loan financing within their first year of operations. This underpins the virtual banking system’s ability to broaden the entire banking landscape. A similar story is unfolding this year in Hong Kong, where the local monetary authority has granted eight virtual banking licenses as part of a wider governmental push to instill greater financial innovation in the economy.

Room For Two

A new retail banking environment has been cultivated as a result of the competition from virtual banking. On one hand, it offers flexibility, time savings and a differentiated customer experience. However, virtual banking is not a replacement for retail banking. Foreseeable hinderances to its seamlessness are its potential difficulties in absorbing deposits which will increase cost funding, regulatory requirements and cybersecurity threats. Given that virtual and traditional banking are not mutually exclusive, it is worthwhile for banks to first understand the nuances in each market (certain markets may be more vulnerable to the rise of online channels) and subsequently create a mixture of different bank formats.

Despite the increasing prominence of virtual banking and its growing level of sophistication, traditional retail banks will remain a staple in the equation of banking operations. To compete with virtual banking, the success of retail banking operators in the coming years will hinge on their ability to rethink their interior spaces and design an optimal layout depending on the local market. This means that the purpose of flagship, standard, self-service and pop-up formats need to be tactfully engineered to the needs and desires of local catchments.

There remain areas in which virtual banking is no substitute for traditional banking. The importance of professional, personalized advice for more complex transactions surrounding mortgages and wealth management cannot be negated. What this region will likely see is the emergence of a complementary relationship between traditional and virtual banking – with virtual banking catering to small businesses and the tech-savvy youth, while traditional banking continues to serve corporates, high-net-worth individuals and the mass market.


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