BankingCorporate to Bank RelationshipsData, new technologies and partnerships key to success of virtual banks

Data, new technologies and partnerships key to success of virtual banks

By bringing innovative digital offerings, virtual banks in Asia will aim at engaging customers and hopefully the traditional banks would follow suit

The Monetary Authority of Singapore (MAS) is to accept applications for five new digital bank licenses. This year has seen Hong Kong grant eight licenses for virtual banks. Taiwan too has joined in approving the creation of three virtual banks in July.

The move comes as the banking and payment landscape continues to change dramatically. Elsewhere in Asia, by now, digital wallets such as China’s Alipay and WeChat Pay and India’s Paytm and PhonePe have grown into omnipresent options offering stress-free ways to transact through mobile phone. Indonesia, Vietnam and the Philippines are also among the world’s biggest under-banked countries; together they have almost half a billion people. This justifies virtual banks being the talk of the town in Asia.

All these rapid moves are making bank visits, standing in long queues and even automated teller machines a history. What could lead to the success of virtual banks in the region and beyond?

High-quality data will be a key

The business models of virtual banks might be chalk and cheese compared to that of traditional banks. Virtual banks depend on online and electronic channels while traditional ones use physical branches. But their dissimilarity ends at one thing – the need for high-quality data.

Gerard Francis, head of enterprise data at Bloomberg commented: “From our perspective, virtual banks and traditional banks are the same. If you want to run anything in an automated way they need to have reliable data driving their models, driving the analytics, driving the presentation of the answers, either to their people internally or to their clients externally. The need for data is very high when you’re looking at any technology platform.”

The use of appropriate data and suitable technology will include artificial intelligence (AI) and machine learning which requires three components to make it work properly – the technology stack, the learning algorithms and data enrichment and cleaning.

Francis added: “You cannot do supervised learning unless you have clean historical data to work with. Relationships between types of data are also complicated and difficult for a machine to interpret.

“Virtual banks have a bit of an advantage because they’re starting from scratch. They’re not dealing with legacy software that traditional banks have. It’s easier for them to make the right choice from the start by working with high technology and data vendors.”

To be competitive, virtual banks must provide high-quality, consistent, and comprehensive data, and enterprise data solutions.

Bringing in new technologies and being able to accomplish more

Ongoing technological improvements are a key enabler for the success of virtual banks.

Doug Gyani, principal consultant at Principia, asks: “I think the interesting question here is, what is the demographic that responds well to that service level? I don’t know if the Asian markets are necessarily the right place. I feel an Asian consumer from a retail/wholesale banking point of view wants the customer experience more than they want half a point better on a rate because you don’t have to pay for tellers and very big offices.”

“It is a great concept if it brings certain technologies that are available now that weren’t available then like blockchain, and coin-based banking, then I think there is potentially more viability to it.”

Data from Forrester’s The Pulse of Financial Services Customers In Asia Pacific report finds many users across the region believing they should be able to accomplish any financial task on a mobile device.

Partnerships

Even though obtaining licences was the key step for virtual banks, partnerships with fintechs has now become equally vital since the licences have been obtained for some applicants, like StandardChartered in Hong Kong, that plans to launch the virtual bank next year.

Managing Director and regional head of retail banking for Greater China and North Asia at Standard Chartered Bank, Samir Subberwal said during an interview with Bloomberg: “I think the success of virtual banks will depend on partnerships. Particularly our partnership give us access to a large client base in Hong Kong and also helps us deliver our products and services within their digital ecosystems. So the client doesn’t have to get out of the ecosystem to buy a banking product as they have to do today.”

StandardChartered Bank is partnering with PCCW Limited (“PCCW”), HKT Trust and HKT Limited (“HKT”) and Ctrip Financial Management (Hong Kong) Co., Limited (“Ctrip Finance”) to deliver a new standalone digital retail bank in Hong Kong. According to the press release, the joint venture will draw on the partners’ respective strengths to reach a broader spectrum of customers and to redefine the digital banking experience in Hong Kong by:

  • Integrating virtual banking into the service offerings to PCCW’s, HKT’s and Ctrip’s well established customer bases
  • Providing a suite of retail financial services and products, as well as unique telecom, entertainment and travel propositions from partners all in one place
  • Offering services that are personalised to customers’ circumstances, interests and needs
  • Ability to open accounts and apply for financial services on-the-go in real-time

With virtual banks posing a new challenge in the banking industry through the implementation of technology, the banking industry is likely to look very different in the near future.

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