Description
These findings are based on McKinsey’s research in the field of personal financial services. The 2021 survey covers approximately 20,000 respondents from urban banks across 15 markets in the Asia-Pacific region.
According to the survey, the adoption of digital banking services in emerging markets has reached the level of developed countries. Between 2017 and 2021, the share of consumers in emerging Asia-Pacific markets actively using digital banking services rose sharply – by 33 percentage points – from 54% in 2017 to 88% in 2021. The level of digital adoption among consumers in developed Asia-Pacific markets remains stable at around 90%.
The active use of financial technologies and e-wallets by consumers in emerging markets has led to market penetration of these innovations exceeding usage levels in developed countries. In 2021, fintech apps and e-wallets reached 54% penetration in emerging Asia-Pacific countries, compared to 43% in developed ones. At the same time, more than half of respondents in most Asia-Pacific markets reported using cash for less than 30% of their weekly expenses.
The shift to digital banking happened rapidly and was likely accelerated by existing trends, such as the expansion of digital channels for various transactions, including banking. Teleconferencing and video calls also became more widely used instead of in-person meetings, as a result of the COVID-19 pandemic. Survey results suggest that the high level of digital adoption is likely to persist even as the pandemic subsides.
Three Strategic Questions for the Digital Banking Era
Consumer adoption of digital banking tools in the Asia-Pacific region indicates that banks have an opportunity to leverage existing assets to strengthen and diversify their digital offerings. To seize this opportunity, each bank will need to reinvent its business and service delivery models, focusing on three key areas:
- The value and role of branches
- Customer engagement
- Overall competitive positioning
What role will branches play in this stage of digital evolution?
Customers in the Asia-Pacific region strongly prefer mobile and online banking. Around 97% of consumers in the region either consider digital channels the best way to interact with their bank or use them as part of a multi-channel or omnichannel offering. In contrast, only 2% of consumers in developed countries and 3% in emerging countries still conduct most of their banking at branches.
Despite the noticeable decline in branch activity, branches still play a crucial role in a multi-channel model – especially as they have long helped build trust in banks as key partners in managing customers’ finances. Banks can further strengthen these relationships by digitizing processes, allowing branch staff to focus on more valuable tasks such as advising on loans, insurance, or investments. Consultations with generalist advisors can be conducted in person or remotely via digital channels. With the right sales model and optimized physical presence, branch revenue can exceed network costs – even as the share of transactions, including new sales, handled through digital channels increases. To enhance their competitive edge over digital-only banks, traditional banks must ensure that human interactions in branches go beyond functional convenience and demonstrate empathy and understanding.
How should banks rethink customer engagement?
Research shows that banks are not doing enough to convert customer interest in digital products into digital sales. While 70% of respondents express willingness to use digital channels for services beyond transactions, only 20–30% report having purchased a banking product – such as a savings account, loan, or credit card – via mobile app or online.
While most banks’ digital sales lag behind customer interest in broader digital channel usage, leading banks have shown that with the right strategy and capabilities, digital channels can generate significant new sales. For example, between 2015 and 2019, top performers quadrupled their cross-selling metrics through mobile apps and online banking (digital sales per digital user). By shifting from a branch-centric business model to a digital-first omnichannel strategy, banks can attract customers at scale, deepen relationships with existing clients, and boost sales by offering access to the full range of services via digital channels—including remote consultations for service requests, product purchases, and more. This requires, among other things, the use of artificial intelligence and machine learning to create personalized offers and seamlessly integrate the customer interaction cycle into banking and non-banking ecosystems.
How should banks position themselves?
Digital banks pose a potentially significant threat to traditional financial institutions: around 60% of consumers in the Asia-Pacific region say they are considering or could consider switching to a digital bank. Survey results also show that affluent clients would transfer up to 36% of their portfolio to a digital bank. As large ecosystem companies (including messaging platforms and digital marketplaces), fintech innovators, and cross-industry consortia launch banking offerings via digital channels, competition for customer relationships is intensifying. This competition is likely to grow even fiercer as regulators across the region implement new standards and licensing procedures for digital banking services—often aimed at encouraging innovation and integration.
To address the challenges posed by new entrants, each bank must have a clear understanding of its position in the competitive landscape and the role it aims to play. In many cases, this will be either as a digital player or an omnichannel incumbent. Whether the goal is to launch a standalone digital bank or build the technical infrastructure and organizational capabilities needed for end-to-end integration in a multi-channel environment, the investments will be substantial. And the organization must go beyond convenience, speed, ease of use, and security to offer innovative features and a compelling value proposition that differentiates it from competitors.
As consumers in the Asia-Pacific region increasingly turn to digital channels to manage all aspects of their finances, incumbent banks must carefully consider the strategic questions outlined above and chart their future course. To thrive in this increasingly dynamic market, each bank will need to build (or acquire) the technologies, talent, and operating models that enable it to scale unique and relevant innovations quickly and cost-effectively.
