Three out of five Filipinos ready to adopt digital banking

The second edition of the Fintech and Digital Banking 2025  (Asia Pacific) IDC report commissioned by Backbase reveals 60% of bankable customers in  the Philippines are willing to shift to banking players that are more digital, and that the  proportion of the unbanked and underbanked will be cut by about half to 20% of the country’s  bankable population. Across the region, Asia Pacific (APAC) banks are going back to the  drawing board on their digital transformation programs. Digital banking fitness has been the  key factor, with digital banks enjoying three times the growth in customer bases compared to  traditional banks.  

In response, incumbent banks are reinvigorating digital transformation initiatives, having had  to accommodate at least a 50% growth in the quantity of digital customer transactions and  interactions. It is expected that organizations will undertake a comprehensive realignment of  customer engagement projects, with the report having highlighted that digital capabilities are  the key to resilience and winning the race to recover from pandemic-related setbacks. 

New competition in an evolving banking landscape 

While the APAC banking landscape saw the departure of some neo banks and fintechs due  to COVID-19 challenges, the report predicts that we will still see 100 new challengers across  the region by 2025. 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. Remaining neo banks and second-round players are expected to  compete on being digital-first. At the same time, six of the top 10 banks in the Philippines will  launch their own digital banking brands in the market.  

Two digital banks in the Philippines have enjoyed significant growth, and are anticipating their  customer cases to grow by at least 80% every year until 2025. 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 across APAC are increasingly focused on being digital-first.  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. 

The report also found that digital banks have seen three times the growth in their customer  bases compared to traditional banks in 2020/2019. 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. 

Strategic investments and growth priorities for 2025 

Technology spending on governance, risk, and compliance saw double-digit growth in  2020/2019, while other areas of investment lagged behind. 

The latest edition of the Fintech and Digital Banking 2025 (APAC) report 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. One result  of this is a more humanistic type of customer centricity, as the economic downturn required  banks to communicate with customers in empathetic, trustworthy and reliable ways. This has  been complemented by the increased integration of human agents into customer engagement  strategies, as contact centers saw surges in usage.  

A back-to-basics trend has also overtaken the need for new revenue sources. Banks 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 collaboration1. Banks in the Philippines are expected  to partner fintechs and telcos to improve distribution and availability of banking offerings,  especially for payments and lending.  

1IDC FutureScape: Worldwide Financial Services 2021 Predictions — Asia/Pacific (Excluding Japan)  Implications

Regional Director for ASEAN & South Asia, Backbase, Riddhi Dutta, said, “This report has highlighted the COVID-19 challenges faced by banking and fintech players  across APAC and the Philippines. To thrive in a post-pandemic world, organizations will need  to keep their customers at the centre by focusing on the removal of silos, providing greater  levels of convenience, overcoming financial literacy challenges, and improving accessibility to  lender and payment products. We at Backbase are committed to empowering financial  institutions in the Philippines with innovative banking models and experiences that will meet  the changing needs of customers here.”  

Michael Araneta, Associate Vice-President of IDC Financial Insights, Asia Pacific  added: 

“The events of 2020 have shown the resilience of the financial services industry, and that organizations must refocus their efforts on becoming even more customer-driven and platform-oriented. The insights from this report will help banks, neobanks and fintechs identify  key areas of investment in preparation for 2025 and beyond.” 

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