Slightly over 100 challenger banks or fintechs that are becoming banks have been launched globally. However, it is not easy to convince customers to switch entirely from their main banks.
Despite the increasing presence of digital-only banks, it appears that not many people are ready to close their accounts with their main bank, says Dennis Khoo, regional head of TMRW Digital at UOB.
Findings by digital banking specialist Crealogix reveals that major banks maintain their dominant market share of current accounts at 87 percent in the U.K., even as digital-only banks are gaining grounds.
«In terms of portability, the number of people who want to migrate off their current main bank is less than 10 percent, so banking is still a very sticky business,» said Khoo, who was speaking at UOB's corporate day event on Wednesday.
High Acquisition Costs
Challenger banks attempting to lure customers away from their main banks and getting them to transact as they would with their main bank would find it very costly. So far, there is no bank in the world that has solved this problem, noted Khoo, who speaks from his experience of designing and launching a digital bank from scratch.
In February, UOB announced that it would launch mobile-only bank TMRW in Thailand.
«Now, if you could afford it, the lifetime value of a customer is X, the cost of acquisition cannot be more than one-third of X, or one cannot make money. If the bank could have a long lifetime value, then you could acquire the customers,» said Khoo.
Advocacy Helps Lower Costs
Hence, UOB launched TMRW to target young professionals/young professional families in Thailand, as this segment is expected to have higher lifetime value in the coming years.
The key to profiting from these new customers is ensuring that they stay. To this end, UOB has chosen to adopt advocacy in the design of its digital bank. «We need to build a platform that has many fans that's not just associated with the high cost of incentives, high-interest rates,» explains Khoo.
Achieving Scale
By using TMRW as a lab to learn about its customers, drive engagement and scale, it can lower its customer acquision cost in Southeast Asia. When there is a scale that is supported by the engagement of its users, the true power of the digital bank can then be achieved, said Khoo.
«If a customer has a lifetime value of $1,000, which is the typical lifetime value of a young professional in Thailand, 1 million of those customers will produce $1 billion in revenue,» Khoo explains.
To achieve growth, the bank also intends to create ecosystems with partners to share the cost of acquiring new customers, leverage on avatec.ai (its joint venture company with Pintec Technology) to plug-into major e-commerce ecosystems, and partner Grab in the region where it makes sense.
