As banks reinvent themselves, they must also be clear about their «why», emphasizing their role as responsible stewards in creating a better financial future for all, writes global consulting firm McKinsey in a new report.

McKinsey’s latest «Future of Asia» report sheds light on how the Asian banking industry has come to a crossroads as growth slows, leaving banks with two choices: reinvent or face possible extinction.

The report also shows how local consumers’ tech-savviness offers the industry significant opportunities, and outlines a plan of action for banks to take advantage of these through reinvention for the digital age.

Disruptive Players

«Over the past few years, Singapore banks have been relatively quick in forging ahead with their reinvention agenda. As digital licenses are issued and new disruptive players enter the market, the task remains for Singapore banks to defend their position and continue doubling-down on improving their offerings to customers,» Joydeep Sengupta, Senior Partner at McKinsey in Singapore, said.

In the last few years, Asia has become a major engine of growth for the global banking industry, generating pre-tax profits in excess of US$700 billion in 2018 alone.

Protect Themselves

Despite this, the region has started to converge with global averages, and while Asia still accounts for more than a third of global banking profit pools, this has shrunk from nearly half in 2010. This trend is expected to continue, as margins thin and GDP growth in emerging Asian economies slows.

To protect themselves, banks must reinvent for the digital age, dramatically redefining their value propositions and rebuilding their operating models, focusing on productivity, risk and capital optimization. This will require banks to deploy cutting-edge tools, technologies, and capabilities across four essential pillars:

  • Flexible technology architecture – To compete with big tech companies on speed, productivity, and customer experience, banks will need to adopt modular platforms that allow continuous integration and interoperability with core systems
  • Advanced data analytics – These form the cornerstone of superior customer experience, and many banks now focus on data as a core enterprise asset. This entails the articulation of an enterprise-wide data strategy and investment roadmap so that data and analytics projects can be tightly linked to value creation
  • Talent management – With automation expected to disrupt up to 40 percent of all banking activity and affect half of all banking jobs by 2030, banks must discover how to combine recruiting, reskilling and redeployment to build the workforce of the future
  • Partnerships, mergers, and acquisitions – In the new age of open banking and digital ecosystems, partnerships and M&A will be critical in helping banks to extend their footprints, deliver superior products and gain access to new customers

If banks implement this plan, McKinsey estimates they will free up between 10 percent and 20 percent of their capital and potentially generate up to $100 billion in new revenue for Asia’s banking industry as a whole.