Transformation is no longer an event. It is an ongoing phenomenon that banking and financial companies must be ready for and for which they must nurture business readiness. They need to balance the goals of “business as usual” and transformation at the same time.
ndustry 4.0 has been impacting traditional financial companies through disintermediation, unbundling, commoditization and invisibility. Mobile applications play a vital role today in the development of e-commerce.
According to the iPrice report on “The Biggest eCommerce Websites and Apps in Southeast Asia – Q1 2019”, there are more than 350 million internet users in Southeast Asia (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam). E-commerce is the fastest growing sector in the internet economy, reaching US$23 billion in 2018 and expected to exceed $100 billion in gross merchandise value by 2025.
Multiple aspects of disruption are impacting banks: One out of three millennials are open to switching banks in 90 days, and 33 percent of millennials believe that they do not need banks.
Financial institutions are starting to lose customers as people switch to nonbank channels and sources. Consumers can borrow money from alternative sources like lending clubs and through peer-to-peer (P2P) lending, while banking products and services are being unbundled for better consumer options and experiences with single-service providers. Deposits and payments are unbundled as consumers utilize third-party payment solutions like PayPal.
Financial companies are also struggling with differentiation as consumers compare products online, where they have greater transparency.
Consumers can compare different banking products via online aggregators like iMoney. Banks are losing brand awareness, since consumers can access financial services without knowing the provider’s identity. Consumers can take out microloans via social platforms like WeChat and Weilidai. Banking and financial institutions today are initiating and managing transactions from end to end, typically at the risk of their own capital.
Banks have two sources of income: net interest income (NIM) and fee income. NIM is derived from the spread between borrower and lender. Fee income is derived from banks acting as a trusted intermediary platform. NIM activities are more difficult to disrupt, but fee income activities are vulnerable to disruption.
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