McKinsey: More Digital Banking Consolidation in Asia
Investors are demonstrating caution about digital banking prospects in Asia which is further pushing momentum for more consolidation or consortia, according to a McKinsey report.
Particularly from venture capital firms, capital is behaving with more prudence as funding approaches for launches, according to a McKinsey report on digital banks in Asia, as new entrants learn the ropes to scaling and sustaining a financial business.
Moreover, capital requirements are not always advantageous compared to brick-and-mortar banks. In markets like Taiwan and Singapore, traditional and virtual lenders have similar minimum requirements, while China requires the latter to have even more minimum capital after the initial phases of a launch.
The report is entitled «Joining the next generation of digital banks in Asia» and it covers markets across Asia Pacific including Hong Kong, Singapore, China, Japan, Taiwan, South Korea, Philippines and Malaysia.
Asian Characteristics
One notable characteristic amongst Asian digital banks is the trend of consortia business models, differing from their American and European counterparts which take a vertical approach. Asian consortia thus far involve a wide variety of businesses ranging from social messaging app LINE to online travel agency trip.com.
While the report notes that this mix presents challenges and complexity of its own, especially when attempting to maintain alignment, there are also advantages such as faster scaling.
Success Factors
According to the report, there are several shared strengths amongst banks that have managed to achieve profitability: a «truly» differentiated customer value proposition, early revenue generation, quick scalability and cost efficiency.
But otherwise, McKinsey notes that the drivers of success are less related to other factors such as the original industry of a new entrant.
«There are no preconditions in Asia on the applicant business activity or sector best suited to set up a digital bank or apply for a license,» the report added. «Not every Asian digital bank is a success story, of course, but those that have developed a productive business model and scaled effectively have thrived.»
