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Digital banks target white spaces in the financial industry with niche strategies

While new digital banks in Asia Pacific harbour lofty ambitions to reduce customer pain points with unique business models, differentiated services, as well as agile and efficient technologies, they face formidable competition and a challenging journey ahead to achieve scale and profitability

September 28, 2021 | Neeti Aggarwal
  • Early digital banks achieved notable growth in mainland China, Japan and South Korea compared with the rest of APAC
  • Regulators continue to issue new digital bank licences in the region 
  • Most new digital banks have yet to achieve the requisite scale and profitability

Recent spurt in the growth of digital banks is shaking up the dynamics of the financial industry in Asia Pacific (APAC) as new licences are being issued by regulators across the region. The COVID-19 pandemic has accelerated customer appetite and growth of these digital banks as well as the digital transformation initiatives of the incumbents, heating up the competition.

Digital banks aim to focus on the evolving customer needs and pain points through a completely digital, agile and operationally efficient model, as well as an intelligent service. Their primary target are digital-savvy customers, often in niche market segments, especially in the white spaces unaddressed by traditional institutions. Technology is undoubtedly their biggest enabler as most of them build their technology stack from scratch, and are cloud native and cost effective compared with incumbents that are often saddled with complex legacy technology. Furthermore, they focus on scale through faster ecosystem collaborations.

However, many of these neobanks are quite early in their journey, far from achieving the requisite scale for sustainable profitability. Meanwhile, incumbents are rapidly digitising their operations, leveraging them across multiple business lines and deepening customer base to expand customer reach. The competition is getting fiercer, and it is now a race against time.

Evolving trends in digital banks in APAC

Digital banks in the region can be broadly characterised into three different models. Firstly, most prominent among these are the regulator-licensed independent digital banks such as WeBank, Judo Bank and ZA Bank. Sec...

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