Consumer spending is rising everywhere, but nowhere more than in Asia.
If you ignore Asia, you risk missing half of the global picture, a potential consumer growth of $10 trillion over the next decade. However, Asian consumer markets are growing dynamically, with new angles of development providing opportunities for financial services organizations, commodity trading, and displacement or mutation of consumption curves. The financial services industry needs to reconsider its approach to the Asian market.
Three trends to watch
According to a new report from the McKinsey Global Institute (MGI), three important trends are emerging in the region. First, as incomes rise across Asia, more consumers will reach the top of the income pyramid, and mobility within the consumption class is more likely to drive consumption growth than evolution. towards this one. Second, while cities will remain the engines of consumption growth, a growing number of demographic groups within cities hold immense potential as new consumers. Take, for example, Insta Grannies from Seoul, Gen Z Gamers from Surabaya, Business Moms from Manila and Digital Natives from Chengdu. Third, when the conventional relationship between income and consumption declines, new consumption curves appear in specific categories.
New vectors of financial growth are emerging
Many industries, including financial services, are sure to face disruption over the next decade as customers and economic forces undergo dramatic transformations. What should financial service providers be aware of? According to MGI’s research, there are eight development vectors that are particularly important for financial services and offer new opportunities to serve customers in the region.
The great convergence
The great convergence has the potential to reshape the role of financial services organizations. Digital ecosystems are prevalent throughout Asia. Many customers adopt a mobile-first mindset, fostering the development of digital ecosystems such as fully integrated super apps that provide a one-stop-shop for a variety of services. Despite the fact that super apps originated in China, Asian countries such as India, Indonesia, Japan, South Korea, and now Vietnam have notable super app operators.
As digital ecosystems and super apps mediate connections with growing numbers of customers, financial services firms may want to learn more about how to develop effective partnerships with the people who orchestrate the ecosystems. Rapidly growing integrated finance is a way for financial services companies to participate in the new digital world. Products such as integrated payments, insurance and finance, which are provided as part of a larger non-financial product or service, could grow by up to 60% each year between 2020 and 2025.
The growth of banking-as-a-service platforms
Banks may seek to examine integrated financial strategies and banking-as-a-service platforms to become competitive and unique participants in the ecosystem. In India, for example, ICICI Bank integrated fundamental banking services into WhatsApp, and the service grew to one million customers in just three months. Any financial institution or insurer that has the will and the means can create and operate its own ecosystem. State Bank of India has launched YONO, an app with more than 100 articles provided by partners and its own financial solutions, which significantly improves customer engagement. Another example of an ecosystem opportunity is the DBS in Singapore. The bank operates the travel, mobility and real estate markets, as well as an application scheduling interface (API) development platform. The message is clear: those who take too long to adapt risk being ignored.
Consumers continue to trust traditional financial service providers more than technology organizations to meet their financial needs, but technology companies are catching up fast. Asian banks, card providers and e-wallet providers have the highest levels of trust (70-75%), according to McKinsey’s 2021 Personal Finance Survey, compared to tech players (65%) and social media companies (55%).
The rise of the sharing economy
Given changing customer attitudes towards ownership, the financial services industry may need to rethink its product offering. Due to economic concerns, changing consumer attitudes and technological improvements, many Asian customers are moving away from the traditional ownership paradigm. Sharing, renting and subscription economies are gaining traction in various sectors, including mobility, fashion, technology and housing. As Asian consumers explore new forms of ownership, traditional financial assets such as home insurance and car loans may become less essential. In response, participants may need to innovate to generate new revenue streams, such as insurance products for sharing economy. Opportunities may arise for members of many ecosystems. ShareCover, a subsidiary of IAG, Australia’s largest general insurance company, offers home insurance for those who rent out their homes on sites such as Airbnb, as well as car insurance for people who drive for ride-sharing services but do not own their own car.
Growing influence of digital natives
Financial institutions’ relationships with digital natives are changing. By 2030, digital natives (those born between 1980 and 2012) are expected to contribute 40-50% of Asia’s spending. With regional variations, the Asian digital generation favors non-Asian social media platforms, messaging apps and digital payment providers, as well as local social media influencers, but uses Asian e-commerce platforms. These younger generations are changing their relationships with financial service providers. They are more likely to turn to alternative financial services. For example, credit card ownership among Chinese consumers aged 21 to 24 is more than 20 percentage points lower than that of their older generations. Because this generation is more inclined than previous generations to use debt to support consumption, there are opportunities to serve digital natives, such as point-of-sale financing with flexible maturities. Digital natives, in particular, have demonstrated an openness to integrated financial concepts such as buy-it-now, pay-later services. According to WorldPay statistics, the percentage of buy-it-now and pay-later transactions in Asia has increased from 2019 to 2020. Buy-it-now and pay-later services are expected to grow by more than 30% annually in Australia over the of the next three years. . Local companies such as Afterpay and Zip now hold the largest market share, but global giants such as PayPal are also vying for the Australian market.
It’s time to rethink
The changing mix of channels will undoubtedly force financial services companies to rethink the way they interact with customers. As customers use digital platforms, their expectations for a positive customer experience also increase. Digital technologies are raising the bar in this regard by offering easy-to-use personalized services. Lockdowns have accelerated this transition. Although consumer acceptance of digital channels was initially highest for transactional services, by 2020 even traditionally “high touch” items such as mortgages had begun to shift to online channels. The percentage of active digital banking users in Asia rose to 88% in McKinsey’s 2021 Personal Finance Survey, from 65% four years earlier. In addition, more than 60% of consumers are open to switching to a direct bank. However, while around 70% of Asian customers are willing to purchase new items online, only 20-30% have done so so far; investments stand out for adoption. In light of these trends, players in the financial industry are experimenting with ways to increase online sales. Overseas-Chinese Banking Corporation of Singapore introduced a 60-minute mortgage approval service for Singaporeans in May 2020 through automation and direct online mortgage processing. In 2020, this platform had been used to request and obtain 30% of loans.