Why winning in financial services requires ecosystem thinking

Collaboration holds the key to unlock the pathways for traditional bank incumbents and technology entrants in the disrupted world of financial services, where disruptive companies can offer compelling alternatives to the huge customer base of unbanked and underserved across Southeast Asia.

Asia is currently in the midst of digital disruption across all sectors including financial services. From digital giants in China, to mega-platforms in Southeast Asia, the trend is clear and present.

Historically, banks have believed that their large customer base, relatively strong balance sheets and regulatory expertise would be enough to absorb any impact from insurgents. Emerging markets, however, are proving otherwise as fertile grounds emerge for non-financial services disruptors, covering payments, lending, investments, insurance.

In Southeast Asia (ASEAN), disruptive companies are seizing opportunities to tap the huge consumer base who have less access to financial services than their peers in developed markets. The young demographic in ASEAN is also especially receptive to new mobile technologies. The size of the prize is especially attractive in countries with large populations and demographic dividends such as Indonesia and Vietnam.

Through the clever use of technology, disruptive companies can bypass the infrastructure that traditional players would require to reach an equally large customer base, and deliver lending, insurance and investment products to the un-banked and underserved. Small- and medium-enterprises (SMEs) also benefit from the alternative credit models that these disruptors deploy to provide alternative financing and broader value-added working capital, cash management and payment solutions.

So, what is the path to success for participants in this new world for financial services?

Collaborate to compete

Collaboration is increasingly the answer to address the pressure that traditional banks are under to digitalize their business model in order to improve customer experience and compete against competition from disruptors. Investing in solutions that allow the customer to meet multiple needs through a connected experience is gaining ground.

In other words, embracing the need to create or join an ecosystem that can provide digitally enabled access points to multiple services is key. These ecosystems can come from across the economy – and not just within financial services. After all, 68% of consumers would be ready to consider a financial product offered by a non-financial services company, according to the latest EY Global FinTech Adoption Index.

We are already seeing examples where banks are partnering with insurance companies, ride-sharing companies, property and auto marketplaces in the ecosystem to offer a more complete experience for their customers. For example, in Singapore, with licenses for digital banks up for applications and more countries expected to make their plans known soon, banks and non-banks are choosing to participate in ecosystems that will allow for services to be scaled up across ASEAN.

Through a collaborative approach with others in the ecosystem, incumbents have the opportunity to essentially introduce banking to everyday life activities and, as a result, capture new revenue streams and grow their customer base. It is also a way for banks to implement what consumer companies have been doing for years and “lock in” their customers. For example, you are more likely to stick with your current mobile device maker and spend more with them because you have also subscribed to their music and TV streaming or cloud services. For the disruptors, when they partner with banks, they get access to strong credit risk management and compliance capabilities - after all, financial services is a highly regulated industry.

Yet, successful partnerships that translate into profitability will require a distinctive service proposition and not just replicating what is already offered in the market.

The key fact is that the digital financial services sector in Southeast Asia is fragmented with banks and non-banks including Big Tech and established consumer players carving out their own space. And the lines between these different categories of players are blurring by the day.

The right ecosystem for your needs

Choosing which ecosystem to be part of, either through collaboration or by being the lead architect, is an important first step. A key consideration would be determining the target markets segments, addressable profit pools and compelling proposition of products and services. Once this strategic decision has been made, choosing the right technology and operations platform is equally important. That includes not just the product platform, but essential considerations like the AI and data analytics that will make the customer journey personalized and appealing.

There will no doubt be challenges along the way, as more and more banks and companies reshape their business models to be fit for the age of convergence and ecosystems. Customer acquisitions can be expensive, so ways to keep the cost low should be front of mind. Even as banks may successfully implement new technologies, doing so in a customer-friendly way can still be a challenge.

Ultimately, as financial services becomes an all-people business, participants must get these four areas right: understanding the needs of customers in the different markets, adapting the value proposition accordingly, choosing the appropriate market segments and knowing where the profit pools lie.

While the jury is still out on what will be the winning business models in ASEAN, what is clear is that the players who own the customers and can monetize relationships will emerge as the winners.

The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms.