Asia, the largest continent in terms of area and population, has become the prime focus of ambitious global banks and financial service companies since 2009.
After the financial crisis in the west, a fundamental question cropped up: when will all the investments and costs incurred derive the much-needed dividends? The Investment Banking sector saw significant job cuts when the flood of large listings dried up, and private banking faced expensive poaching of relationship managers as rival banks shelled out more in the hope for conversions to a fat roster of high rollers.
That was when Asia’s potential brought about a sea change in competitive business models. A number of banks were re-thinking their strategies to guarantee the sustainability of the cost-income model. Large investments saw greater dividends using a product-push-oriented approach. It isn’t a fail-safe strategy despite what the numbers would show in the books and can ultimately lead one back to the drawing board. Having the right product type for the right market demographics with the right amount of investment is vital to the plan. Any form of imbalance in the equation can lead to over-investments and minimal returns.
In Asia, wealth is often caught up in family businesses and property, leaving little for the banks to target as money to play with. By some estimates, more than a third of the listed companies are family-controlled businesses. These family-controlled enterprises also account for above 50 per cent of market capitalisation in Asian stock exchanges. But banks are changing tactics to develop more products that will appeal even to such businesses.
The potential prize in Asia remains as bright as ever for private banks; the economic growth in much of the region means wealth is being accumulated at a staggering rate. The new era in Asian banking will bring substantial opportunities but capturing them will not be easy. Rapidly shifting consumer behaviour will force banks to revisit or even completely revamp their business models. New regulatory requirements and high-risk customer segments will add to the cost of doing business, putting downward pressure on returns. Non-traditional competitors will enter the market, vying with established ones for their revenue pools. Attackers from outside the banking industry have already begun encroaching on it, using direct payment as their main entry point.
Retail banking in Asia is evolving quickly; the region’s emerging countries will soon have attracted more revenue in absolute terms than the developed ones. To win in this market, banks must understand their customers, their competitors, their own business models and their regulatory environments. Getting it right will be essential if banks are to survive the battle that’s already underway.
By : Dhruv Bhatia
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