FinTech - Digital Banking Overview and Market Research

May 11, 2022

In the Asia-Pacific region, large banks face challenges from emerging digital banks. The adoption of digital banking is growing globally, fueled by changing customer expectations and increased digital penetration. The COVID-19 pandemic has further accelerated this trend, compelling a more immediate need for change.

2022 05 11

For example, in Hong Kong, large banks like HSBC are responding to competition from virtual banks. HSBC launched the PayMe mobile application well after the introduction of AliPayHK and WeChatPay in Hong Kong. Despite the late start, PayMe has amassed two million users and secured an impressive 68% market share. In addition to intensifying their digital transformation efforts, many of Hong Kong's large banks are eliminating or reducing fees to compete with newcomers.

In Malaysia, the underinvestment in technology by traditional banks raises concerns about their ability to compete with incoming virtual banks. FinTech developments are rapidly changing the financial sector landscape, with nearly 200 FinTech startups reported as of April 2019. The most significant growth areas include e-wallets and payment services. Mobile and internet banking penetration reached close to 34% and around 90%, respectively, in 2018.

Thailand also presents a robust digital and mobile penetration, making it well-positioned to become a key ASEAN FinTech hub. Although 22% of the Thai population is unbanked, high digital payments and peer-to-peer lending platforms target this demographic. The volume of mobile and internet banking transactions has grown rapidly, with mobile banking expanding at a 123% Compound Annual Growth Rate (CAGR) from 2014 to 2018.

Overall, the trend favoring virtual banks is extending across the Asia-Pacific region. Regulatory bodies like the Financial Supervisory Commission (FSC) in Taiwan and the Monetary Authority of Singapore (MAS) have recently approved new virtual bank licenses. Countries with large underbanked and unbanked populations, such as the Philippines, Vietnam, and Indonesia, offer compelling cases for the introduction of virtual banking.

In London, JPMorgan Chase is entering the UK market with a digital-only lender, marking its first retail bank overseas in its 222-year history. Initially offering current accounts with a rewards program, Chase plans to expand into personal lending, investment, and eventually, mortgages.

In New York, Tier 1 banks dominate the market, charging high fees while showing little demand for new products and instant payments. However, the city seems to be following digital banking trends in the Asia-Pacific region, and changes are on the horizon.

In Tokyo, the Japanese FinTech market has seen rapid growth, with revenues expected to reach HKD80 billion by 2022. Most of the top-funded FinTech applications focus on cryptocurrency, investment management, and trading. Demographic trends like a declining and aging population have led to decreased profits in the overall banking industry.

In other large markets, digital banking is experiencing a period of significant growth. Traditional banks, initially slow to adapt, must navigate a highly regulated and complex landscape to remain competitive. The scarcity of digital talent has further hindered this transition, making it essential for established banks to adapt quickly to protect their market share against emerging challengers.

Profile picture

Victor Leung, who blog about business, technology and personal development. Happy to connect on LinkedIn