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CO-WRITTEN / PARTNER | editor, Singapore

BCG's Partner talks about how retail banks can keep up with digitalisation

Tushar Agarwal is one of the esteemed speakers for the ABF Retail Banking Virtual Conference 2020.

Tushar Agarwal, Partner at Boston Consulting Group (BCG), is a core member of the firm’s Financial Institutions practice.

He has advised a diverse set of clients within banking, consumer finance, asset management, insurance, private equity, and government. Tushar works extensively on retail banking, wholesale banking, and large-scale transformation topics.

In an interview with Asian Banking and Finance, Tushar shared his insights on how retail banks can keep up, especially with the digitalisation that is happening in the industry.

What are the main trends and shifts in Asia-Pacific’s retail banking sector in recent months? What has changed since the pandemic?

Dip in profitability but due to flight to quality, the larger banks are flush with cash with the CASA ratios going up. Banks have also increased focus on asset quality to manage impact on the provisions. Banks have also taken an aggressive look at their costs.

Furthermore, digitisation has become center-stage in many countries, and also many of the banks due to many of the staff ‘working from home’, significant drop in branch and ATM usage, and limited face-to-face interactions with the relationship managers. Forward-looking banks are rethinking their distribution model and their digital strategy or roadmap to respond to this.

Where do you see Asia's retail banking scene in the next five years?

Retail banking would remain strong with the banking pool growing given the large number of unbanked population and, even in developed economies, large numbers of underbanked population. What would transform is the environment where a number of internet players (traditionally non-banks) are expected to enter. The savannah, as we say, is set to transform in a very exciting way with all the players defining their role in it.

We are likely to see a deeper segmentation of the consumer market for a more personalised service. The consumers stand to benefit a lot with significant increase in choice and companies investing to resolve their pain-points and capture their wallet.

What would be the challenges for retail banks in adapting to digitalisation?

Making technological investments in the current environment where cash flows are thinner. Lots of banks continue to run on legacy platforms with teams that do not naturally adapt an agile way of implementation. Clear and forward-looking understanding of the digital roadmap is imperative, and this is further complicated due to constantly evolving technological architecture. This is where the tech companies have an advantage as they are born in the era of digitisation.

Secondly, talent acquisition of digital resources needed to execute their digital strategy, who are also a step ahead of the competition, will be a challenge. Banks need to think through the employee value proposition and ‘ways of working’ to extract the correct productivity from this skillset.

Open banking has 'opened' a door for traditional banks to offer a wider range of products. How can retail banks take advantage of this?

Open banking will allow for banks to offer products through new channels, envision new services and transform the delivery of traditional products. Retail banks have to already start preparing for this and develop their open banking vision, start seeding the partnerships and invest in technologies needed to build the API gateways.

Global banks have been investing in these technologies for some years and we are starting to see many of the large incumbent banks making announcements of ring fenced budgets to build these technologies. Beyond that, retail banks should define the partnership structures, internal operating models as well as establish a regulatory liaison to stay a step ahead.

Which markets are leading and lagging in regard to open banking?

The field is evolving fast with constant conversations in every economy. The evolution of the market depends on three factors: i) clarity of regulatory framework and future actions, ii) level of digitisation of the banks and, iii) the proliferation or influx of FinTechs within the broader economy.

Based on these factors, Singapore and Australia are learning and adopting well from the implementation in progress in Europe and other developed economies.

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