In 2016, a relatively unknown company, Grab, started making waves as a ride-hailing service in Singapore. Fast forward a few years, and now a multi-service platform, Grab made a groundbreaking move, applying for a digital banking license in Singapore. As a result, by 2021, Grab’s digital-only banking service, GSX, was live, offering banking and financial services to millions of customers across Southeast Asia. This marked the beginning of a new chapter in the banking world of Asia, where banks that work solely on a digital mainframe started challenging the dominance of traditional banks.
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Digital Only Banks?
As the name implies, these banks don’t have physical branches where people can visit to get the financial services offered by the bank. Rather, people don’t have to go anywhere, as they can get pretty much all the banking services while sitting at their homes. They provide a wide range of services, ranging from basic savings and checking accounts to more complex offerings like personal loans, mortgages, and wealth management, all through a digital platform. These banks are distinct from traditional banks, which have both physical branches and digital services, in that their entire operation is conducted through mobile apps or websites.
Digital Only Banks, But Why?
One question that often lingers in people’s minds is why we need a digital-only bank when traditional banks are more than capable of providing digital services. For one, digital-only banks have significantly lower operational costs than traditional banks. Due to lower operational costs, these banks will charge lower fees and might provide a higher interest rate, considering that they don’t have to care about the expenses that come with owning a physical branch. According to a 2023 report by Bain and Company, a digital bank’s operating cost per consumer is about 30–40% lower than traditional banks.
Another major advantage of a digital-only bank is that it offers top-notch customer service. Its customer care executives are well-trained to provide their services virtually. Moreover, it has AI models to assist it, which has allowed it to set a new standard in the banking industry. That being said, one of the major advantages of having a digital-only bank is that digital-only banks have successfully captured the attention of younger, tech-savvy generations. In South Korea, KakaoBank, a digital-only bank, has a primary user base of millennials, with over 70% of its users being under the age of 40.
Some Key Players in the Digital-Only Banking Landscape
WeBank (China)
Launched in 2015 by tech giant Tencent, WeBank was the first digital-only bank in China. It now serves over 200 million users and focusses on providing microloans and financial services through its WeChat ecosystem.
KakaoBank (South Korea)
Since its 2017 launch, KakaoBank has seen tremendous success in South Korea. It became profitable within just two years and, as of 2022, had over 19 million users, representing more than a third of the country’s population. KakaoBank’s integration with KakaoTalk, a popular messaging app, has contributed to its rapid adoption.
Jupiter (India)
India’s first ever digital-only bank is Jupiter. Within a few years in the industry, Jupiter has garnered a strong foothold in the Indian banking industry. Its founder, Jitendra Gupta, started the bank with the sole mission of making the banking experience a “delight” for the people of India.
Tonik (Philippines)
Tonik has emerged as a leading digital-only bank in the Philippines. Since its launch in 2021, it has attracted over 1 million customers, offering high-interest savings accounts and flexible loan products to users in a country where nearly 51 million adults are unbanked.
Grab-Singtel and Sea Group (Singapore)
As of 2023, Singapore’s two digital-only banks, GXS (by Grab-Singtel) and MariBank (by Sea Group), have begun rolling out services, focussing on providing innovative banking solutions to underserved populations, particularly small and medium-sized enterprises (SMEs).
Challenges Ahead
Digital-only banks face many challenges. Many traditional banks rely on outdated legacy systems that are ill-equipped to compete with their technology-driven infrastructure. The high cost of updating these systems makes it difficult for traditional banks to match the speed and efficiency of their digital counterparts, which, in part, makes the whole banking experience bad, regardless of whether you have a digital-only bank or not. Another challenge faced by digital-only banks is the regulations placed by the governments. As governments across Asia promote financial inclusion and innovation, traditional banks face regulatory pressure to offer more affordable, accessible services. However, their existing cost structures make it harder for them to compete on price with digital-only banks.
Consumer expectations also play an important role in the success of digital-only banks. The shift in consumer expectations toward convenience, personalisation, and real-time access to banking services has disadvantaged traditional banks. Digital banks have set a new standard for customer experience, and traditional banks must either adapt or risk losing market share.
A New Era in Banking in Asia
Digital-only banks have undoubtedly made a significant impact on Asia’s financial landscape. With their low operating costs, innovative technology, and focus on customer experience, these banks are challenging the traditional banking sector and driving financial inclusion across the regions that were previously unable to enjoy a bank’s services.
While traditional banks may face challenges in adapting to this new era, those that embrace digital transformation and leverage fintech innovation have the potential to thrive. As Asia’s banking sector continues to evolve, the competition between digital-only banks will only rise.
