Data analytics key to SEA digital banks' profitability and retention

After the initial novelty and rewards, digibank users are likely to revert to their old bank.

The initial hype has subsided, and digital banks are entering a phase of maturity, an analyst told Asian Banking & Finance. The digital banks doing well have two things in common: a great ecosystem, and effective use of data analytics.

Digital pioneers like GXS Bank and Trust Bank, for example, have made use of data analytics to streamline their onboarding processes for their disbursing loans or setting up savings and credit card accounts.

This helps in addressing the biggest challenge for digital banks: profitability issues, partly arising from the struggle to retain customers.

“Early customers, after enjoying initial novelty and rewards, are reverting to their primary bank,” Aashish Sharma, head of platform in Asia Pacific for FICO, told Asian Banking & Finance in an interview. 

Banks also face challenges such as rising rates of application fraud and higher-than-normal delinquencies, he said.

“Some banks are finding that their exceptional initial onboarding experiences have set high expectations, which their subsequent products, services and ongoing customer management processes are struggling to meet,” Sharma noted.

A carrier for all
Whilst traditional banks have also launched their own digital banking services, digital-only banks retain advantages over their seniors especially when it comes to reaching the underserved segment.

Digital-only banks remain more cost-effective and agile in their operations, enabling them to efficiently serve diverse underbanked segments, Sharma said.

“Digital-only banks may have higher cost of funds; but typically operate with a significantly lower cost base and fewer employees, enabling them to function on narrower profit margins and pass these savings on to customers,” Sharma said.

However, they may lack the extensive customer relationships and financial resources needed for comprehensive full-service offerings.

And that works out fine for both digital banks and traditional banks.

“This analogy is akin to the distinction between full-service airlines and low-cost carriers—each type of bank provides unique benefits to customers,” Sharma said.

Getting data right
Digital banks who found a level of success – and at least passed their key performance indicators (KPIs) – are found to have significantly reduced onboarding times for financial products such as loans and credit cards.

These traditionally involved lengthy approval processes spanning days or even weeks, Sharma noted, naming two banks– GXS Bank and Trust Bank– who have ongoing partnerships with FICO.

GXS Bank, for example, has streamlined its onboarding process for its GXS FlexiLoan offering to under 3 minutes for the majority of approved applications.

Trust Bank, meanwhile, has an average onboarding time of under 3 minutes for savings accounts and under 4 minutes for credit cards.

“Digital banks excel in delivering swift and efficient digital services whilst upholding rigorous standards in risk management and customer experience. Central to this efficiency is the strategic use of data analytics,” Sharma said.

Don’t forget to go past customer onboarding and think about retaining customers as well, however.

“In the realm of banking, customer acquisition often takes precedence over ongoing customer management. While significant efforts have been made to attract new customers through digital channels, relatively few initiatives have been implemented to effectively manage existing customer relationships,” Sharma advised.

Modern customers increasingly demand personalised communications that anticipate their individual needs rather than generic offers tailored to broad demographics, he said.

Whilst many banks have used data analytics and digital channels to improve personalisation of services, many cross-sell endeavours remain broad rather than finely targeted.

“The critical challenge emerges when customers require service—these pivotal yet infrequent interactions can often become frustrating due to insufficient differentiation between high-value customers and others.,” Sharma warned.

He advised banks to prioritise fundamental aspects of portfolio management and customer relationships. 

“Every customer interaction should yield new insights that contribute to an enhanced overall experience. A strategic, data-driven approach is indispensable for delivering the service quality and personalized experiences that customers demand,” Sharma concluded.