As banking sector consolidates, 9,000 physical branches to disappear across SEA by 2030 — report

By Patricia B. Mirasol 

Traditional banks that do not adjust to meet evolving customer habits risk being overtaken by hungrier digital startups, according to big data firm ADVANCE.AI. 

“Traditional banks and financial institutions (FIs) have the customer base and brand equity, while fintechs are nimbler and more innovative, and so can tailor customized solutions for the bigger banks,” said Aradhna Sharma, Southeast Asia digital and data solutions director of ADVANCE.AI, in an e-mail interview with BusinessWorld. “Many such banks and FIs are looking to either enhance their digital capabilities by building their own technology or setting up digital subsidiaries, or else through partnering with tech startups like ourselves to accelerate their digital transformation journey.” 

Most Southeast Asia countries will significantly reduce their bank branch footprints, and only a few less mature markets are expected to slightly increase their physical networks, according to an April 2021 report by global consulting firm Roland Berger. A net reduction of more than 9,000 bank branches across Southeast Asia is expected by 2030, with the biggest consolidations driven by Indonesia, Thailand, the Philippines, and Malaysia. 

The coronavirus pandemic has compelled banks to reimagine basic hygiene services such as account deposits and bill payments. The report stated that future bank branches in Southeast Asia will likely move away from offering simple transactions and focus on higher value-added services. With key drivers such as an increased access to technology and government digital economy policies influencing the future of retail banking branch networks, traditional banks need to reimagine how they offer services that meet evolving customer needs. 

With the focus on higher value-added services, traditional bank employees must be retrained from repetitive roles, such as bank telling, to ones that require more human decisioning and skills such as creativity, problem solving, and design thinking. 

The Bangko Sentral ng Pilipinas approved on November 2020 the recognition of digital bank as a new bank category that is separate and distinct from existing bank classifications. A digital bank is defined as a bank that offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branches. 

BENEFITING THE UNBANKED
The benefits of virtual banks also redound to the unbanked and underbanked, as they enable these segments — many of whom come from rural areas — quicker access to loans and financial services, Ms. Sharma said. 

“With virtual banking, customers can be onboarded and have access to banking services solely through their mobile phone, anywhere and anytime, without having to step into a bank branch,” she added. 

More than 70% of the population of Malaysia, Vietnam, and the Philippines have access to the internet (above the global average of 54%), the Roland Berger report said. 

“AI can be deployed in a variety of ways to facilitate customer onboarding via your smartphone,” said Ms. Sharma. “A simple video call with a customer service agent could also cut the need for a trip to the physical bank.” 

Examples of customer onboarding include digital identity verification and authentication by taking selfies or submitting photos of national identity documents such one’s Taxpayer Identification Number (TIN). With the use of AI software and optical character recognition (OCR) technology, meanwhile, an agent can verify and match the authenticity of the caller with the documents shown on the video call. Ms. Sharma added that these verification techniques will gradually phase out the reliance on cash on delivery (COD).  

Ms. Sharma told BusinessWorld that physical banks remain an important touchpoint to help consumers in the transition towards online banking. 

“You also have certain times (e.g., setting up a business, buying property, mortgage/wealth management, retirement planning) when complex discussions or high-value transactions are better done face-to-face to build trust, understanding, and relationships,” she said. “Physical banks are still instrumental in providing a human touch, but the question is, how many do you need?”