Digital Darwinism in Asia Banking: Survival of the CIAM-Fittest

In the heart of Asia’s bustling financial sector, a transformative wave is reshaping the very essence of banking. This wave, driven by the relentless force of digital innovation, introduces a new period where Consumer Identity and Access Management (CIAM) emerges not just as a technological function but as the bedrock of digital banking excellence. As traditional and digital banks vie for supremacy in this new landscape, CIAM stands as the decisive factor in their quest for relevance, security, and customer satisfaction.

Recent data shows South East Asia banks have made significant strides in digital adoption. The projected Net Interest Income in the Digital Banks market for 2024 is estimated to reach US$11.1 billion, demonstrating a substantial shift towards digital banking. It is expected to demonstrate an annual growth rate (CAGR 2024-2028) of 4.77%, ultimately leading to a market volume of US$13.40 billion by 2028. The digital age demands are pushing banks to rethink how they interact with customers, safeguard assets, and create new products. In this narrative, CIAM plays a key role, shaping how banks compete and succeed. We’ll also explore why CIAM is crucial for the future of banking in Asia, focusing on security and innovation.

The CIAM Divide: A Tale of Two Banks

In digital banking, two main players stand out: the modern, technology-driven digital banks and the older, more traditional banks that have been around for a while. Digital banks have made CIAM a fundamental part of their infrastructure, enabling them to provide secure, user-friendly, and personalised services. This early integration of CIAM has been a key factor in their success, allowing them to meet the evolving digital demands of today.

In contrast, traditional banks have been slower and more reactive in embracing digital innovations, especially in the realm of CIAM. This hesitance has resulted in several challenges. They’ve faced customer migration to more agile digital banks, increased susceptibility to online threats, and difficulties in maintaining customer trust and loyalty.

Digital banks in Southeast Asia have witnessed their customer base expand significantly. The Digital Bank market is projected to swell to US$11.12 billion in 2024, with a user base expected to hit 22.63 million by 2028. This growth rate significantly outpaces the modest growth of traditional banks. For instance, Airstar Bank, a virtual bank in Hong Kong, allows residents and visitors to open an account via mobile. WeLab Bank, another Hong Kong-based virtual bank, offers a full suite of retail banking services entirely digitally. Livi Bank, Ping An OneConnect Bank, Mox Bank, and Ant Bank, all based in Hong Kong, offer similar digital banking services. ZA Bank, offers a fast account opening, cashback, interest, rate up coupon, green cards, and FPS. The Overseas Filipino Bank is a Philippine bank dedicated to Filipino migrant workers.

In addition to these, there are other prominent digital banks in the region such as Digibank (DBS) and GXS Bank in Singapore, Malaysia’s CIMB, and Timo in Vietnam and Jenius in Indonesia. These banks are part of the digital transformation that is reshaping the banking industry in Southeast Asia.

The Business Case for CIAM

CIAM’s role extends beyond securing transactions. It enhances business value and deepens customer relationships through secure, personalised interactions. It's essential for defending against the surge in cybercrime, particularly phishing, heightened by advanced generative AI technologies. This technological evolution has led to a dramatic 175% increase in financial fraud attempts since 2023, spotlighting CIAM's crucial role in maintaining cybersecurity.

1. Backbone and Catalyst of Digital Transformation and Innovation

CIAM is pivotal to the digital evolution in banking, ensuring secure and seamless customer interactions while protecting critical data from escalating cyber threats. It serves as an innovation accelerator, providing a framework for integrating cutting-edge technologies like biometric verification and AI-driven customer service. For instance, in Singapore, banks implementing fingerprint biometrics have significantly enhanced their customer experience. This has led to a streamlined verification process at various customer touch-points, from the main entrance to the safe deposit area. As a result, customer login processes have become 60% faster.

2. Enhancing Customer Experience

The modern banking customer demands convenience, speed, and security as non-negotiable elements of their banking experience. CIAM stands at the forefront of meeting these demands, enabling frictionless onboarding, authentication, and transaction processes across multiple channels. By providing a seamless and secure user experience, banks can enhance customer satisfaction, foster loyalty, and ultimately drive revenue growth.

3. Rapid Scaling and Market Penetration

Digital banks, armed with agile CIAM systems, have been able to scale rapidly and penetrate markets with ease. Digital banks are capturing market share by targeting the younger demographic and underserved markets, evidenced by a 88% jump in actively using digital banking, with a significant portion being millennials and Gen Z.

4. Strengthening Security Posture

There’s an increasing acknowledgment of Identity and Access Management (IAM) as the core of Zero Trust architecture, which is pivotal in enhancing security postures. CIAM offers comprehensive security frameworks that utilise advanced authentication, risk-based assessments, and persistent monitoring. These measures are crucial in defending against the ever-present threats of fraud and breaches, thereby preserving customer confidence and the institution’s integrity.

5. Operational Excellence Through CIAM

The operational efficiencies unlocked by CIAM are manifold. By automating the management of identities and access, banks can significantly reduce the manual labour and costs associated with these processes. This operational streamlining not only boosts the bottom line but also enhances the agility and responsiveness of banks to market changes and customer needs.This streamlining has been shown to improve operational margins by up to 15 to 20% for banks in Indonesia.?

6. Forging Trust in Business

Trust is the currency of banking, and CIAM is the mint. In today's digital landscape, the absence of physical interactions places a premium on securing online transactions to build and preserve trust. Recognizing that 75% of customers value security above all, CIAM deploys multifactor authentication, dynamic risk assessments, and ongoing surveillance to fend off threats and ensure data integrity. These mechanisms not only defend against unauthorised access and cyber threats but also reinforce the bank's credibility and customers' confidence.?

The Future and Relevance of Banking

The banking sector is experiencing a significant transformation. The demand for more accessible and integrated banking services has catalysed the emergence of Banking as a Service (BaaS) and Embedded Finance. This shift towards open-API-based banking, initially spurred by the UK's Open Banking initiative for account portability, has unexpectedly fueled a wave of innovation across the banking ecosystem. Although the original intent was to facilitate account portability, the outcome has been a broad expansion of services and a radical shift in how banking products are developed and delivered. This evolution signifies a move towards ecosystem-wide trusted identities, ensuring seamless interactions among all participants in the financial landscape, including payers, payees, intermediaries, banks, and payment processors. As a result, traditional consumer-to-bank relationships may see a decline in favour of modern financial interactions like Peer-to-Peer (P2P) payments, FastPayments, and wallet-to-wallet transactions.

A pivotal technological evolution that the Financial Services Industry sector in Asia must consider is the influence of the Electronic Identification, Authentication and Trust Services (eIDAS) and the European Union's Digital Wallet (EUIDW) framework. These regulations and technologies are set to redefine the mechanisms of identification, authentication, authorization, and consent, offering a blueprint for enhancing digital trust and security across banking operations.

Moreover, according to a report by Financial Brand and International Finance, digital banking penetration is primed for growth as out of 350 digital banks worldwide, 20% operate in South East Asia region; demonstrating the rapid adoption of digital banking platforms. This digital shift is more pronounced in corporate banking, where the complexity of transactions and the volume of interactions make digital solutions not only desirable but essential. The rise in digital banking has unfortunately also led to an increase in sophisticated fraud attempts. The South East Asia banking sector had the highest fraud rate among all regions, which surged by 24% from 2022 to 2023, with corporate banking accounts being particularly targeted due to the larger transaction sizes. This underscores the urgent need for robust solutions that can safeguard sensitive corporate transactions.The integration of CIAM systems emerges as a critical innovation in corporate banking, streamlining identity management processes throughout the customer lifecycle. CIAM's introduction, particularly through Integrated Identity Platforms, not only facilitates smoother customer onboarding and reduces fraud but also demonstrates significant financial benefits. Research indicates that for every dollar spent on CIAM technology, banks can expect an impressive 15.3 times annual return on investment.

The Call to Action for Traditional Banks

The ongoing evolution of the Asian banking sector highlights CIAM’s critical role as a catalyst for innovation, security, and customer satisfaction.

In the face of digital Darwinism in banking, the survival and success of banks hinge on their CIAM capabilities. By adopting a forward-thinking CIAM strategy, as detailed below, not only can traditional banks bridge the digital divide but also redefine their role in the region’s dynamic financial landscape.?

1. Embrace Digital Transformation

Traditional banks need to see CIAM not just as a security measure but as a cornerstone of digital transformation. Digital banks in Asia have adeptly used CIAM to streamline customer onboarding, personalise services, and bolster security, contributing to their rapid growth. For instance, Trust Bank in Singapore acquired 100,000 customers within 10 days of opening, indicating rapid adoption similar to WeLab Bank. Airstar Bank disrupted traditional banking practices with financial technologies to enable remote account opening in just 5 minutes at the earliest.

2. Invest in Advanced Security Measures

The South East Asia region losses accounted for 40 percent of the total estimated Financial fraud losses in the Asia Pacific region, which totalled US$650 million. Traditional banks must invest in advanced CIAM frameworks, incorporating risk-based assessments and biometric authentication, to protect against cyber threats and fraud, thus maintaining customer trust and confidence. Mox Bank, for example, has seen extraordinary success as an online bank, snatching up more than 160,000 customers within its first year.

3. Enhance Customer Experience

A seamless and secure customer experience is paramount. Banks adopting biometric authentication have achieved a faster customer login process, enhancing user satisfaction. Traditional banks should prioritise frictionless customer journeys from onboarding to transaction processing, leveraging CIAM to meet the modern customer’s expectations for convenience and security. Livi Bank, for example, has simplified account opening and shortened loan approval processes for SMEs.

4. Operational Efficiency and Agility

CIAM can significantly reduce manual processes associated with identity and access management, improving operational margins. Traditional banks should automate and streamline CIAM processes to enhance agility and responsiveness to market changes and customer needs. Ant Bank, for example, has become one of the largest financial institutions in the world with a target valuation of US$280 billion.

5. Adopt a Data-Driven Approach

Utilise CIAM data analytics to gain insights into customer behaviours and preferences, allowing for the development of personalised products and services. This data-driven approach can lead to more targeted marketing strategies and product offerings, further enhancing customer satisfaction and loyalty. ZA Bank, for example, has used its gamification strategy to resonate with Hong Kong’s millennials and Generation Z in the digital era.

Source

Digital Banks - South East Asia | Statista

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Global Consumer Trust Report in Digital Banking, Forrester, 2023

The Rise of Integrated Identity Platforms, Liminal Strategy, 2023

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Bain & Company,Winning the Digital Banking Battle in Asia-Pacific

McKinsey & Company, Digital Banking in ASEAN: Increasing Consumer Sophistication and Openness

ASEAN Cybersecurity Report, Interpol, 2023

Singapore Digital Banking Analysis, Monetary Authority of Singapore, 2024

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