ASIAN banks are more vulnerable to declining relevance, according to Ernst & Young’s 2016 Global Consumer Banking Relevance study.

This is demonstrated by the low scores in Indonesia (66.9%), China (69.5%) and India (71.1%), says Jan Bellens, EY’s global emerging markets leader (banking and capital markets).

“Malaysia is in the middle of the pack. Consumers in developed markets, such as the US and continental Europe, continue to bank with the banks. In emerging markets like China, India and Indonesia, there is a strong openness to non-banks,” he tells The Edge.

The study notes that the low scores of Asian countries such as China, India and Indonesia are likely due to the prevalence of mobile and non-traditional banking options as well as the evolving “unbanked” population.

It also found that more than 12% of consumers in Hong Kong and 6% in Singapore have a non-traditional bank as their primary financial service provider.

Meanwhile, countries in the Nordic region have the highest bank relevance scores and rank above the global average — Finland is at the top at 82.7 — while Germany and Switzerland also rank highly, with greater rates of “complete trust” for traditional banks than other countries (see chart).

The average bank relevance score globally, based on the 32 markets surveyed, is 75.1.

The EY study, which surveyed more than 55,000 consumers around the world, also found that about half of the consumers would consider using a non-traditional bank for many products.

On a positive note, most of them still hold core products — such as mortgage, current and savings accounts, loans and credit cards — with the traditional banks.

The study notes that to remain relevant, banks must nurture the customer experience by listening to market demands for convenient, simple-to-use and easy-to-understand banking products and services that integrate seamlessly into their lives.

“There is a real question of how banks can stay relevant [today]. Yes, there is a lot of innovation going on … but even with relatively young banks, they still have legacy systems and platforms. In today’s world, technology that is 10 years old might as well be 100 years old. So, there is a definite pressure to innovate faster and to do more because customers have so many choices and they don’t necessarily need to use banks,” says Steven Lewis, EY’s global market developments and insights leader, who focuses on the banking and capital markets.

Lewis and his team undertook a study recently on the future of banks in emerging markets. They looked at how these banks are tackling the challenge of innovation and how they are responding to the opportunities in an evolving customer landscape and with new technology.

The “Leading through innovation” report found that to stay ahead of the competition, banks in emerging markets need to swiftly roll out fresh strategies in five priority areas — reinventing the customer experience, serving the unbanked population, finding and developing the best talent, leveraging agility in an underdeveloped banking ecosystem, and influencing and innovating in an emerging regulatory environment.

From the research, Lewis found that a lot of what the banks are doing to reinvent themselves involve thinking about the products and services through the lens of customers.

“Rather than thinking about it through a product mindset, they are also thinking about the solutions they are proving to customers and how they can use digital technology to deliver those solutions more effectively,” he says.

“We are seeing a higher number of banks setting up their own sandboxes and incubation centres. They are also partnering VC (venture capital) funds to have first sight of some of the new start-ups that are emerging. As those start-ups emerge, they develop the new tech and banks have the opportunity to say, ‘Yes, we have the prototype’. That is happening now,” he adds.

Bellens expects the industry to see further consolidation or more partnerships between banks as well as banks and fintechs. “It is an area that we see lots of potential. There are more than 20,000 fintechs around the world already.”

There is definitely a greater degree of collaboration between banks and fintech players, observes Lewis.

“It is the best of both worlds to provide a better service. Yes, there is an element of competition and banks need to be concerned and to make sure that they are responding to that … But we are seeing more of the incumbent institutions recognising that they can work with start-ups and can provide more effective service to customers through collaborations,” he says.

From conversations with CEOs of banks, including Malaysian banks, Bellens says it is less now about the “what” and more about the “how”.

“A lot of bank leadership teams have a good outlook of what is happening globally. A lot of attention is shifting to the how. How do you change your organisation to become more innovative? How do you make working in the bank exciting for talented engineers, developers and people coming into the market?”

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