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Navigating the new era of Asian retail banking

Retail banking in Asia is growing quickly—but to capture the emerging opportunities, banks must understand the region’s complexity and respond in an appropriate way.

July 2013

Retail banking in Asia is on the cusp of a new era. By 2015, more personal financial assets will reside there than in Europe, making Asia the world’s second-largest wealth-management region, behind only the United States. Retail-banking revenue in Asia, growing at 9 percent a year since 2010, is expected to reach more than $900 billion by 2020.

To help banks tackle the challenges of this evolving region, McKinsey published Retail banking in Asia: Actionable insights for new opportunities. The articles, combining insights from McKinsey’s proprietary data with the lessons of our extensive experience supporting clients throughout the region, offer new thinking and practical advice for executives interested in this market.

The new era in Asian banking will bring substantial opportunities, but capturing them will not be easy. Rapidly shifting consumer behavior will force banks to revisit or even completely revamp their business models. New regulatory requirements and high-risk customer segments will add to the cost of doing business, putting downward pressure on returns. Nontraditional competitors will enter the market, vying with established ones for their revenue pools. Attackers from outside the banking industry have already begun encroaching on it, using direct payment as their main entry point.

Retail banking in Asia offers detailed insights about this complex market and outlines specific steps banks can take in response. Among our findings:

  • Despite dramatic revenue growth, banks in emerging Asia should expect to see returns on equity decline by 4 to 5 percentage points in the coming years. In “Dimensions of innovation in Asian retail banking” we discuss three ways for banks to beat this downward pressure.
  • Unlike the early days of digital banking, when consumers valued low prices above all else, today customers want greater control over their finances, fair and transparent pricing, and a single, consistent, engaging experience. Findings presented in “Digital banking in Asia” suggest that banks must make digital banking an integral part of their new operational models, not a stripped-down version of the products and services offered through traditional banking channels.
  • Banks are at last seeing returns on their investment in multiple channels, but physical bank branches are not necessarily a thing of the past. They will continue to play a role in emerging markets—but in a new way. In “Is the branch obsolete in a multichannel world?” we advise bankers to understand the particular economics of their markets before making broad-based decisions about the size of their networks.
  • As in many parts of the world, “customer-centricity” is a much-discussed term in Asia, but many banks haven’t been able to turn this vague concept into something concrete. “Creating the customer-centric retail bank” presents three specific business models that can help make a bank’s efforts much more impact focused.

Retail banking in Asia is evolving quickly; the region’s emerging countries will soon have attracted more revenue in absolute terms than the developed ones. To win in this market, banks must understand their customers, their competitors, their own business models, and their regulatory environments. Getting it right will be essential if banks are to survive the battle that’s already under way.

Download the full compendium of articles, Retail banking in Asia: Actionable insights for new opportunities.

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The material on this page draws on the research and experience of McKinsey consultants and other sources. To learn more about our expertise, please visit the Financial Services Practice.