Philippines: Market Trends
Customer-centricity and advisory using technology
By Kimberly Espiritu, Regional Sales Manager
Assets under management by robo-advisors in Asia is expected to grow to $2.2 trillion by 2020, with target market segments ranging from the average investor to high net worth individuals (Hartung, 2017). Regional and global foreign banks, apart from local competitors, have also made headway in the Philippines, aiming for a share of revenues across different business lines. With recent banking campaigns focusing on HNW/ UHNW customers, private banking is undeniably recognized as a fast-growing business. The rising demand for wealth management has even attracted latecomers to this segment even without decades of experience to guide their journey.
One of the strategies being used is to apply an ‘economy, business and first class’ service for existing clients. Market segmentation allows new players to easily identify target markets that will respond well, reducing challenges from competition since the attack is carefully executed for their existing clients. New players are already strong in the retail business line, making more sense for them to look at their existing clients first before targeting new ones who are tied with the leading banks.
It is, however, not as easy as it seems. Retail banks will have to do more heavy lifting than the entrenched players. Using technology in the form of robo-advisory could be employed as compensation for late entrance. Another strategy is partnering with well-known global private banks. Introducing customized solutions mixed with global expertise has received a good market response in its initial stages.
Bigger banks face the challenge of having to adopt robo-advisory in a much slower pace compared to the others due to the difficulty in modifying the behavior of an already demanding client base, and the presence of legacy system challenges. Project requirements are currently at different stages, directed towards adopting trends like robo-advisory and customer-centricity. These trends, often materializing slowly, demands flexibility in doing business from the software vendor standpoint.
A key advantage of robo-advisors is that customers receive independent investment advice and more choices at a fraction of the cost of traditional financial advisors (Hartung, 2017). This element of robo-advisory, combined with a competitive software vendor landscape, has resulted to banks requiring non-traditional licensing proposals as to make their capital investments smaller – another takeaway to justify their business case to implement technology solutions. The SaaS pricing is a trending business model we can expect from the market. This kind of pricing model demanded by clients is quite a recent behavior, given that banks were always accustomed to strictly perpetual licensing models only.
Another new business requirement, at least in the Philippines, is the cloud implementation model. This was only introduced about a year ago, although it is an option that requires more study. Banks were always open to this idea for its advantages but are discouraged because of the strict guidelines of the central bank, particularly along the lines of security and client data privacy. The most that banks have gone for cloud models is ensure that certain software can transition from on-premise to a cloud implementation once they are ready to do so.
These market trends, behavior and timelines we have identified at this stage should help both banks and vendors alike to take the right approach for the opportunities and good challenges ahead. Incoming BSP (Bangko Sentral ng Pilipinas) Governor Nestor Espenilla, who started his new role on 5th July 2017, aims to improve efficiency of transactions among and between banks, as well as other entities that provide financial or payment services (Rimando, 2017). One of his main goals is to make the Philippines a leading market for new mobile banking services and implementing ‘fintech’ or financial technology. To cap it off, the BSP’s support for new technology and innovations in the financial sector makes us expect the banking sector to be highly active.