The first is customer convenience: making the mobile experience seamless, pleasant, simple, and clean. It probably also means making it social: adopting a tech company’s gaming, messaging or e-commerce sensibility.
The second is pricing. Although regulators are keen to avoid VBs launching a price war, it is difficult to see how any of them can secure a beachhead without offering competitive or free pricing on deposits, loans and money transfers.
In Europe, this combination of factors has enabled neo-banks to win millions of customers, and for a growing number of younger people, to become their primary deposit bank. But such tactics cannot be sustained indefinitely. In Europe, the likes of Monzo and Starling are beginning to pull back the free-this and the free-that, and are pondering how to become more conventional.
In Asia, with the much higher capital requirements, this moment will arrive sooner (as it appears to be happening in Korea; see box below).
Therefore the battle will shift quickly to brand and trust. Again in Asia this is going to be more challenging for VBs: Asian consumers don’t despise banks the way Europeans and Americans do post-2008 crisis.
Therefore it will come down to engagement, which is about continuous dialogue, personalization, and non-creepy helpfulness. The big internet companies, the Tencents and LINEs of this world, have proven masterful at relentless customer-centric iteration. Whether they can extend this to financial services is the million-dollar question.
Add it up and virtual banks in East Asia face greater challenges than their earlier counterparts in Europe. If they try to emulate the very niche, limited focus of European neo-banks, they will fail. Meanwhile, in Hong Kong, banks have already responded by scrapping minimum-deposit fees, while the likes of HSBC have launched PayMe and other services in a bid to defend market share.
Delivering a minimum viable package at speed, and perhaps without the human talent, will be hard. But Asian VBs are backed by firms with deep pockets, incredible experience, and shareholders (including banks) that will favor a deliberate roadmap over the more seat-of-the-pants experiments that characterized the early European neo-banks.
In other words, the secret to creating a virtual banking brand that Asian consumers are willing to try and grow to trust will require a rapid move to breadth and social engagement. Snazzy apps and aggressive pricing will be, at best, tactics to simply get people to try them out.