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IN THE JANUARY 2015 ISSUE

RFi Insight

Finding the reward in value – a look at the

point of loyalty programs in a value conscious market

02

Economic and Regulatory

05

Retail Banking

Malaysian Banks engaged in a ferocious competition for deposits

06

Priority and Private Banking

BOS expecting record growth of up to 15%.

07

Technology

Bank Danamon enables m-banking via Facebook

08

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Letter from the Editor

Welcome to the January 2015 edition of the Asian Banking Monitor. A newsletter designed to give you a quick update on news and trends within the Asian banking market. We cover movements in all areas of the market - economic and regulatory, retail banking, priority and private banking, and technology.

In recent news economic news, the Credit Bureau of Singapore are implementing an improved credit bureau strategy to help consumers manage their financial borrowing decisions. This should help consumers to make better borrowing decisions for future applications of credit facilities, and avoid running into debt

Technological developments are expected to be in full force in 2015, with MasterCard and Visa teaming up to deliver a new multi-layered biometric authentication process. The evolution of facial and voice recognition processes will be interesting to keep an eye on in the coming months. Growth of the Indonesian affluent segment will be a key focus this year, as the wealth management space is tipped to increase, especially as a result of aggressive targets from foreign banks.

In our RFi Insight piece we take a look at the key drivers of a credit card satisfaction and usage and what really drives bank of choice for the Singaporean market. We analyse and compare the Affluent segment as well as the notoriously tricky to please ‘GenY’ group to see if loyalty programs actually make a difference to these segments. For more details, have a read on page 3.

We hope you enjoy this month’s edition and I look forward to any feedback you may have.

Kind regards,

Joann McLeod

Head of Research and Insights – Asia jmcleod@rfintelligence.com

“…the top influencing

factor in driving front

of wallet usage is a

rewards points

program.”

RFi Insight

Finding the reward in value – a look at the point of loyalty programs in a value conscious market

There is little doubt that Asian consumers are “value” driven and in Singapore, in particular, consumers are largely focused on the value of relationships and the reward they will receive for performing certain actions. This is particularly evident in the credit card market. And with so many cards and rewards programs in the market, particularly around shopping and dining rewards – it begs the question. What are consumers actually loyal too?

At RFi we run research on the credit card markets across Asia, and from our research we know that the average consumer holds more than 2 credit cards. As if to illustrate the point above, banking customers in Singapore hold an average of 3 credit cards each - multiple cards with multiple loyalty programs and a very saturated market. Clearly the reward program is a key driver in credit card choice, and is also heavily linked to satisfaction and retention. But do we over estimate the value placed on credit card loyalty schemes? Are certain loyalty programs more effective than others, and if so do they drive consumer choice when it comes to which institutions they bank with?

Credit cards, and the benefits and loyalty programs attached to them, are designed to create an allegiance to a particular bank. For instance, holding a premium credit card with a premium rewards program makes the consumer feel privileged and important, there is a “value” placed in that, perhaps less tangible than cash back but perhaps more important in driving retention.

To state the somewhat obvious, in Asia, a rewards program most certainly drives a consumer’s choice of bank and it is a critical feature in the choice of a “most used” credit card. Indeed, from the research RFI conducts across Asia we see that for many key segments, having a rewards points program is more important than having travel insurance, or even having an easy to use internet banking platform, something one might consider critical for day-to-day banking. Again, if we focus on Singapore, perhaps our most “value driven” market, we see this clearly. From the below chart, which solely focuses on the Affluent segment in Singapore, highlights that the top factor driving satisfaction with front of wallet cards is a rewards points program, and this feature takes the lead by some way. In second position is the cash rebate program, where consumers can redeem their rewards points for cash, then thirdly comes dining and shopping discounts.

“…it’s important to

offer some sort of

rewards program to

drive credit card

uptake and usage.”

favourite segment, “GenY”, a segment perhaps sometimes unfairly pegged as fickle and likely to shop around. Through our research, we see similar patterns of satisfaction and preference. In this segment the rewards points program also drives credit card satisfaction, so perhaps loyalty is higher on their agenda than we thought. In fact, the top 4 drivers of card satisfaction relate to the rewards program.

So clearly, it’s important to offer some sort of rewards program to drive credit card uptake and usage. But can rewards programs really drive loyalty in a market so saturated? How can I be loyal to 5 cards and associated programs simultaneously? Perhaps it is better to accept that our customers are multi card customers and that the solution to encouraging higher spend and achieving the holy grail of front of wallet position lies in the value placed by consumers in a particular reward program and the benefits associated. After all, the name says it all, it’s a program designed to make you loyal, but let’s make sure consumers see the point of our rewards programs. If they see the value, perhaps this is what drives them to become a valuable customers?

“According to RFi research, an

average Singaporean holds

about 3 credit cards.”

Average number of credit cards held anywhere in Singapore

ANZ 6.41

HSBC 5.87

Maybank 5.58

SCB 5.14

UOB 4.61

OCBC 4.53

POSB 4.45

DBS 4.42

Citibank 4.28

Total

(At individual level) 2.99 Source: RFi – Singapore Priority and Retail Banking Council 14H1

Economic and Regulatory

Credit Bureau Singapore (CBS) announced recently that an enhanced version of the credit bureau will be made available in early 2015 for consumers to have a better idea of their credit situation. The revised version of the report will show consumers their aggregate credit limits and aggregate outstanding balances across financial institutions. CBS Executive Director, William Lim, hopes that consumers will be able to make better borrowing decisions for future applications of credit facilities, and avoid running into debt, with this added piece of information. According to RFi research, an average Singaporean holds about 3 credit cards. Having the ability to monitor credit limits and usage could help prevent credit cardholders from overleveraging their cards or sinking into debt.

AMEX partners SME association to help smaller merchants

American Express (AMEX) merchants will be able to tap into some of the services offered by the Association of Small and Medium Enterprises (ASME) under a recent partnership agreement signed by the two entities. This collaboration means that AMEX merchants in Singapore will be able to become affiliate members of ASME in 2015, gaining perks including preferential rates for events organised or supported by the association. Furthermore, these merchants are able to utilise ASME’s network for advice in government grants. The partnership is part of government efforts to reach out to more SMEs.

China 2015 GDP target in focus as stimulus expectations heat up

As a result of increasing downward pressure, China plans to cut its growth target for the first time in 3 years and ramp up stimulus. Chinese leaders are trying to put China’s increasingly affluent consumers as a priority, rather than investments and exports, and are ready to tolerate slower expansion in GDP to achieve more sustainable growth. With China’s current economic situation, including deflating property bubble, high debt levels and the threat of deflation, hovering in the background, it will be interesting to see what the revised growth target for 2015 will be.

“In terms of 1 Year Fixed

Deposits, RHB Bank is

currently the market leader,

with a rate of 3.45%, followed

by Public Bank and Ambank,

both offering 3.35%.”

Highest 1 Year Fixed deposit rates in Malaysia

RHB 3.45%

Public Bank 3.35%

AmBank 3.35%

Hong Leong Bank 3.30%

May Bank 3.30%

Source: http://malaysia.deposits.org/

Retail Banking

Malaysian Banks engaged in a ferocious competition for deposits.

Malaysian banks have been vigorously competing for deposits since 14Q2, in expectation of a future rate hike. With enhanced promotional rates offered to increase their deposit base and fund loan growth, the industry is facing narrower margins. Public Bank, AmBank and RHB Bank quoted much higher yearly rates compared to Maybank in hopes of toppling the leading consumer deposit franchise in Malaysia. Looking at 1 Year Fixed Deposits, RHB Bank is currently the market leader, with a rate of 3.45%, followed by Public Bank and Ambank, both offering rates of 3.35%.

Strong demand for housing loans in Thailand

Thailand’s housing loans have been more active in October 2014, helped by condo transfers and new landed property launched. According to Nomura, residential home loans is the only retail sector that has been consistently in demand by customers across all banks. Meanwhile, despite a cyclical rise in spending on credit cards, Thailand’s recovery from its household debt issues is not expected to be a rapid process.

Hana SK, KEB cards to merge

Korea Exchange Bank (KEB) has decided to spin off its credit card business, which will be absorbed by Hana SK Card as early as 14Q3, according to KEB group executives. The planned merger is expected to help KEB card regain its formerly solid competitiveness by leveraging the synergy created by the merger. Woori Card started the spin off trend earlier this year, detaching itself from its parent company, Woori Financial Group, and fuelling cutthroat card competition. With record levels of household debt plaguing the economy, card companies have to be prepare for an increase in credit delinquencies. The intensifying competition combined with deteriorating market conditions may further fuel divestitures from other financial firms such as NH Financial Group and KDB Financial Group.

“80% of Indonesia’s affluent

banked population hold an

investment product with their

financial services providers.

Investment holders are most

likely to invest in gold,

domestic shares, and

investment linked insurance

products.”

Source: RFI – Malaysia Priority & Retail Banking Council 14H1

Priority and Private

BOS expecting record growth of up to 15%.

Chief Executive of Bank of Singapore (BOS), Mr Renato de Guzman, claimed in a recent interview with Business Times that record growth is expected for the bank. "We could end 2014 with AUM (assets under management) of US$52-53 billion," This implies a gain of 13% to 15% from 2013's US$46 billion AUM. BOS's AUM exceeded US$51.1 billion in Sept, double the US$23 billion in January 2010 when BOS was first launched. Earlier in the year, Mr de Guzman said that BOS gad completed its spring cleaning last year, as the bank directed its focus to refining its infrastructure and terminating clients whose AUM dipped below US$1 million.

Foreign banks targeting Indonesia’s affluent

In Indonesia, foreign banks are aiming for at least 20% growth in the wealth management space, as the number of affluent in Indonesia is increasing. Recently released data from the Indonesian central bank reveals that the number of Indonesians holding IDR 2 billion and above in their bank accounts had risen to more than 180,000 individuals this year. This represents a sizeable base of prospective clients for fewer than 30 wealth management service providers in the nation.

According to RFi data, 80% of Indonesia’s affluent banked population currently hold at least one investment product with financial services providers. These banking customers are most likely to invest in gold, domestic shares, and investment linked insurance products.

Coutts International up for sale

The Royal Bank of Scotland (RBS) has initiated the sale of Coutts International as the British government, and its majority shareholder, wants to direct its focus on UK operations. According to Businessweek, DBS and Citibank have been carefully eyeing the offer and look to compete in a pool of 10 potential bidders for the ownership right to the private banking and wealth management business.

RBS is attempting to boost its bottom line while shrinking its global businesses. Furthermore, RBS has plans to exit the US mortgage trading business as well as its Japanese bond trading business. 12% 18% 29% 46% 48% Managed funds/ mutual fund/ unit

trust Shares listed on other international

stock exchanges Investment linked

insurance Shares listed on

the Indonesia stock exchange

Gold

Investment products held by the affluent in Indonesia

“RFi research has shown that

Bank Danamon customers are

less likely to use mobile

banking channels on average,

suggesting that D-Mobile could

be timely launched to aid the

bank in moving towards

digital.”

Source: RFi – Indonesia Priority & Retail Banking Council 14H1

Technology

Bank Danamon enables m-banking via Facebook

Indonesia’s Bank Danamon has launched a mobile banking app, called ‘D-Mobile’, which targets approximately 2 million Bank Danamon retail customers and all mobile users across Indonesia. The new app allows customers to perform basic banking transactions such as fund transfers and bill payments, and also provides personalisation features and connection to customers’ individual social media platforms. Another feature of ‘D-Mobile’ – called ‘Sosmed D-Cash’ – allows users to transfer funds via Facebook to both Danamon and non-Danamon customers. In addition, customers can use their phone camera to scan for the nearest Danamon ATM or branch, as well as the nearest Danamon promotional offer available across different categories including dining and travel. RFi research has shown that Bank Danamon customers are less likely than average to use mobile banking channels, suggesting that D-Mobile could be timely in helping the bank move towards digital banking. Biometric information to be used as added security feature MasterCard is partnering with Visa to use biometric technology, including fingerprints, voice and facial recognition, to replace passwords for online payments. Current security measures revolve around password-based online authentication, known as 3D Secure, which both companies hope to replace with a new, multi-layered approach to authentication. If successful Visa and MasterCard hope that consumers, banks and merchants will have better and safer online experiences. The new protocol is likely to be adopted as early as 2015.

ABN Amro signs outsourcing deal with IBM

ABN Amro has signed a 10-year, multi-billion dollar services agreement with IBM to manage the infrastructure that supports the bank’s operations globally. The deal, which takes care of mainframe, servers, storage, end-user computing, help desk as well as application support, is part of the bank’s efforts to propel its digital strategy. ABN Amro hopes to leverage IBM’s investments in cloud, analytics and security to equip its IT infrastructure with the latest technology and services leading to improved customer service.

17 18 21 47 57 66 67

0 50 100

Phone banking (IVR) Phone banking (Real person) Branch Mobile banking (App) Mobile banking (Browser) ATM Internet banking

Annual average usage of banks

Bank Danamon