10 minute read 26 Feb 2021
How 2021 will reshape Southeast Asia’s financial services ecosystem

How 2021 will reshape Southeast Asia’s financial services ecosystem

By Brian Thung

EY Asean Financial Services Leader

Outgoing and diligent operator. Inclusive leader who welcomes diverse thoughts and views.

10 minute read 26 Feb 2021

The changes brought by COVID-19 pandemic will lead to the rise of a new type of financial services provider in the region.

In brief
  • Hyper-personalization will be a new area of focus as institutions race to meet rising consumer expectations.
  • Ecosystem plays will accelerate, with tech and platform players and financial institutions working together in partnership.
  • Risk management must evolve as trust and transparency become essential to value and loyalty.

For many businesses across the globe, 2020 was a year of extraordinary challenges. Across Southeast Asia, financial institutions faced challenges such as squeezing margins, increasing costs, heightening asset risk and reducing demand in some segments. But the pandemic also reshaped human behavior and changed how financial institutions operate, laying the foundations for a new type of financial services provider to rise from the ashes of COVID-19 pandemic in 2021 and beyond.

In 2020, as is well documented, for both the region’s consumers and its financial institutions, lockdown restrictions accelerated digital adoption.

According to the EY Future Consumer Index, how Southeast Asian consumers engage with financial services providers has changed forever. To the industry’s credit, as consumers turned to digital channels to meet their financial needs, institutions mobilized quickly to meet their customers’ expectations – leveraging new technologies to broaden customer engagement across digital channels.

As banks collaborated with governments to provide support relief and stimulus measures, data-driven strategies and investment in artificial intelligence (AI) and machine learning (ML) became even more critical. Insurers ramped up their digitization efforts, shifting their businesses online and migrating processes to the cloud. Fund houses and distributors tapped into FinTech to improve the customer experience, beef up direct-to-consumer capabilities and gain access to the broad range of data needed to decode today’s fast-moving and interconnected markets.

In parallel, consumers went through three years of technology adoption in as many months. As branches closed and in-person meetings moved online, digital identity verification, self-service and “talking” with AI-infused chat bots became ingrained behavioral habits for hundreds of millions of the region’s consumers.

Emphasis on digital models for financial services institutions

Now, at the onset of 2021, despite ultra-low interest rates, the industry is poised to capitalize on the advances made during the pandemic and pivot to sustainable growth. Banks, insurance and wealth management firms are racing to fill in the gaps exposed by a growing credit risk event, taking advantage of the opportunities emerging from hyper-transacting and hyper-digital customers.

As supply chains shift and financial institutions make increasing use of digital technology, they will remake their business models, dialing up resilience, reliability and efficiency by:

  • Focusing on hyper-personalization

For financial institutions with a wealth of data available, hyper-personalization represents a window of opportunity to stay ahead of the curve with a value proposition that makes customers feel not just well served but understood.

In banking, hyper-personalized solutions will celebrate customers’ individuality and meet their lifestyle banking needs, increasing customer satisfaction, loyalty and activity. We can expect Southeast Asian banks to optimize their existing data by integrating new sources of contextual intelligence to better understand their client’s current needs and even predict their future ones. Cognitive banking will begin to emerge, with embedded functionalities such as interactive voice response, multilingual bots, natural language processing, machine vision and AI-powered recommendations. Eventually, this will lead to a seamless customer experience that feels as intuitive and natural as chatting with a friend.

In insurance, delivering on hyper-personalized experiences and the potential for smarter underwriting and claims will require advanced automation and AI. Insurers need to be able to recognize a consumer’s context — taking into consideration their unique circumstances at any given moment — and respond in an empathetic and relevant manner.

Similarly, greater connectivity and hyper-personalization will see wealth management become as convenient and engaging as online shopping or social media. In the future, we can expect wealth as a service, delivered through a fully digital intermediary. Thanks to a range of data feeds, this intermediary will have a unique understanding of its sole customer. And thanks to AI, it will have the power to conduct smart searches of the entire market on the consumer’s behalf and learn from them.

  • Driving value through ecosystems

The new era of financial services will not be the result of new entrants pushing out incumbents. Instead, the disruption to existing processes will be driven by technology companies, platform players and financial institutions working together in partnership.

Already, we have seen wealth management players in the region tapping into a larger network of tech-savvy investors. Technology giants such as Grab and Gojek, already lead the digital wealth space in the region.

Looking ahead, we will see more ecosystem plays. Technology companies will contribute their unrivalled capabilities in behavior analysis and user experiences, developing new approaches to segmentation and interaction that can deliver complete individualization. Institutions will draw on their expertise in financial intermediation, underwriting, advice, asset allocation and compliance. In the process, the lines between all the participating sectors will continue to blur.

We expect banks and insurers to explore new partnerships and business models to create integrated, value-added experiences centered on the overall health and financial wellness — not just the insurance needs — of their customers.

  • Tapping into the ESG megatrend

Strong signals towards decarbonization is rewriting the rules for capital markets in 2020.

Across Southeast Asia, institutional investors have already started pricing in the physical, market and regulatory impacts of climate change. According to EY’s survey (pdf) of more than 300 institutional investors, almost three quarters said they devote considerable time and attention to evaluating the physical risk implications of climate change when they make asset allocation and selection decisions; 71% said the same of the transitionary risks due to climate change. Importantly, three-quarters said they will reconsider or walk away from investments based on climate risk.

In 2021, the pressure to prioritize investments that support decarbonization will only grow. Mass-affluent individuals in the Southeast Asian region are expected to increase from 57 million in 2018 to 136 million by 2030, or 21% of the region’s population. These clients are increasingly asking about the ‘green’ rating of their portfolios.

At the same time, near-retirees and Gen Z are aligning over their desire for their investment dollars to help save the planet.

Currently, Southeast Asian markets still lack investment options linked to United Nations (UN) Sustainable Development Goals (SDGs) due to lower private-sector investments. In future, we expect regulatory changes, favorable tax regimes, increased participation from retail investors and data on ESG impact and returns to further drive investments aligned with UN SDGs.

At the same time, the insurance industry will use digital technology to more precisely understand physical, transition and liability risks linked to climate change, revising its underwriting and investments accordingly.

  • Revisiting risk management

With a virtual office environment becoming the ‘new normal’, businesses cannot afford to fall behind in their risk management capabilities. The spike in remote working during the pandemic has made institutions more vulnerable to cyber-attacks. With remote working likely to continue for the foreseeable future, this is a timely wake-up call for companies in Southeast Asia to evaluate and enhance their technological infrastructure, and increase their scrutiny of security and compliance policies.

At the same time, if institutions are offering hyper-personalized financial services, these products must be delivered via highly transparent processes. Consumers largely trust digital leaders in other industries because of their transparency and the high-quality customer experiences those companies provide. Trust has become a new currency to derive value and loyalty.

Traditional risk management frameworks do not enable institutions to innovate and pursue opportunities at the pace of the nimblest competitors. An adaptive approach builds risk intelligence into key processes and the supporting technologies so that the business can move quickly and safely, at every touch point and across every phase of the customer journey. Risk management strategies must also be established for all emerging technologies: the cloud, mobile apps and interfaces with third parties, including fintech collaborations.

Regulatory support for digital finance will continue to build

With capital and return on equity constraints, financial institutions will shift to a greater reliance on digital and ecosystem strategies to access the Southeast Asian markets and succeed in the post COVID-19 era. The region’s regulators are already gearing up for this shift:

  • The Monetary Authority of Singapore (MAS) is encouraging the entry of new players to provide innovative solutions that can improve access to Financial Services for the under-penetrated market segments. It is aiding this by awarding digital banking licenses to challengers, and granting non-bank financial institutions direct access to leverage the banking system's real-time retail payments infrastructure from February 2021.
  • The Central Bank of Malaysia has invited applications for digital banking licenses and may issue up to five of them to qualified applicants.
  • Bangko Sentral ng Pilipinas is allowing digital banks to offer a comprehensive suite of products across both retail and small-and medium-sized enterprise (SME) segments. Digital banks may offer financial products and services through cash agents and other delivery partners subject to the guidelines provided.
  • In Thailand, the new investment framework now allows insurers to hold equity securities in healthcare firms and technology-related business up to 10% and 3% respectively.¹

As Southeast Asia’s financial services organizations shift to a fully digital enterprise, many will require a comprehensive or targeted enhancement of their operating model. In our experience, companies that lead with customer-centric approaches will generate the greatest value and move more quickly to sustainable, resilient operations that will win in a post-pandemic world.


Full digitization will be needed to win in a new financial services landscape that rewards tailored, personalized services that align with consumer values and support lifestyle choices and financial wellbeing.

About this article

By Brian Thung

EY Asean Financial Services Leader

Outgoing and diligent operator. Inclusive leader who welcomes diverse thoughts and views.