Banks in Asia-Pacific plan to increase sales from digital channels in the next three years as the region is predicted to see fast-growing e-commerce growth and mobile payments potentially exceeding US$4.7 billion by 2020, according to a survey by Misys.

The study surveyed retail banking executives of first- and second-tier domestic banks identified for their past and current activities in digital banking from the diverse markets of Australia, Indonesia, Philippines and Vietnam.

Chris Curtis, APAC regional director at Misys, noted, "Retail financial markets in Asia-Pacific are rapidly approaching a tipping point in digital banking. The majority of banks in the region have so far looked at providing transaction services to existing customers through digital channels, but now is time to change and provide more holistic digital engagement to customers. It is important for banks to understand the new style of communication and engagement required to be successful in this area and for many it will be a steep learning curve. Financial regulators in emerging markets are still finalizing the rules for branchless banking and the use of mobile money."

The banks with the most advanced digital strategies generate up to 45% of total sales from digital banking channels, originate 5% of loan applications online and mobile and can generate up to 38% of customer acquisitions via direct. "If the current momentum continues, 90% of top tier banks in Australia will have full straight-through-processing capabilities for most of their retail banking products by 2017," added Mukul Agrawal, director - core banking and digital channels, APAC at Misys. "Digital transactions will also take over branch-based transactions in the next few years and have done so already in most mature markets such as Australia."

Banks in the region are keen to sell more products directly online but say they are hampered by business and compliance issues. For example, emerging market banks say they aim to open 20% of their accounts online in the next five years but are hampered by legacy systems and compliance issues which force the customer back to the branch. According to all respondents of the survey, deposit account opening and personal loans through online channels will become a key focus area between 2015 and 2020.

Respondents to the survey cite a number of different challenges in their push to build digital platforms. The separation of mobile and internet banking platforms and multiple legacy systems is a key issue in the Philippines and Indonesia, as well as security on digital channels and a lack of regulation in the digital space, which is also a concern for financial institutions in Vietnam. Despite rapid smartphone adoption in Vietnam, acquiring a large enough client base will be a challenge for banks to justify the expensive technology they aim to implement. There is also a lack of centralized data systems and the authentication of data is weak, according to the survey.

Meanwhile, Australian banks are tackling the challenge of synthesizing and integrating data on customer behaviour to better understand what consumers on digital channels want. And as they transition their core banking systems they need to ensure they do not compromise the digital experience for clients.

Curtis said, "Banks in the region have invested millions of dollars in building their digital banking platforms to offer customers better access to banking and financial mobility. Those that execute this through innovation, stronger customer and system focus across channels will have the most success in improving customer loyalty, retention and sales."