As bankers in China and the wider Asia-Pacific region embark on the Year of the Snake, we highlight five industry trends for 2025 in tune with a key symbolic association – the ability of the snake to shed its skin and renew itself through a continuous process of transformation.

The industry will see the advent of more digital-first banks, the acceleration of hyper-personalization initiatives, and increasing momentum for strategies that leverage open banking. In addition, GenAI will continue to transform key banking processes – although wise leaders will balance innovation and creativity with the right AI governance and workplace culture to ensure customer trust is preserved and risks are managed.  

Across Asia-Pacific banking markets including Hong Kong, Singapore, Malaysia and Thailand, regulators have spent the last few years sponsoring a wave of digital-first virtual banks, with the intention of kickstarting innovation, increasing competition and improving financial inclusion. 

This last objective is particularly important in Thailand, where applications for a tranche of virtual banking licenses closed in September 2024. The regulator will issue licenses mid-2025, with winning candidates expected to be operating by mid-2026.¹

The success, or otherwise, of digital-first banks across the various markets has underlined several key lessons about what defines a robust digital-first model: 

• Keep operating, scaling, and innovation costs low. The digital-first banks that succeed are often built on a new core that keeps operating costs down and allows them to scale and innovate rapidly at low cost. 
• Cut customer acquisition and retention costs by improving the experience. Successful digital banks are often those that make banking simpler, fun and more rewarding – with gamification an important lever. Virtual banks across Asia-Pacific and the Middle East have gained traction using mechanisms such as leaderboards, quizzes, wheels of fortune, digital badges, rewards, and progress tracking. 
• Customers want to achieve goals rather than spend time ‘banking’. Recognition is growing that customers want to achieve daily and life goals rather than spend time banking – they want a home, not a home loan. Through 2025, digital-first strategies will increasingly bring together the ecosystem services customers need to reach each goal, alongside the financial element. 

Digital-first banks, while not always disrupting their local markets, have reshaped expectations around the customer experience. To keep up, incumbents need to address the challenge of legacy systems through strategies such as setting up new digital ‘sidecar’ banks, modernizing the legacy core or – more pragmatically – introducing middleware that stores and manages data from core systems and supplies it to banking apps in near real time. 

Across financial services, there is broad consensus that institutions need to further personalize the relationship with customers and move towards the fabled ‘segment of one’. 

Capco’s surveys of bank, wealth management and insurance customers in the Asia-Pacific region and the Middle East show that customers value personalized products and services – and are happy to share personal data in return for offerings more tailored to their needs.²

The essence of personalization lies in the bank’s ability to contextualize the customer relationship in real time so that the bank can offer solutions relevant to customer needs – even before customers themselves realize they need them. Imagine, for example:

• Finishing work at the end of the day to find that your bank application pops up a notification to order a taxi to take you home and suggests your favorite dinner menu to order for home delivery. 
• Meanwhile, the tax return that was going to spoil your weekend has been prefilled awaiting confirmation – taking account of your income and the charitable donations you have made from various accounts, along with suggestions to further minimize your tax bill. 
• This leaves you with time to visit the local mall, where the bank sends you a QR code to reduce the price of a TV you read a review of last night, just as you pass the electronics shop. 
• Tipped off by your internet searches for real estate, the bank also lets you know an advisor is immediately available in your local branch – armed with a pre-approved mortgage of the right size. 
• While you shop and get lunch, the bank automatically applies digital marketing vouchers to your purchases. It flags upcoming automatic renewals for any subscriptions that you no longer seem to be using so that you can reconsider them, and recommends alternative offers for your utility direct debits. 

The convenience and money savings delivered by this kind of hyper-personalization require a 360-degree picture of the customer and the ability to make the relevant data available, process it, augment it with more data using open banking and third-party partnerships, and then create value and convenience for the customer at lightning speed – often using AI-technologies. 

The constraints that have prevented banks and their partners from offering such services will further loosen through 2025 as open banking provides access to more and richer information, and GenAI enables the new content to be more effectively and dynamically produced. 

Banks should think strategically about how hyper-personalization will reshape customer relationships – and plan for the processing, data management, and analytical capabilities that will be required. 

Open banking programs are expanding in the Asia-Pacific region with, for example, the Bank of Thailand launching its ‘Your Data’ initiative in October 2024 for the country’s financial industry, with the aim of making this operational in 2026.³

The goals of open banking programs are similar across the world: to set out standards and regulations that allow individuals to instruct organizations to share their data, thus supporting account aggregation, new kinds of financial insights, payment services flexibility, and other innovations for consumers and SMEs.

For example, Thailand’s Your Data initiative aims to improve  each customer’s access to financial services by making their credit-related data easily available to a wider set of industry players – leading to more affordable consumer loans and SME financing, in line with the customer’s true risk profile. 

Despite significant advances in Hong Kong,⁴ China, Singapore and other markets, open banking has made relatively slower progress in the Asia-Pacific region, when compared to other parts of the world such as the UK and Europe. This is in part due to regional inconsistencies in terms of the fundamental approach to open banking and the related protocols and technical infrastructure. 

However, in Thailand and other markets, momentum is now growing. Industry experts are wondering if the result will be a shift in the role of banks from ‘banking service provider’ to ‘curator of the best fintech experiences’. 

2025 is a good year to ask fundamental questions about the capabilities banks must continue to invest in to maintain a key role in the wider ecosystem – and those they may soon be offloading to other providers. 

2025 may be the year that GenAI in the banking industry moves from PoCs and pilots to deployment across a swathe of business activities. This broader roll-out may retain a shade of conservatism, in that many implementations will continue to keep a human professional in the loop. 

However, the pervasive nature of GenAI deployments across operating models, from front-of-house customer service to behind-the-scenes project management and transformation initiatives, may become much more apparent. To pick out three areas: 

• Call center applications to improve service and cut costs. Debate continues about whether GenAI will make human operatives in call centers entirely redundant in the longer term. The answer won’t become apparent in the next twelve months, but within that timescale GenAI will have significantly speeded up key tasks in financial services call centers such as call transcription, call summarization, and identifying customer action points. AI technologies will be used to ingest in-house documentation and then support operatives as they answer complex questions about products and services. AI may also be applied to analyze calls to monitor customer sentiment, as well as helping operatives identify and respond to customer vulnerabilities. 
• Accelerating innovation and market adaptation. With Asia-Pacific banking markets evolving fast, banks need to speed up the rate at which they can change and innovate. GenAI can help business analysts capture business needs and translate them into technical requirements. After consuming large unstructured data sets – text-based project documentation and audio/video recordings of conversations between analysts and business teams – GenAI can rapidly generate the artefacts that define what needs to be done, such as ‘epics’ and ‘user stories’. The same technology can generate test cases to ensure that each project deliverable has the requisite functionality.
• Core modernization. A third area in which GenAI will prove effective through 2025 is assisting core system modernization, where it will speed up tasks such as retro-documentation, uncovering external dependencies within systems, refactoring, and automating code conversion and testing. 

As use cases are deployed and scaled across a broader set of activities, banks should look to create supportive bank-wide environments. In particular, they will need to continually improve their approach to firm-wide AI governance and culture. 

As AI and GenAI use cases move into the production pipeline through 2025, new guidelines, best practices, and regulations are emerging to shape industry behavior. 

The Hong Kong Monetary Authority (HKMA), for example, has in the last half-year provided a set of guiding principles for the use of customer-facing GenAI; an overview of the role of GenAI in the financial sector; and encouragement to apply the latest AI technologies to monitor suspicious activities.⁵ It capped this off with a December announcement of the 15 inaugural projects entering its new GenAI sandbox, designed to help banks and other firms safely pilot GenAI use cases.⁶

In this dynamic environment, banks need to put in place the right governance and culture to accommodate not only AI/GenAI innovation and piloting, but also adoption at scale: 

• Governance frameworks. Banks need to make sure their framework is broad and covers areas such as roles and responsibilities, regulatory compliance, responsible AI-related principles and best practices, controls and policies, and the necessary tools and processes. It must remain up-to-date and relevant given that AI guidelines and best practices are evolving rapidly.
• Culture. Banks need to define the workforce, cultural attitudes and workforce tools they need to create an AI-infused financial services business. Their approach must include building an environment that is friendly to AI innovation and improvements in workforce skills and training through educational events such as promptathons.⁷

As Capco discusses in a recent paper, traditional data governance frameworks and skillsets are being challenged by AI technologies across a number of dimensions, including the "complexities introduced by unstructured data, opaque algorithms, and dynamic data flows and transformations".⁸

While AI governance must take account of these new challenges, it must also be integrated within the organization’s wider governance function and should encompass improvements that need to be made to broader data and technology governance. 

This is not just about compliance and risk management. Developing a robust governance framework together with the right skills and culture will make it easier, safer and quicker to roll out repeatable AI/GenAI solutions in different business and functional areas – and thus represents a critical investment in the bank’s innovation platform. 


References

¹ Capco Thailand’s Bank of the Future : Will the New Virtual Banks Reshape the Industry?; https://www.bangkokpost.com/business/general/2885277/big-outlay-for-virtual-banks
² Capco Singapore Wealth Management Survey; Capco Bank of the Future UAE Retail Banking Survey
³ https://www.bangkokpost.com/business/general/2877327/central-bank-introduces-open-banking-data-initiative 
⁴ https://www.openbankingexpo.com/news/citi-hong-kong-unveils-new-wealth-feature-via-hkma-data-sharing-pilot/ 
⁵ HKMA, Consumer Protection in Respect of Use of Generative AI, August 2024; HKMA, GenAI in the Financial Services Space, September 2024, HKMA, Use of AI for Monitoring of Suspicious Activities, September 2024
⁶ https://www.hkma.gov.hk/eng/news-and-media/press-releases/2024/12/20241219-5/ 
⁷ https://www.capco.com/intelligence/capco-intelligence/five-foundational-elements-for-genai-governance-in-financial-services 
⁸ https://www.capco.com/Capco-Institute/Journal-59-innovation-and-control/revolutionizing-data-governance-for-ai-large-language-models