Singapore’s digital banking horse race has spurred renewed speculation that fintech firms could take a bite out of traditional banks’ business.
However, the experience of Southeast Asia’s biggest banks suggests the licence winners would still have an uphill battle to gain market share.
“Years ago, people would say ‘fintechs will eat your lunch.’ History has shown it’s not that easy to eat our lunch,” Pearlyn Phau, deputy head of consumer banking and wealth management at DBS Bank, told DealStreetAsia in a recent interview.
DBS rolled out its digibank – a digital-only bank – in India in 2016, and then in Indonesia a year later. Phau said that in those markets, the bank was able to use a government repository of data to streamline know-your-customer requirements for opening accounts. Indonesian and Indian citizens are issued biometric identification cards.
DBS also got a boost in Indonesia in 2018, after the acquisition of ANZ’s wealth management and retail banking business in Singapore, Hong Kong, Taiwan, China and Indonesia. At the time, DBS said the deal gave the bank around 370,000 banking customers and 600,000 cards in Indonesia.
Digital-only fintechs may tout their ability to avoid the costs of physical branches but not having them can be a handicap in regional markets.
While snarled traffic in Jakarta gives a fillip to attracting customers to the digibank, Phau said it appears the combination of the traditional physical branch with the digital platform – a model she called “phygital” – resonated better in acquiring customers in Indonesia, particularly with affluent customers.
India also offers a regulatory hurdle to digital-only bank players: the country only allows onboarding of customers in areas where the bank has a physical branch, Phau said.
“If I don’t have a physical presence in the key cities I’m targeting, I’m not able to market digital services to those populations,” Phau said.
Rico Usthavia Frans, the director of information technology at Indonesia’s Bank Mandiri, echoed the importance of a bank’s physical presence. The lender is the largest in Indonesia by assets.
“Our strength lies in our large network of branches and large customer base,” Rico said in an interview with DealStreetAsia. He acknowledged that maintaining a banking network is costly but added that it spurred the bank to upgrade its technology and its banking app.
In Singapore, there are seven applications for digital full bank licences, which allows retail business, and 14 applications for digital wholesale bank licences. The government is issuing only two digital full bank and three digital wholesale bank licences.
The licences will only be valid in Singapore. But with an already well-banked population in the city-state, observers expect successful bidders will use the licence as a stepping stone to regional expansion. In Malaysia, for one, the central bank plans to issue up to five digital licences.
In Southeast Asia, the digital lending market is forecast to grow from $23 billion in 2019 to $110 billion by 2025, according to a 2019 report from Google, Singapore state-owned investment company Temasek, and consultancy Bain & Co.
Still, Nestor V. Tan, president and CEO of BDO Unibank, the Philippines’ largest bank, reckoned that simply giving people smartphones would not convince them to use digital banking services.
“When people are parting with their money, the behaviour is different,” Tan said at the Singapore FinTech Festival in November.
The data backs up Tan’s view: Mobile penetration in the Philippines tops 100 per cent, with smartphone penetration at 65 per cent, according to the Digital 2019 report from Hootsuite and We Are Social.
But just 34.5 per cent of adults in the Philippines have a formal bank account that can be used for savings, payments and receiving wages or financial help, according to the World Bank’s Global Findex report for 2018.
Even within tech-savvy Singapore, customers often seek a face-to-face meeting. A January report from brokerage UOB KayHian said that while around 80 per cent of banking “touchpoints” are digital, only 25 per cent of sales are closed online, and complex financial products require face-to-face interactions.
A survey of customers in Singapore, Hong Kong, and Malaysia by advisory firm PwC indicated that “human touchpoints” were crucial in situations such as wealth management, mortgage and insurance-related transactions.
To be sure, new entrants, with innovative business models and backing from venture capital funds, could pose a serious challenge to the incumbents.
Those players can often “throw money at users,” via freebies and cashback, Phau observed.
But even being a step ahead technologically may not last long: DBS was the first bank in India to use biometric signup, but it was copied within three months, she said. Within five months, the “entire journey” of the digibank was replicated, Phau said.
And freebies do not constitute a strategy either. “It’s not sustainable in the long term,” she said. “The endless throwing of freebies and cashback can only go so far and may end up attracting the wrong type of customers.”
Andi Haswidi contributed to this story.