Covid-19 accelerates digital banking interest

Laggards are likely to suffer swifter franchise deterioration as customer preferences and competition evolve more rapidly


THE Covid-19 pandemic and the resulting social-distancing phenomena are likely to spur banks across South-East Asia to accelerate their digital transformation strategies, said experts.

Laggards are likely to suffer swifter franchise deterioration as customer preferences and competition evolve more rapidly, Fitch Ratings Inc said.

“We expect established, digitally advanced incumbent banks to gain from the trend as customers flock to convenience and perceived safety in times of crisis, while also reaping the benefits from potentially improved productivity, as well as cost savings from closed branches in the medium term,” it said in a recent statement.

The rating agency expects this trend to persist even after the outbreak subsides, as customers who were used to cash-based and over-the-counter transactions maintain their newly adopted habits.

“This, coupled with the greater adoption of open banking architectures in some jurisdictions, would force banks to innovate more quickly or risk falling behind.

“We see smaller banks, especially those with below-par digital capabilities, to be more at risk of the change in competitive dynamics,” it said.

Venky says conglomerates in countries like Singapore and India are keen on securing digital banking licences as well –

Oracle Financial Services Software Ltd group VP for Asia-Pacific, Japan, Middle East and Africa, Venky Srinivasan, said given the current situation and its impact on global economies, the emphasis on driving financial inclusion has become significantly enhanced.

“One key narrative that is paramount for applicants to consider is how the value proposition of its business provides for empathy in the services the bank offers in these challenging times.

“This calls for applicants to consider changing the value propositions of their businesses to capture ‘heart share’ over ‘mind share’,” he told The Malaysian Reserve recently.

Already growing interest in enhanced digital capabilities is seen among banks and non-bank institutions, ranging from credit businesses, telecommunications, e-commerce platforms, advanced technology companies and local conglomerates.

Among those reported to be interested in digital banking are e-hailing firm Grab Malaysia, telecommunications giant Axiata Group Bhd and gaming firm Razer.

Traditional lenders such as CIMB Group Holdings Bhd, Affin Bank Bhd, Hong Leong Bank Bhd and Standard Chartered Bank Malaysia Bhd have signalled inclination for a digital banking licence.

Sunway Bhd, whose businesses include property, construction, hospitality, retail, healthcare and leisure, also said it’s keen on securing a digital banking licence after acquiring a 51% stake in Credit Bureau Malaysia.

Similar moves have been made by conglomerates in other countries like Singapore and India, Venky said, adding that Sunway’s strategic focus would likely be on small and medium enterprises.

The significantly higher adoption rate of digital banking is likely to help more of the well-established, digitally advanced banks to widen their competitive advantage against the less agile players and incoming digital-only banks in the medium term, Fitch said.

“Regulators around the region have already extended the deadline for awarding virtual bank licences as a result of the pandemic, which we expect to also weed out weaker, aspiring online banks from competing for the licences.

“More established challengers, especially those that come from a non-traditional banking back- ground, will be likely to reassess their digital bank strategy or focus their time on managing their existing businesses,” it added.

Bank Negara Malaysia is due to announce its application guidance for the five digital banking licences following a public consultation.

The consultation period for the exposure draft on the licensing framework for digital banks has been extended to June 30, 2020, in light of Covid-19 disruptions.