Analysts say the coronavirus pandemic sped the adoption of digital banking by anywhere from two to 10 years.
There were concerns about COVID contaminating paper bills and coins, so people, spurred by their governments, opted for digital payments instead. Besides, with physical contact necessarily becoming less frequent, more and more commerce was being shifted online.
That’s 2020’s portrait of digital banking from a view that encompasses much of the developed world.
But South-East Asia in particular has historically been one of the most interesting places for fintech.
And after such an eventful 2020 for the industry, a guess as to what 2021 holds is a tempting proposition, and perhaps a prudent one too.
Following the breadcrumbs left by the previous year and extrapolating some of the trends it stirred, a rough picture can be made out.
Cashless and Digital as Usual
People in South-East Asia are not yearning for olden days of cash and physical transactions. A report by Visa shows that most consumers in the region prefer to keep using digital banking solutions.
Fifty-seven percent rate shopping online as being more convenient than going to a physical shop, while a staggering 77% say they would prefer to use digital payments over cash even once the pandemic has ended.
Hooray for the Newly Banked
South-East Asia’s underbanked and unbanked population, 70% altogether, was in line to receive sufficient banking. The developments of 2020 just rushed the process a little.
The biggest sign of that is that smartphone penetration in the region registers one of the highest rates worldwide, at 63.
Where legacy banks have been failing a large section of the population, digital banking can close the gap, especially in 2021.
There are concrete steps being made in this direction. Razer fintech and Visa have partnered in an effort to serve the unbanked of South East Asia, mostly concentrated in the Philippines, where the sufficiently banked population amounts to only 35%.
New Players Enter the Field
In the region, Singapore leads the charge when it comes to banking in general. As much as 95% of the population is satisfactorily banked.
But digital banking had already come into the sights of the Monetary Authority of Singapore.
It issued four licenses for fully digital banks in 2020.
One recipient of the license offers a telling glimpse at what the landscape might look like. And that’s the tandem of Singtel and Grab.
Singtel is one of the largest telecommunications firms in the country, while Grab is a successful payments and rideshare startup. Their coming together might hint at a strategy designed to, at least in part, unseat some of the nation’s biggest banks—DBS, UOB and OCBC—which have incumbency and deep pockets in their favour.
While Singtel has gone out of its way to declare that it’s not in competition with legacy banks, the chief executive of DBS has been a little more defensive, declaring to CNBC that “they can hold their own.”
It’s a safe bet that 2021 will see Singtel leverage its 4.5-million-strong customer base to show the ease and convenience of digital banking, which already sets the stage for a strong market entry once they’re ready to roll out.
The Philippines has also aligned some of its laws with the conditions necessary for digital banking to emerge, in line with the rest of the region.
More Players Aim for a Stake
The fintech industry is likely to attract new players in 2021. In markets that have surged towards fintech, such as Singapore and Malaysia, new entrants may wish to strike at currently untouched niches.
And in an untapped market like the Philippines, where a push towards digital banking is underway, newcomers will likely be more interested in grabbing market share.
But they should tread with caution.
Boston Consulting Group released a report on the rise of digital banking in South-East Asia. They were quick to note that of the ten most-used digital banking platforms, only five are profitable.
The report also details aspects that can allow a digital banking service to achieve both success and sustainability.
The top ones, which any new banking platform should have as priorities, are an effective digital ecosystem approach, the right tech principles, and a flexible, adaptable culture.
All three are easier to achieve when looked at not as separate aims and targets, but as issues to be handled at the level of the core banking system a firm decides to use.
As BCG observes, these are crucial aspects. The digital banks that emerge within South-East Asia in 2021 will need to view them as the crucial elements they are.
HSG’s extensive list of references, its clients, prove through their success that a strong and agile core banking system is an absolute necessity, and when it’s there many other issues are solved by extension.
That’s not going to change in 2021.
Digital banking will only pick up steam as 2021 progresses. And that will have far-reaching implications for people across South-East Asia, and certainly for the aspirants looking to break into the market in a year that appears to be ripe for entry.