South-east Asia has much room for digital-only banks to grow: Report

Digital challenger banks are providers of banking services that are digital-only and not backed by incumbents. PHOTO: ST FILE

SINGAPORE - There is much room for digital-only banks to grow in South-east Asia, with Singapore being a first-mover in digital banking licensing, said a report out on Tuesday (Nov 3).

The report, released by the Singapore Fintech Association (SFA), Boston Consulting Group and Finastra, was unveiled at the first digital banking symposium here, which is being held online on Tuesday and Wednesday.

It focuses on what it calls digital challenger banks - providers of banking services that are digital-only and not backed by incumbents.

The number of such banks worldwide has grown over the last decade to over 200, attracting around US$15 billion (S$20.4 billion) in funding. About a fifth of these are based in the Asia-Pacific, the report said.

South-east Asia might have relatively few of these banks today, but that is poised to change, it added, noting that five licences will be awarded by the Monetary Authority of Singapore (MAS) this year.

Telco Singtel and ride-hailing firm Grab are among a range of firms which have joined in 21 applications for the licences, with 14 shortlisted.

"Upcoming digital challenger banks in Singapore have a tremendous opportunity across the broader SEA (South-east Asian) region, which is set for strong economic and demographic growth in the coming decade," the report said.

It noted that by 2030, the gross domestic product of Asean-5 - referring to Indonesia, Malaysia, the Philippines, Singapore and Thailand - is projected to reach US$4.3 trillion. This will make Asean-5 the world's sixth-largest economic bloc.

It will also be home to 540 million people, putting it as a collective market behind only China, India and the European Union.

This large population, of which a significant portion still do not have access to banking services, provides opportunities, the report said.

"SEA has seen some of the steepest improvements in bank account penetration and usage. This is supported by advancements in Internet infrastructure, high levels of digital literacy and smartphone adoption. Nonetheless, there remains a significant underbanked and unbanked population, especially in developing markets," it added.

"For example, more than 50 per cent of Indonesians currently do not have a bank account, in a population of 270 million people. Likewise, approximately 68 per cent of adults in Vietnam and 65 per cent in the Philippines are unbanked. SEA thus offers a compelling market for new banking entrants."

There are more than 1,600 fintech firms operating in the region, which attracted US$5 billion in equity funding to date.

Singapore is recognised as the regional fintech hub, the report noted, as the city-state attracts the majority of regional equity funding and is where almost half of the region's fintech companies are headquartered.

"Fintechs in Singapore are also very diverse: The city-state has a variety of fintechs operating across the insurance, retail accounts and trading and investments clusters, while other South-east Asian countries have a higher concentration of fintechs in payments and lending."

MAS chief fintech officer Sopnendu Mohanty said: "With the advent of digital banks globally in recent years, the future of finance has been paved. Customers will be engaged more holistically, with security and speed, providing access and value for a greater audience, in a seamless manner.

"Leveraging new technology stacks, machine learning for a hyper-personalised experience for the customer, and digital-only interfaces, the digital banks will result in the creation of jobs and new roles, and lead to new demand and development for talent and skill sets.

"With the upcoming digital bank licences, we hope to further solidify Singapore's position as a hotbed for talent and expertise both in the region and globally."

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