The Future of Digital Banking Services in the ASEAN Region

The Coronavirus pandemic has slightly changed the operating and business models of banks, and how banking services are being provided to banking consumers in ASEAN. As there were social-distancing measures, lockdowns, and quarantines, banks had to depend on digital channels to offer digital banking services to its customers, and to continue engaging them.

This reliance on digital banking helps banks maintain their competitiveness and equips consumers and organisations with vital funding. We have seen evidently that there are more Southeast Asian banking consumers opening digital accounts with digital banks during the pandemic.

It is also an opportune moment to expedite digitization of the banking industry, where digital payments, digital banks, and fintech have gained prominence.

ASEAN banks have been embarking on digitization initiatives

Maybank focuses on digitization in order to revolutionize the customer experience. The Malaysia bank’s Avaloq wealth management system leverages on automation to improve productivity and client management.

Biometric technology is being utilized by Maybank’s Wealth hand phone application, which allows for immediate access to financial advisors, and enables bank consumers to have a comprehensive overview of their finances, investments, and purchasing habits.

Throughout Southeast Asia, Maybank has a deep, integrated, and strategical presence, with 1060 branches (1010 retail, 50 investment banking) in 10 ASEAN countries.

Standard Chartered has employed 10,000 bank employees in Singapore, for growth and digitization initiatives. More than 1,200 job positions are for the future of online banking such as digital banking, cloud, and data analytics. The British bank intends to spend $5 million in the next three years for growth and digitization efforts in Singapore.

Its decades of efforts in Singapore has been rewarded as The Monetary Authority of Singapore awarded the bank as the first Significantly Rooted Foreign Bank (SRFB) in Singapore.

ASEAN e-Payment digital banking

Digital payments have grown in prominence as Bain & Company, Google, and Temasek expect that by 2025, digital payments will surpass US$1 trillion.

Contactless payments have been a constant feature in the daily lives of many ASEANs for a few years, where Southeast Asian consumers can pay for goods or services by scanning cards or phones on store terminals or QR codes.

The Central Bank of Myanmar is currently enforcing that the adoption of QR codes would be standardized for e-payments. There are currently e-payment solutions such as OK Dollar, Wave Money, and e-wallets developed by Myanmar banks.

In the midst of the Covid-19 pandemic, given that Myanmar citizens are usually at home, the CEO of the Myanmar Payment Union expects that e-payments and digital banking services will increase expeditiously in Myanmar this year.

It is also an opportune moment for Myanmar’s payment providers and financial institutions to expedite their digitization initiatives. These efforts also help to ensure the competitiveness of Myanmar’s economy, especially during times when trade and e-commerce in the ASEAN region are booming.

The number of independent digital banks will increase as more ASEAN countries issue digital banking licenses. Digital banks seek to ensure financial inclusiveness of the majority.

A Bain & Company article titled “The Future of Southeast Asia’s Digital Financial Services” mentioned that more than 70% of ASEAN adults have a lack of access to banking services.

ASEAN consumers to embrace digital banking

Nevertheless, Southeast Asia having high mobile internet penetration rates will make it easy for ASEAN consumers to embrace digital banking. Digital banks can target the unbanked or underbanked population and meet the needs and wants of them.

The Monetary Authority of Singapore will issue 3 digital wholesale banking licenses and 2 digital full banking licenses by the end of this year. This move aims to spark innovative efforts and vibrancy in Singapore’s banking industry.

Malaysia will start to accept digital banking licensing applications at the end of this year. There will be up to five digital banking licenses being issued by Bank Negara Malaysia in 2021, which seeks to ensure that more Malaysians and firms will have greater and easier access to banking services and products.

It is also hoped that customer experience will be revolutionized and that the financial services market in Malaysia will be modernized.

In the Philippines, there are currently two virtual banks, ING Group and CIMB Bank. Both banks entered the ASEAN country’s digital banking industry in 2019.

UOB Indonesia established TMRW, ASEAN’s first digital bank, in August 2020.

Digital bank leverages

The digital bank’s consumers will be immersed in a digital banking experience, enjoying digital services anytime and anywhere. The bank will help its Southeast Asian consumers attain their financial aspirations by helping them to save strategically and perform sensible financial choices.

The digital bank leverages on data analytics and artificial intelligence technologies to sort and analyze transaction data, which will provide a customized financial solution that caters specifically to a consumer’s needs and wants.

One of its digital services is that TMRW consumers can have their questions and queries addressed by TIA, a 24-hour chatbot. When purchasing a product or service, TMRW consumers can make payments to firms easily by scanning QR codes.

It is hoped that the new digital banks in Singapore and Malaysia can leverage on digital innovations such as data analytics and machine learning.

Data analysis can be used to analyze the information that banks have, for example analyzing bank customers’ spending habits. Banks can then suggest to consumers how to spend or save wisely. Machine learning would help in credit risk assessment and whether to lend to a potential customer.

Rolling out digital initiatives

As digital banking services are being assessed increasingly during the pandemic, digital banks should ensure that their IT infrastructure and security is much tighter and more robust, to protect consumers’ data. It is also of paramount importance to provide consumers with a good online experience, being able to access digital banking services smoothly and seamlessly.

Even as digital banks have entered the banking industry, currently established banks have an advantage as they continue to roll out digital initiatives.

Indonesia’s Bank Tabungan Pensiunan Nasional developed a digital banking application, Jenius, to allow consumers to manage finances. Consumers can also send money via the application and to split the bill with their friends.

DBS Bank rolled out DBS Digibank in Indonesia, where consumers can manage their finances, apply for loans online using self-service banking services.

Fintech firms have gained prominence in recent years as they partner established banks to make good use of innovative technologies and business models to deliver unique financial services and products to consumers.

Fintech helps to ensure financial inclusion by giving people access to banking services and funds, which will help significantly in developing the economies of ASEAN countries.

ASEAN’s fintech investment

Cambodia, Laos and Vietnam would be the top three emerging markets in ASEAN to target, to ensure financial inclusion and mitigate income inequalities.

In 2019, 36% of ASEAN’s fintech investment went to Vietnam. This was the second-highest in the Southeast Asia region.

What attracted investors to the fintech industry in Vietnam were primarily due to Vietnam’s population largely having a lack of access to banking services, as well as having high mobile internet penetration. According to Worldometers 2018, less than 5% of Vietnamese with mobile devices make digital payments. This evidently shows a great market potential for digital banking.

The World Bank has targeted Vietnam as one of its 25 priority countries to ensure financial inclusion.

The deputy director of the Banking Strategy Institute expects that Vietnam’s fintech market will reach US$9 billion by the end of 2020, becoming Southeast Asia’s fourth-biggest market.

Other than digitization initiatives, the future of banking in ASEAN will also incorporate environmental and sustainability issues.

Given that ASEAN is significantly affected by climate change and environmental degradation, there has been an increasing emphasis on green and sustainable financing.

Potential credit risk and losses

Banks can understand Environmental, Social and Corporate Governance (ESG) risk, and perform the necessary risk management measures by taking into consideration environmental and sustainability-related issues. This will help banks to mitigate the potential credit risk and losses to the bank’s portfolio.

An Oliver Wyman analysis indicated that a carbon tax imposed on less carbon efficient firms would increase the risk of default of bank borrowers by 1.5 to 2.8 times.

It is heartwarming to note that Indonesia’s Bank Rakyat and Thailand’s Kasikornbank have both issued sustainability-themed bonds, which priorities renewable energy, green, and sustainable infrastructure.

Banking regulators in ASEAN have also started to issue regulations to ensure green and sustainable financing.

For example, the Financial Services Authority in Indonesia legislates that banks based in Indonesia have to design sustainable financing projects. In Singapore, the Monetary Authority of Singapore is currently proposing guidelines regarding ESR risk management for financial institutions in Singapore.

Southeast Asian banks that are front-runners in the sustainability transformation currently will gain goodwill and become a role model, and are likely to gain an upper hand in the future market.

Banks in ASEAN will also be attracted by the potential $3 trillion market for sustainable and green infrastructure investment from 2016 to 2030.

The future of banking in Southeast Asia looks optimistic, with digitization offering a greater customer experience and convenience, as well as ensuring financial inclusiveness. Green and sustainable financing will help to mitigate the threat of climate change and environmental degradation in ASEAN.

By Ong Bo Yang