Commentary

The COVID crisis has resulted in an unprecedented disruption to the economic activity, and will lead to major changes in operations of most industries, including banks. Given below are some views on how banks will need to adjust to the new reality once situation stabilises and economic activity starts resuming normal operations. While this note has been made keeping India in mind, most conclusions will be valid for other emerging economies as well.

Open banking is emerging as a key trend and the next ‘wave’ of digital transformation in global financial markets. At its core, it is focused on data sharing, which is enabled through application programming interfaces (APIs) which make it possible for two different systems to ‘share’ information with each other. Simply put, this means that consumers will have greater control over their financial data and who to share it with. An example of this in practice would be a mobile banking application that enables users to see all of their financial information and spending habits (across different bank accounts) on one interface.

Instant payments are being implemented around the world, promoted by governments to support financial inclusion and the digitisation of economies.

Delivering a step-change in value.

New technologies are accelerating the modernization of investment strategies and decision-making in capital markets.

Whilst the Chinese market is big enough to allow for two major e-payments players, Indonesia needs to unify efforts from otherwise competing tech companies.

Approximately 2.5 billion people globally lack access to financial services and are forced to rely on inconvenient and often risky means to manage their money. These people are classified as ‘unbanked’. There is a high concentration of unbanked citizens in developing economies across South East Asia, Africa and Latin America. Let’s focus on Indonesia.

Bank management teams have faced many challenges in the decade post the global financial crisis. After stabilising balance sheets in its immediate aftermath, there was a need to build capital as the Bank of International Settlements’ (BIS) regime was tightened. More recently banks have had to conceptualise the threats and opportunities posed by fintechs, and more latterly by ‘big tech’ companies and invest to meet the challenge. In addition, within South East Asia, banks have had to deal with the GDP slowdown post 2013, and the impact this has had on loan growth and credit quality.

Economic inclusion can seem like a faraway goal for many, if not most, countries around the world. Achieving it would mean being able to lift people out of poverty, create equality between genders and socio-economic backgrounds, and build socially inclusive futures for our children.

Buoyed by trends such as ongoing digitalisation, the use of big data, and the rise in seamless mobile internet connectivity, Southeast Asia’s financial services sector is transforming. With 360 million internet users across the region, accounting for approximately two-thirds of its population, 90 percent access the internet via their mobile phones. The increased emphasis on the digital experience has largely catalysed change across the global financial sector, giving rise to the digital banking phenomenon. As one of the region’s leading financial hubs, Singapore has a key role to play in this new regime.

Collaboration holds the key to unlock the pathways for traditional bank incumbents and technology entrants in the disrupted world of financial services, where disruptive companies can offer compelling alternatives to the huge customer base of unbanked and underserved across Southeast Asia.

The success of neobanks has raised challenges amongst the fintech industry. Providing a digital alternative to traditional banking, neobanks are, without a doubt, playing a key role in the evolution of banking.

Many large institutions and individuals are interested in the benefits that Security Token Offerings (STOs) could bring to Asia. These offerings give investors and companies alike a more formal and regulated framework for blockchain fundraising.

In the past 12 months, we witnessed a range of companies racing to qualify for a spot among Singapore’s first digital banks, mirroring what happened with Hong Kong’s virtual bank licenses the year before. The sense of urgency is understandable - the nature of what it means to be a bank is changing, and this shift is opening a gap in which newer operators can assert themselves. The importance of this is underscored by the fact that the Asia Pacific region has an astonishing share of the world's digitally native population; in markets like India, Vietnam and Thailand, it’s common to become "digitally banked" without having had a credit card – or even a bank account. While Asia Pacific is diverse in its financial systems, there are some unifying factors which are going to change the face of banking across the region.

Sustainable banking is getting momentum in developing countries and Bangladesh has been one step ahead now by initiating particular sustainable banking activities in various fields. The country has many success stories surrounding corporate governance, corporate social responsibility, social awareness of stakeholders, preparing sustainability reporting under globally accepted method-GRI (Global Reporting Initiative) and leadership with green banking being one of the most notable initiatives. In 2011, Bangladesh Bank (‘BB’), the regulatory authority of commercial banks in Bangladesh, issued “Policy Guidelines for Green Banking” to implement and promote green banking activities across the country in three phases.

As digital banking proliferates through the developed world, its adoption in emerging markets in Southeast Asia continues to lag. A McKinsey study in 2018 noted that whilst digital banking penetration has grown by as much as 300%in certain emerging Asian countries, the median level is only around 52%.