KUALA LUMPUR – Digital banks across Southeast Asia region will spur increase in financial inclusion among the market that are unbanked and underserved.
Moody’s Investors Service said that the impact on larger incumbent banks will be uneven because these banks are primed for digitilisation, compared to their smaller peers.
In a recently released research note, Moody’s assistant vice-president and analyst Tengfu Li said that the entry of digital banks will promote growth in banking systems as it provides easier public access to banking services.
“Many of these banks are affiliates of large consumer technology companies. They can leverage the techologies and customer base to reach mass market.
“Digital banks affiliated with popular e-wallets and online platforms have the advantage of brand familiarity and data capability. They are able to underwrite loans that incumbent banks traditionally avoid,” Li explained.
Despite that, he said that digital banks can succeed with their ability to underwrite the unbanked and underserved market profitably.
“Lack of track record will likely take considerable time to develop underwriting models that are sustainable across credit cycles,” Li said.
He added that the potential volatility in financial support from technology companies is another concern.
“Large incumbent banks are able to defend their franchises because they are able to develop digital services that closes gaps in customer experience against technology companies.
“The smaller peers, especially stand-alone banks, would lack resources to do the same. These smaller banks will face heavy competition from both digital banks and the large incumbents,” Li said.
In another note, Bank Negara Malaysia (BNM) has indicated their intention to issue up to five digital banking licences in the first quarter of 2022.
As of February this year, BNM received 29 applications for the digital banking licences.
Join our Telegram group for the latest updates!