Home ›› 15 May 2023 ›› Editorial
The digital banking ecosystem among Southeast Asia’s approximately 687 million inhabitants is diverse. Some ASEAN members, including the more developed ASEAN-5 economies and Brunei, have well-consolidated financial services sectors, while others — especially in their rural areas — have large unbanked populations. Traditional banks and fintech start-ups have increasingly turned to digital banking to solve this problem, but various issues demand greater regulatory oversight.
Digital banks have proliferated across Southeast Asia and financial authorities in Singapore, Malaysia and the Philippines are seeking to incentivise financial innovation by supporting fintech growth without compromising financial stability. Some of these initiatives include rules for digital wallets, peer-to-peer lending, application programming interfaces, licensing frameworks for digital banks and regulatory sandboxes.
Digital banking adoption is influenced by numerous factors including unmet customer needs, technology adoption, talent and national identification tech systems. The World Bank estimated that the region’s connectivity rate of 133 per cent contrasts with only 27 per cent of the population having a bank account. It is estimated that 80 per cent of Indonesia, the Philippines and Vietnam, and 30 per cent of Malaysia and Thailand are unbanked.
Traditional banks such as the United Overseas Bank and Commerce International Merchant Banks have increasingly leveraged technology to compete with online-only banks and fintech start–ups. But with increasing mobile connectivity, monetary authorities — including the Monetary Authority in Singapore — have leaned towards licensing digital-only banks and nurturing fintech start-ups to compete with traditional banks.
The number of fintechs in Southeast Asia increased from 34 to 1254 between 2000–2022. Southeast Asian fintechs have a cumulative total of US$4.8 billion of equity funding — the largest share of these start-ups located in Singapore.
Singapore’s position as a financial hub and the region’s leading digital economy for tech-driven innovation makes it an ideal choice to observe the motivations and challenges for technological transformation in financial services.
In December 2020, the Singaporean Monetary Authority awarded digital full bank licenses to GXS Bank and Sea Limited’s Mari Bank and gave significantly rooted foreign bank privileges to Trust Bank to create competition for traditional incumbents and encourage financial innovation and digital banking.
These initiatives prompted the three biggest traditional banks in Singapore — namely the Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation and United Overseas Bank — to accelerate their transformation processes. With high overheads, traditional banks must transform to compete with fintechs in terms of costs, products and services.
DBS approached this challenge in its journey toward being a tech-minded company by collaborating with cloud computing provider Amazon Web Services to retrain its staff in digital tools, artificial intelligence (AI), and machine learning. Over 3000 DBS employees — including senior executives — were trained in innovative technologies.
DBS differentiated itself by developing 85 per cent of its technology in-house — rather than outsourcing — during its cloud-based tech infrastructure transition. Data is used for personalised intelligence and analytics to enable a greater understanding of customers’ desires and expectations. DBS is industrialising the use of AI and machine learning to power differentiated customer experiences.
Fundamentally, DBS had to operate as a start-up and embed an appropriate organisational start-up culture — a particular challenge for incumbent banks transitioning into the tech space. Adopting a hybrid multi-cloud infrastructure, DBS aims to reduce infrastructure costs by adapting its architecture to the cloud and reimagining its processes to be customer centric.
East Asia Forum
