The changing Asean banking landscape (The Star)

A trend is fast gaining traction in the Asean banking space where small banks are being snapped up by technology companies for entry into an otherwise highly regulated market.

This week, Fitch Ratings wrote and posted an article on its website stating that recent acquisitions of small banks in Indonesia by tech firms have highlighted the potential for fintech entrants to shake up the competitive landscape for banking in Asean in time to come.

It cites the recent acquisition of Indonesia’s Bank Kesejahteraan Ekonomi (BKE) by Singapore tech startup Sea Ltd as well as Indonesian ride-hailing and food delivery company Gojek increasing its stake in Indonesian Bank Jago last month, as strategies of tech firms which want a slice of the Asean financial services market.

“Fitch has previously argued that Indonesia and the Philippines provide the largest market potential among Asean’s six major economies, owing to their large unbanked populations and low levels of household leverage, ” the global ratings firm writes.

In the same vein, it notes that the current moves by tech companies are unlikely to pose a significant challenge to the larger incumbent banks, as these tech firms’ target markets are more inclined towards the underserved segments.

“The impact is likely to be manageable in the near term, as we believe that these new entrants will first target niche segments of the market, such as more tech-savvy, younger demographics or the underbanked, where yields are often higher and competition is still developing.

“Some established banks have also invested heavily in their IT infrastructure in recent years, with the (Covid-19) pandemic providing added incentive for incumbents to accelerate their digitalisation, potentially closing off openings for some new entrants, ” the ratings group notes.

In terms of speed, Fitch believes that Indonesia has “moved more slowly than some other Asean governments in developing so-called ‘virtual banking’ licence guidelines”.

Notably, Singapore has been one of the earliest players in this region where last December, the Monetary Authority of Singapore (MAS) announced that four entities had been awarded digital banking licences.

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The Star

23 January 2021

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