Asia Pacific Update: May 27
In today’s edition
- The many trends driving an explosion of interest in digital banking
- Governments investing in virtual bank licences throughout Asia
- Could digital banking solve Asia’s longstanding financial exclusion problem?
- Is investment in virtual banking moving too fast?
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DIGITAL & VIRTUAL BANKING
Over the past eighteen months, multiple trends have combined to drive a substantial rise in interest in digital and virtual banking in Asia.
With the Asia Pacific financial sector contending with longterm issues of declining consumer trust, fintech ascendance, cryptocurrency investment, cashless economy transitions, and rising social expectations around financial inclusion alongside pandemic digitalisation pressures, digital and virtual banking is currently being seen by many varying stakeholders as, simultaneously, an opportunity, a risk, a solution, and a complication.
As such, governments and organisations alike are presently negotiating a period of profound transformation, upheaval, and opportunity.
Government investment & public interest
Since the outbreak of COVID-19, governments throughout Asia have been committed to helping various business sectors transition to digital-first models – with banking being a clear focus. Hong Kong SAR’s monetary authority has issued eight virtual banking licences within the past year and Singapore’s monetary authority has issued four.
Recognising digital banking as a distinct category in December, The Philippines’ central bank has since received four applications for licences and is currently planning to approve five for market. Following a similar timeline, Malaysia’s central bank has received over 40 official expressions of interest since publishing an official policy document in 2020.
It’s an investment trend reflective of a rapidly progressing shift in consumer and company priorities around digital transactions and finance. The rising interest in digital banking within Southeast Asia, for example, arrives concurrent with a prediction from a global consulting firm that 11,000 of the region’s brick-and-mortar bank branches will be closed by 2030.
In The Philippines, the central bank has reported that digital transaction value grew by 184% within the first three months of 2021 – with the number of transactions increasing year-on-year by 369%. At the end of 2020, Hong Kong SAR’s eight virtual banks had handled over US$2 billion’s worth of transactions.
In Australia, a public commitment to greater digitalisation recently saw the country’s largest bank enjoy an immediate increase in share price on the Australian Stock Exchange. Over the past eighteen months, Australian banks have shuttered over 300 branches around the country – with researchers deeming it the fastest rate of branch closure in twenty years.
The push for inclusion
For some, digital banking represents a potential solution to Asia Pacific’s longstanding issue of financial exclusion. In markets like Indonesia, The Philippines, and Vietnam, less than half of the population currently has access to a bank account. Even in major economic markets like China and India, 1 in 5 citizens report not having a bank account as of 2021.
Without the geographic challenges or traditional policies of brick-and-mortar institutions, those invested in financial inclusion hope digital and virtual banks will be able to provide financial services to sectors of the population previously unreached by traditional banks. Thailand’s central bank, for example, recently declared that a digital bank’s primary role should be extending financial access.
The government of The Philippines recently passed a specific financial inclusion bill with thekey priority of securing a bank account for every citizen. In both The Philippines and Malaysia, a demonstrable commitment to delivering financial inclusion returns is required for any company looking to secure a digital banking licence.
A financial inclusion advocacy group in New Zealand, meanwhile, has teamed up with one of the nation’s digital banks to tour a wifi-enabled bus throughout the country with the goal of helping citizens learn about and adapt to online banking. The workshops will be free and be open to customers of all banks.
Staying safe in the rush
However, a recent panel on risk management presented by India’s Business Standard newspaper concluded that the flexibility and accessibility of digital banking represents potential security and financial dangers for organisations and consumers. The CEO of the Indian Banks’ Association has recently encouraged banks of all kinds to increase their cybersecurity investment post-2020.
In contrast to many other Asia Pacific governments, the federal government of Australia has greeted the pandemic-assisted rise of digital banking with greater caution. The government’s prudential regulatory authority suspended the issue of all new bank licences in 2020 and has only recommenced considering applications within the last two months.
One of the primary concerns for critics is the increased unpredictability of the digital and virtual banking space. While major banks in markets like Indonesia, Australia, Singapore, and India have smoothly entered the digital banking space, many markets are seeing brands from outside sectors or markets driving spontaneous and significant explosions of growth throughout the region.
One of the most successful virtual banks in Hong Kong SAR, for example, was partly founded by an online travel agency. In The Philippines, one of only four digital banks to receive a licence began as a startup in South Africa. In Indonesia, a small lending startup has seen its share price grow by over 2000% in twelve months. Fintech investment in Singapore has grown by over 300% year-on-year.
With the sector undergoing such rapid and high-stakes transformations, concerns of unforeseen risks have escalated among detractors.
Media analysis of stories covering Australia, Cambodia, Hong Kong SAR, Japan, Malaysia, Macau SAR, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand, and Vietnam from 27 April to 27 May 2021
This briefing was prepared by the Weber Shandwick Insight and Intelligence team in Singapore. If you feel a specialised briefing and analysis bulletin could benefit your team, please get in touch: email@example.com.
About COVID-19 Recovery Report:
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