KUALA LUMPUR, Sept 10 — The COVID-19 crisis has impacted the digital banking roll-out in the Asia Pacific region, but the delay gives more time for digital banks to refine their strategies and ramp up their operations, said Deloitte.
In its report titled “Digital Banks in Asia Pacific: Adding Value to Financial Services”, the financial consultant firm noted that the Monetary Authority of Singapore (MAS) has delayed its announcement on digital bank licensees, while Bank Negara Malaysia has extended the consultation period for its digital banking framework.
“The delay may also help digital banks avoid commencing operations in the depths of a recession and instead ride the start of a recovery,” it said.
But this also means that incumbent financial institutions will have more time to review their business models and respond to the upcoming challenge, and the competitive landscape will continue to evolve, it noted.
“Both digital banks and incumbent financial institutions will do well to monitor developments in this dynamic environment,” said Deloitte.
Deloitte Malaysia’s digital banking leader, Justin Ong said the original proposition of digital banks is to serve the unserved and underserved customer segments.
“The COVID-19 crisis leaves no option for the incumbents but to speed up digital adoption in servicing customers, especially during the lockdown period, before achieving the financial inclusion proposition.
“Do not waste the crisis. The bank of the future will need to embrace emerging technology, remain flexible to adopt evolving business models, and put customers at the centre of every strategy,” he said.
Deloitte noted that regulators across the Asia Pacific region have shown a marked interest in encouraging the growth of digital banks.
It said licencing regimes have been introduced in Hong Kong, Singapore and Taiwan, with Malaysia and Thailand likely to follow suit.
Fully digital banking services are also available in South Korea, Australia, Japan and India.
“The approach to digital bank licensing varies across markets.
“But on the whole, financial supervisors believe that digital banks have the potential to promote better outcomes for customers by extending banking services to unserved and underserved populations, spurring innovation and increasing competition,” it said.
However, the firm emphasised that this is premised on digital banks giving the same importance to risk management and compliance activities as their traditional competitors, in order to maintain the stability of the financial system, mitigate financial crime and protect customer interests.
Deloitte noted that non-bank market participants have also been keen to make the best use of this new type of banking licence, as the high smartphone penetration rates in Asia made it both possible and convenient to serve clients via wholly digital channels.
Partnerships between traditional financial services providers and other companies, such as financial technology companies and telecommunication companies, can extend customer reach and lower acquisition cost.
Advancing technology — including a cloud native approach — allows digital banks to harness customer data in new ways to deliver customised services, it said.
“However, while digital banks tout the advantages of their technology-first approach, serious questions remain about the ability of these lean organisations to both manage their risks and maintain profitability, as regulators provide little leeway in meeting regulatory requirements,” it noted.