ASEAN banking sector sees new Fintech acquisitions
A spate of acquisitions of small banks in Indonesia by technology firms could see underserved segments of the market being targeted for fintech opportunities, says a new report by Fitch Ratings.
Planned acquisitions of Bank Kesejahteraan Ekonomi (BKE) by the Singapore-based internet and media company, Sea Limited were recently reported in by local media, while GoJek made moves to increase its stake in Bank Jago in December 2020.
ASEAN nations remain an almost untapped market by fintech companies. But the large, unbanked populations of low-income households of these countries, make them a fertile opportunity for the growing technology banking and financial services sector. The entry of fintech services is unlikely to challenge the current position of incumbent banks, concludes Fitch.
Reports suggest that market entry through acquiring small banks could even smooth the transition for fintech services to enter the ASEAN markets, which, according to recent studies, reveal an ‘unbanked’ population of 27%.
According to Fitch, the beneficiaries of the growing relationship between technology firms and banks is yet to be realised, and there are risks for fintech companies entering some of the undeveloped markets due to lack of advanced data. In more developed markets, challenges may arise through, “out-investing conventional banks in digitalisation to offer distinctive value beyond niche areas.”
The development of fintech in ASEAN nations, states Fitch, is also prompting more regulatory scrutiny. In countries that have a digital bank licensing framework readily available, "regulators are introducing viability requirements for new digital banks, designed to minimise the risks to financial stability presented by the growth of new services and market entrants.”
However, the ASEAN markets are a good opportunity for fintech companies to enter and scale quickly, without the need for expensive overheads, points out Fitch. The increased competition will likely result in smaller banks and those with sub-par services, feeling the pinch.
According to a recent report by Bain, digital financial services in ASEAN countries will generate about $38bn by 2025 in annual revenue. Lending will make up 50% of the revenue and DFS could expand to reach $60bn in revenues if full service potential is realised.
With fintech’s entry into the market, larger, incumbent banks may experience more pressure to reach profitability. However, Fitch reports that any impact will be manageable in the near term due to the demographics consisting of unbanked and underbanked citizens that fintech companies will target.
CMA warns UK and Irish banks over bank transaction histories
Specifically, the CMA named prominent challenger bank Monzo, the Bank of Ireland, NatWest Group, and Virgin Money as not providing customers with records of their bank transactions within the maximum outlined timescale (40 days after closing the account).
Such information is crucial not only for ensuring a smooth transition from one bank to another, but also to provide a foundation for credit applications in the future.
According to the Retail Banking Market Investigation Order 2017, 95% of bank and building society customers should receive their bank transaction histories in at least 10 days.
Reputation: A bank’s greatest asset?
Of the 150,000 customers affected, Monzo was by far the main contributor - 143,000 (95.3%) - with the other three dividing the remaining 7,000.
The extent to which the magnitude of its mistake is attributable to being a digital-only bank is not clear, although it may give some customers pause for thought. With a superior customer experience being among the bank’s greatest assets, continued reputational damage is something that it cannot afford to sustain.
Although the CMA’s action in this instance has been to issue each bank a warning and order the immediate dispatch of all outstanding information, it has warned that future breaches will carry heavier consequences. Measures could include legally enforceable compliance audits on a yearly basis.
Helping customers get a better deal
Condemning the banks for negligence that could negatively impact customers’ desires to take out loans or mortgages, Adam Land, CMA Senior Director of Remedies Business and Financial Analysis, promised that his organisation would remain vigilant to similar behaviour moving forward.
“Banks must comply with all the rules – that includes providing a full transaction history promptly.
“We will be watching closely to make sure these leading names stick to their word and don’t let their customers down again. The Bank of Ireland, Monzo, Natwest Group, and Virgin Money should be in no doubt that the CMA stands ready to take further action if these failures are repeated.
Image source: gov.uk