Fintechs and traditional lenders fight in Southeast Asia

By on October 16, 2021 0

Southeast Asian tech giants are in an increasingly intense battle with major conventional banks for the region’s burgeoning digital banking services.

As ‘superapps’ providers such as GoTo and Grab seek to integrate banking services into their growing range of services, and existing players use the region as a sandbox for digital experimentation, long-neglected rural populations could soon to have access to some of the most technologically advanced financial services. services around the world.

According to a study conducted by Google, Temasek Holdings and Bain & Co., about half of the roughly 400 million adults in Southeast Asia do not have a bank account. More than 90 million others are “underbanked”: they have a bank account but do not have sufficient access to investment, insurance or credit products. Millions of small and medium-sized businesses also face significant funding gaps, according to the research.

The problem is particularly acute in Indonesia, where more than 70% of adults — around 140 million people — are “unbanked” or underbanked, in part because of the cost of providing traditional services. Building physical banking networks, such as branches and ATMs, to cover an archipelago of 17,000 islands and primarily serve low-income people has proven to be nearly impossible.

But the rapid adoption of smartphones in the country is changing the landscape. GoTo, Indonesia’s largest tech conglomerate, will soon offer fully integrated banking services with local partner Bank Jago in direct competition with digital offerings from legacy banks including DBS Group Holdings and United Overseas Bank (UOB) of Singapore .

Chart by Nikkei Asia.

For GoTo, the result of the merger of two of Indonesia’s biggest tech companies, ridesharing service provider Gojek and e-commerce giant Tokopedia, the expansion is a natural extension of the services already offered through its super app.

Its e-wallet service, GoPay, allows customers to make cash deposits at convenience stores and use the app to make purchases, access credit through ‘buy now, pay later’ programs, and even micro-invest in US index funds and gold.

Gojek bought 22% of Bank Jago, a local bank, at the end of last year. Together, they plan to offer a full range of banking services. GoPay customers in Indonesia will soon start receiving a message saying “Open a Bank Jago account”, which they can easily set up right from the app. Money that is already in their e-wallets can be used as a first deposit. Customers will immediately receive a Visa debit card and have access to investment options. The benefits include discounts on products sold on Tokopedia.

The service looks like a combination of Amazon.com, Robinhood, PayPal, and Citibank, all in one app. The company’s ultimate goal “is to be at the heart of how users manage their finances,” said Budi Gandasoebrata, CEO of GoPay.

GoTo also plans to offer similar banking services to small and medium-sized businesses that use the services of Gojek and Tokopedia. “This is where we see [the service]hopefully within the next five years, ”said Gandasoebrata.

It is not difficult to understand why Indonesia has become the center of innovation and competition in the banking sector. It is the most populous country in the region and, with half of the population aged 30 or under, one of the most digitally savvy. According to the Boston Consulting Group, it had the second-highest electronic payment rate in Southeast Asia, after Singapore, at the end of 2019. The number of middle-class and wealthy Indonesian consumers is expected to increase by up to to 130.% between 2019 and 2024. Over the same period, banking revenues are expected to increase from 47 to 77 billion dollars.

Earlier this year, Singapore-based internet giant Sea, which provides e-commerce and e-wallet services that directly compete with GoTo, acquired majority control of a small Indonesian lender called Bank Kesejahteraan Ekonomi, which ‘he renamed SeaBank. Akulaku, an Indonesian fintech start-up backed by Chinese group Ant, also joined the fray, becoming the main shareholder of Bank Yudha Bhakti, which later changed its name to Bank Neo Commerce.

However, the big legacy banks in Southeast Asia, such as Singapore’s DBS and UOB, had a head start in providing digital banking services to the region.

UOB launched TMRW digital bank in Thailand in 2019 and in Indonesia the following year. The service has already amassed over 400,000 users.

Chart by Nikkei Asia.

Janet Young, head of group channels and UOB’s digitization, said the company is keenly aware of intensifying competition from tech giants. “We see them as competitors because they own the ecosystem… but have fewer regulatory requirements because they are not banks. Running a bank with all the compliance, all the regulatory guidelines – balance sheet management is different from just an e-wallet, ”she said.

Unlike new entrants, Young said TMRW is designed to serve young professionals in the area, such as those “who have graduated from college and got a job, or someone who has worked for a few years, and digitally savvy customers who are primarily mobile first. “

Young pointed out that UOB was not using its digital banking service as a “defensive move” to fend off the tech giants. Instead, she said, “we use TMRW as a [customer] acquisition strategy. It is a lower cost acquisition for us, compared to brick and mortar [business]. A digital bank is much more scalable and profitable.

UOB is also using TMRW as a laboratory for innovation, which it says will strengthen its core banking services in developed markets such as Singapore. It announced last month that it would invest up to SGD 500 million ($ 371 million) in digital services and unify its digital banking capabilities from TMRW and its main banking applications used in countries like Singapore. The bank said it “seeks to double the number of retail customers it digitally serves to more than 7 million customers in ASEAN by 2026.”

“Consumer behavior revolves around digital. If we’re not digital, we’ll miss that ability to serve them, ”Young said.

The battle between banks and fintech companies is also expected to intensify in UOB’s domestic market. Sea and Singapore-based superapps provider Grab plans to roll out digital banking in the city-state early next year. Analysts say fighters bring powerful but different forces to combat.

“Financial institutions in place in digital banking have the advantage of obtaining funding for investments, as they have more collateral and a better reputation, as well as relationships with existing creditors and investors,” said Gavin Yue, research consultant at Kapronasia, a financial technology consulting firm. solidify.

“They also have better access to internal funds, which means that they are better capitalized. This could have an impact on, for example, marketing initiatives, pricing and acquisitions. “

But “on the other hand, digital newbies have more flexible data infrastructures, unlike established institutions that have to deal with layers of legacy technology, which hamper data analysis and, therefore, products, services and overall experience that [they] can provide consumers, ”Yue said.

“The entry of technological start-ups such as Grab or Sea is ambitious, but at the same time calculated. Widely driven by the pandemic, consumers are increasingly looking for digital channels to complement almost every aspect of their lifestyle. “

The fintech revolution in Southeast Asia is forcing other players in the financial ecosystem, such as Visa and Mastercard, to adapt.

“Each year, we partner with 50 to 60 fintech companies in the Asia-Pacific region,” said Matthew Wood, who oversees Visa’s digital and fintech partnerships in the region. Tobias Puehse, vice president of innovation and client solutions for Mastercard’s Asia-Pacific business, said that “evolving markets” – those whose customers are bypassing old banking structures and embracing them first. mobile apps and digital payments – “will always give us insight into consumer behavior. . “

The two payment companies compete vigorously in the region to expand their partnerships beyond traditional banks. Visa invested in Gojek in 2019 and Mastercard is a partner of Grab. According to Visa, less than half of Southeast Asian consumers consider cash their preferred method of payment. “Ultimately our goal is to kill the money, and fintech can and will be a big driver of moving commerce in Southeast Asia to become increasingly digital,” said Wood.

The series of IT problems faced this year by Japanese bank Mizuho, ​​including one that temporarily shut down most of its ATMs, reminds us of the difficulty of upgrading existing systems, while closing physical branches in established markets. such as the United States incurs restructuring costs in the short run, even if they save money in the long run.

But new and old Southeast Asian financial players are showing that they can build digital banking infrastructure only through apps, almost from scratch, in countries like Indonesia – a classic example of a leap. sheep. As Yue of Kapronasia says: “Competition from new players will definitely benefit consumers. “

This article first appeared on Nikkei Asia. It is reposted here as part of the ongoing 36Kr program partnership with Nikkei.


Source link

Leave a comment

Your email address will not be published. Required fields are marked *