Fintechs and traditional lenders do battle across south-east Asia

Southeast Asian tech giants are in a fierce battle with major traditional banks over the region’s fast-growing digital banking services.

“SuperApp” providers such as GoTo and Grab are looking to add banks to the expanding range of services, and existing players are using the area as a sandbox for digital experiments, leaving it for a long time. Local people who were in the area will soon have access to some of the most technically accessible services. Advanced financial services in the world.

According to a survey conducted by Google, Temasek Holdings, and Bain & Co, about half of the approximately 400 million adults in Southeast Asia do not have a bank account. Over 90 million are “bank shortages”. I have a bank account but lack sufficient access to investment products, insurance, or credits. Millions of small businesses are also facing significant funding shortfalls, the study says.

This problem is especially serious in Indonesia, where more than 70% of adults (about 140 million people) “have no bank account” or lack bank accounts, partly because of the cost of providing traditional services. doing. Covering the archipelago of 17,000 islands and servicing most low-income people, it has proven nearly impossible to build a physical banking network such as a branch office or ATM. ..

However, the situation is changing due to the rapid adoption of smartphones in Japan. GoTo, Indonesia’s largest technology conglomerate, will soon offer banking services that are fully integrated with its local partner BankJago, which directly competes with the digital services of existing banks such as Singapore’s DBS Group and United Overseas Bank. ..

This article is from Nikkei AsiaA global publication with a unique Asian perspective on political, economic, business and international affairs. Our own correspondents and external commentators from around the world share their views on Asia, and the Asia300 section details the 300 largest and fastest-growing listed companies from 11 countries other than Japan. increase.

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For GoTo, formed by the merger of Indonesia’s two most prominent technology companies, ride hailing provider Gojek and e-commerce giant Tokopedia, this extension is a natural extension of the services already offered through SuperAppli. ..

With its e-wallet service, GoPay, customers can deposit cash at convenience stores, make purchases using the app, access credits through a “buy now, pay later” scheme, or use a US index fund. You can make micro-investments in or gold.

Gojek bought 22% of its local bank, Bank Jago, at the end of last year. Together, they plan to offer all kinds of banking services. Indonesian GoPay customers will soon begin to receive the message “Open a Bank Jago account”, making it easy to set up an account directly from the app. Cash already in your e-wallet can be used as your first deposit. Customers will immediately receive access to Visa debit cards and investment options. Benefits include discounts on products sold on Tokopedia.

Graph showing the number of banks, shortages and no banks in Southeast Asia

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

GoTo will provide similar banking services to SMEs that use the services of Gojek and Tokopedia. “That’s what we see [the service]Hopefully within the next five years, “he said.

It’s not hard to understand why Indonesia has become the focus of bank innovation and competition. It is the most populous country in the region, with half of its population under the age of 30, making it one of the most digitally savvy countries.

As of the end of 2019, the Boston Consulting Group boasts the second highest electronic payment rate in Southeast Asia after Singapore. The number of mid-sized and wealthy consumers in Indonesia is expected to increase. It will be 130% between 2019 and 2024. Over the same period, bank revenue is projected to grow from $ 47 billion to $ 77 billion.

Electronic payment in Indonesia

As of the end of 2019, Indonesia has the second highest electronic payment rate in Southeast Asia after Singapore © Akira Kodaka

Earlier this year, Singapore-based internet giant Sea, which offers e-commerce and e-wallet services that compete directly with GoTo, took control of a majority of Indonesia’s small lender, Kesejahteraan Ekonomi. Akulaku, an Indonesian fintech startup backed by China’s Ant Group, also joined the battle, becoming the largest shareholder of Bank Yudha Bhakti and later changing its name to Bank Neo Commerce.

However, large existing banks in Southeast Asia, such as Singapore’s DBS and UOB, have made a good start in providing digital banking services in the region.

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

Janet Young, head of UOB Group Channel and Digitization, said the company is keenly aware of intensifying competition from tech giants. “We see them as competitors because they own an ecosystem .. However, because they are not banks, they have less regulatory requirements. All compliance, all regulatory guidelines. Running a bank — managing a balance sheet is more than just an electronic wallet, “she said.

Graph showing the number of mobile wallet users in selected Southeast Asian countries

Unlike new entrants, TMRW says, “Young local professionals, such as those who graduated from college and got a job, those who worked for several years, and mostly mobile-first digital savvy customers,” said Young. It is designed to serve you. “

Young emphasized that UOB is not using digital banking services as a “defense” to fend off tech groups. Instead, she says: [customer] Acquisition strategy.It ’s a low-cost acquisition for us compared to a physical store. [business].. Digital banks are much more scalable and cost effective. “

UOB is also using TMRW as a research institute for innovation and believes it will enhance its accounting services in developed markets such as Singapore. Last month, it announced that it would invest up to S $ 500 million (US $ 371 million) in digital services to integrate digital banking capabilities from TMRW and major banking apps used in countries such as Singapore. “By 2026, we aim to double the number of retail customers who digitally serve more than 7 million customers across ASEAN,” the bank said.

“Consumer behavior is attracted to digital. If we weren’t digital, we would lose that ability to serve them,” Young said.


Unlike some competitors, TMRW, a digital bank launched by Singapore’s UOB, is aimed at professionals © United Overseas Bank

The battle between banks and fintech companies is also set to intensify in the UOB domestic market. Sea and Singapore-based super app provider Grab plans to roll out digital banking services in city-states early next year. Analysts say combatants are powerful in combat but bring different strengths.

Gavin Yue, a research consultant at Kapronasia, a fintech-focused consultant, said: group.

“They also have better access to internal funding, which means they are better capitalized. This has implications for marketing initiatives, pricing and acquisitions, for example. May give. “

But “on the contrary, digital start-ups have a more flexible data infrastructure than existing institutions that need to tackle the layers of legacy technology that negatively impact data analytics and subsequent products, services, and overall experience. It has a structure. [they] We can offer it to consumers, “said Yue.

“The entry of technology start-ups such as grabs and seas is ambitious, but at the same time calculated. Consumers are increasingly complementing almost every aspect of their lifestyle, primarily driven by pandemics. I’m looking for a digital channel to do. “

Singapore skyline

Both Sea and Grab plan to offer digital banking services in Singapore next year © AFP via Getty Images

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

“Every year, we partner with 50-60 fintech companies in the Asia Pacific region,” said Matthew Wood, who oversees Visa’s digital and fintech partnerships in the region.

Tobias Puehse, Mastercard’s Vice President of Innovation and Customer Solutions for Asia Pacific Business, said that the “breakthrough market” is always the market where customers bypass the old banking structure and embrace mobile apps and digital payments first. It states that it can give a glimpse of consumer behavior. “.

Both clearing companies are actively competing in the region to extend their partnership beyond traditional banks. Visa invested in Gojek in 2019 and Mastercard is a partner in Grab. According to Visa, less than half of Southeast Asian consumers consider cash to be their preferred payment method. “Ultimately, our goal is to kill cash, and FinTech could be a major impetus for the increasingly digitalization of commerce in Southeast Asia,” Wood said.

The series of computer glitches that Japanese bank Mizuho faced this year reminds us of the difficulty of upgrading legacy systems, including those that have temporarily shut down most ATMs. The United States bears short-term restructuring costs, even if it saves money in the long run.

However, old and new financial professionals in Southeast Asia have shown that in countries such as Indonesia, app-only digital banking infrastructure can be built from scratch. This is an example of a breakthrough textbook. As Yue of Kapronasia states, “Certainly, competition with new players means that consumers are in a position to benefit.”

NS Version of this article First published by Nikkei Asia on October 15, 2021. © 2021 Nikkei Co., Ltd. All rights reserved.

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