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Pandemic fast-tracks digital banking transformation
Pressure increases for regulators to better manage market development and ensure fair competition
13 Nov 2020 | Darryl Yu

Changing every aspect of our lives in ways we couldn’t even imagine a year ago, Covid-19 is acting as a catalyst for financial institutions in Asia to transform the way they engage with clients. In fact, due to lockdowns and social distancing in the first half of 2020, digital transfers and bank deposit sourcing were increasingly conducted on online channels. The annualized median of new deposit accounts opened via digital channels during the period was 18% higher than in 2019, according to a recent Asia-Pacific bank survey by Moody’s Investors Service.

The drive towards more digital-focused financial services in the era of the coronavirus, has prompted many international banks across Asia to fast-track and advance their digital banking projects whether it be providing end-to-end digital lending services or streamlining the process of onboarding customers.

Likewise, the rapid acceptance of digital banking as the norm has facilitated the perfect environment for neobanks, otherwise known as virtual banks, to flourish. Already markets such as Hong Kong and South Korea have seen the arrival of neobanks which offer higher deposit rates and better customer experience to attract customers. While Asia-focused neobanks are still in the early stage of development, expect the ones supported by large technology companies to withstand the competition as they have the resources to quickly scale up.

As in all crises, there are segments of the market that will go through a restructuring. The banking industry is no different; smaller traditional players are expected to suffer the most amid the current wave of digitalization, as they generally face financial constraints to make the needed investments to compete with larger or newer rivals.   

“In this evolving competitive landscape, we expect large banks with sizable investment budgets stand to gain, while neobanks with still-untested franchises and smaller traditional banks with limited resources face a more testing environment,” states Tae Jong Ok, assistant vice president and analyst at Moody’s.

While the growth of digital banking offers customers a wider spectrum of platforms to interact with, it also puts pressure on financial regulators to better manage the development of these systems and ensure fair competition between incumbents and new entrants to the banking system.

For example, in places like China and South Korea, big technology companies don’t need to share proprietary customer information with banks even though they may be co-lending with such entities. Markets like Hong Kong have looked to fix this issue, with the city’s de-facto central bank, the Hong Kong Monetary Authority, launching last week a new commercial data interchange platform to facilitate easy data transfer between banks and payment gateways.