Southeast Asia banks well placed against fintech disruptors, says Moody’s

Banks in Southeast Asia have made significant progress on their digital transformation journey, and incumbents that are willing to invest in technology are well placed to compete with fintechs, according to Moody’s Investor Services.

In a report on 2nd March, the firm said that the region has nurtured a number of high-profile fintechs but in most markets, their penetration in financial services remains low.

It said tighter funding conditions for fintechs will curb their near-term expansion. Regulators will not shield banks from new entrants, but will also prevent the latter from forming closed loop ecosystems.

Strong digital presence

Moody’s said the banks’ digital transformation has resulted in widespread customer adoption of digital channels and improved product quality.

It said the competitive landscape will continue to evolve but incumbent banks have demonstrated the ability to keep up with the changes, especially the larger ones that have the scale to invest and develop digital capabilities.

Fintech growth has been uneven

Moody’s said many banks were able to build up huge customer bases, though their service offerings are largely limited to digital payments, and expansion into other financial services remains modest.

It said fintechs remain loss-making and tight funding conditions will curb their near-term growth.

Regulations

The report said regulators encourage financial innovation and do not intend to shield banks from new entrants.

At the same time, it said that they (regulators) seek to prevent the new entrants from using their (the new entrants’) captive customer bases to develop closed loop ecosystems.

Meanwhile, the emergence of national retail payment systems tilts the competitive landscape in favour of incumbents, it said.