Can digital-first Asian banks lead a disruptive movement against established industrial banks?
In the world of traditional banking around the globe, especially in Asia, a big a part of the population stays unbanked or underbanked, deprived of full or any access to banking services. This problem is very common in developing markets. Moreover, even in additional developed markets, industrial banks often struggle to supply their customers with personalized and streamlined digital experiences, leading to customer dissatisfaction.
Additionally, small and medium-sized enterprises (SMEs), which constitute the vast majority of businesses within the region, face various obstacles of their banking ventures. These challenges include a slow and document-intensive account setup process, lengthy loan application processes with extensive documentation requirements, and burdensome annual account reviews. Most importantly, most individuals imagine that micro, small and medium-sized enterprises (MSMEs) within the region struggle to acquire credit from the standard banking system.
To address these customer issues and meet the evolving needs and growing digital preferences of shoppers, there was a noticeable increase within the variety of digital-first banks emerging in major Asian markets, with over 40 such banks launched to this point. However, not all digital banks in Asia are created equal. For example, in lots of Southeast Asian countries which might be considered frontier markets for digital banks, central banks have taken steps to issue banking licenses exclusively for digital banks, separate from those granted to industrial banks.
For example, Malaysia issued five digital banking licenses in early 2022 after receiving 29 applications, including two Syariah-compliant digital bank licenses. Singapore issued 4 licenses in 2020 (two for wholesale digital banks and two for retail digital banks) and likewise allowed custodian banks Standard Chartered and FairPrice Group to operate within the country. Hong Kong also distributed eight digital banking licenses in 2019.
However, in Indonesia, which represents one of the vital opportunities for Asia’s digital-only banks, where 66% of the 270 million population are unbanked however the Internet penetration rate is over 70%, the Indonesian Financial Services Authority (OJK) is imposing regulations, that subject a digital bank to the identical capital and licensing requirements as a standard bank, with out a dedicated digital banking license.
In Indonesia, a digital bank is required to keep up a minimum paid-up capital of IDR 10 trillion (USD 670.8 million), an amount significantly higher in comparison with the necessities in Malaysia. In Malaysia, a digital bank is required to keep up a minimum capital fund of just RM100 million ($21 million), excluding losses, for the primary three to 5 years. After this era, the quantity will increase to RM300 million.
Encouragingly, foreign shareholders can hold as much as 99% of the bank’s shares pending OJK approval. Unlike another parts of Asia, digital banks in Indonesia could be arrange from scratch or by converting an existing traditional bank right into a digital entity.
Therefore, for the needs of this list, aside from Indonesia, only indigenous digital banks in Asia which have obtained licenses from their respective central banks are considered. Also included are traditional incumbent banks in Asia which have established separate digital banks, separate from their virtual banking platforms, and are registered to operate as digibanks of their jurisdictions.
