BASED on a new report by Moody’s Investor Service, incumbent banks in Australia, China, Hong Kong SAR, Japan and Korea are all benefitting from the rapid growth in digitalisation amid the COVID-19 pandemic, while the growth for neobanks have significantly stalled.
“Our survey of large banks in five APAC banking systems showed that most plan to maintain or raise investment budgets for digitalization even in the face of weakening profitability, with digital platforms likely to become increasingly integrated into mainstream banking while physical branches will close,” said Moody’s assistant vice president and analyst Tae Jong Ok.
“In this evolving competitive landscape, we expect large banks with sizeable investment budgets stand to gain, while neobanks with still-untested franchises and smaller traditional banks with limited resources face a more testing environment,” adds Ok.
However, an exception to this may be the neobanks that are backed by big technology companies and have the resources to quickly scale up and effectively compete with larger banks.
In particular, the different regulatory regimes applicable to neobanks, and the strong ability of their big technology backers to gather customer data provide them with a strong competitive advantage.
Meanwhile, Moody’s believe that the rapid shift to digitalisation may lead to increased technological collaboration or even consolidation for smaller banks.
“Big technology firms are increasingly integrating with bank digitalisation, but current regulations on their involvement in finance remain uneven and unclear. This raises concerns about regulatory differences between financial institutions and nonfinancial companies,” Tae said.
“The lead of the big technology firms’ in gathering broad data on consumers could widen their advantage on banks’ customer information and give them a growing influence over banks’ operations,” he added. – Nov 9, 2020