Digital banks: does competition drive revenue?

Southeast Asia, especially Singapore, has witnessed high revenue growth in the digital banking industry. While traditional banks remain focused on their core expertise, digital banks have gained popularity among consumers and businesses due to their convenience and superior customer experience.

India has been a leader in digital banking in Asia, particularly in catering to unbanked communities. There are numerous digital banks in India that cater to the specific needs of businesses and consumers.

Digital banking is also expanding its influence in Southeast Asia, with countries like the Philippines, Indonesia, Thailand, and Vietnam successfully reaching unbanked communities. The region has some of the highest revenues in the world in the digital banking industry.

Regulators have approved digital banking licenses, and traditional banks are partnering with fintech companies to offer embedded financial services. However, while Singapore has been leading in digital banking revenue, neighboring countries are catching up as its sales growth slows down.

Traditional banks should be concerned about the rise of digital banks in Southeast Asia, especially if they are slow to digitize. Digital banks can offer more customer-focused and streamlined services, attracting customers away from traditional banks.

Differentiation is key in Southeast Asia’s digital banking transformation. Banks need to focus on reaching unbanked communities and micro, small, and medium enterprises. Providing easy-to-use and streamlined solutions, along with financial education, can help banks expand their customer base.

Singpass, a national digital identity program in Singapore, facilitates e-KYC (know your customer) and rapid product launch, making it easier for digital banks to onboard and authenticate customers.

Embedded finance, which integrates financial services into online purchasing activities, unlocks lending and insurance opportunities. Digital banks and traditional banks with access to ecosystem strengths can cater to unbanked and underbanked segments.

The use of cloud and standardized APIs allows digital banks to scale quickly. They can embed their products into partner businesses, reducing distribution costs and leveraging alternative data.

Regulators play a crucial role in ensuring that digital banking services remain compliant. Progressive regulatory frameworks and licensing regimes have been introduced in Singapore, Malaysia, the Philippines, and Thailand. These frameworks balance innovation with consumer protection and foster financial inclusion.

In Indonesia, digital banks must follow the same rules as traditional banks, but the sector is growing rapidly. The country’s more liberal foreign ownership rules are expected to attract more overseas tech companies to invest in digital banking.