KUALA LUMPUR (Aug 4): Digital banking offers its users a wide range of value propositions. The commonly listed benefits are the speed of operations, convenience, and transparency and support.
These value propositions apply to both developed and developing countries with the focus on promoting financial inclusion and benefiting end-users.
“If value propositions are not tailored to customers whether in a developed or developing country, you are not going to see success. We see [that] digital banking, in both developed and developing countries, is enabling access to credit,” says Shankar Kanabiran, Malaysia financial services consulting leader and partner of Ernst and Young Consulting.
“Small and medium enterprises, which are sometimes left out by conventional banks because of stringent credit assessment and policies, are able to gain access to capital and have a wider choice of financial products that are typically not available to them.”
An important aspect of digital banking would be the regulations surrounding it. Countries typically take two approaches: first, regulation under the existing current banking framework; and, second, to develop a new set of regulations and licensing regime to cater to digital banks.
“Markets in the US and UK do not have bespoke digital banking licensing and regulatory frameworks.
Instead, they operate under the existing banking framework,” says Shankar.
In the US and UK, neo banks, which are fully digital banks with no physical presence, leverage other banking licences and alternative forms of licensing. Challenger banks hold a banking licence and maintain a brick-and-mortar presence.
These banks provide offerings that vary from traditional services through different channels.
Brazil, on the other hand, does not have a separate digital banking licence, but the government has implemented fintech-friendly regulations in hopes of stimulating competition and promoting the growth of digital banks.
“Despite the different regulatory approaches taken by countries around the world, what is common is that regulators have been paying close attention to the digital banks’ ability to manage cybercrime and the safeguards in place to protect the customers,” notes Shankar.
In a move to encourage digital banking, Malaysia has developed relevant policy documents to cater for technological advancements necessary for the banking industry.
Yeoh Xin Yi, fintech and digital banking lead of KPMG Malaysia, says: “While other markets may be more open and liberal, it is in the best interest of Malaysia that our regulators make careful deliberations, with sufficient industry consultations when issuing guidelines and policies to the industry.”
With the inevitable dawn of digital banking in Malaysia, concerns are being raised regarding its implementation nationwide — for instance, the effect of the absence of traditional brick-and-mortar establishments on those in rural areas.
This concern would be reflected in other developing countries in Southeast Asia, with the underserved communities lacking access to financial products such as investments and credit.
Teething issues — such as a reluctance to change — are to be expected in developing countries.
With the wide use of smartphones and higher internet access, however, it is only a matter of time before consumers adapt.
Vietnam is an example of a Southeast Asian country earmarked for digital banking to make a difference. Based on a news report by Vietnam Investment Review, although 70% of the country’s population have a bank account, gaps in financial accessibility and awareness still present concerns.
“Countries like Morocco, Philippines and Indonesia typically have 50% of the population unbanked, which is not the case in developed countries. The focus for developing countries clearly is to bring the unbanked population into the banking system and provide them with products and services that enable them to be included in the financial system,” says Shankar.
It is therefore critical for developing countries to have a stable infrastructure and holistic regulatory framework to support the implementation, development and continuous growth of digital banks.
Consumers need to be educated about aspects such as responsible use of data, understanding customer rights and the responsibility of service providers and prevention of cybersecurity threats and methods to prevent cyberattacks.
Stakeholders such as regulators, digital banks and banking associations play a vital role in imparting knowledge to consumers and businesses alike.
“For digital banking to be well adopted, users need to be technologically and financially savvy.
Therein lies the need for more education in both areas,” says KPMG’s Yeoh.
“From a financial perspective, users need to continuously improve on financial literacy and awareness, and understand the risks and rewards of the products and services of the banks.”