10 October 18 The Business Times by NICK LORD
OVER the next 18 months one of the more noticeable ways in which technology will impact daily life in Southeast Asia will be the means by which we pay for things. We will make fewer payments with cash and cheques and spend less time visiting bank branches and ATMs.
Instead, we will be swiping plastic cards, scanning QR codes and transferring money to friends and merchants with a couple of taps on our mobile phones. This will increase consumer convenience. Changes in the way we access banking will also allow increased competition from non-banks and lower transaction costs.
I recently co-wrote a report with Mark Goodridge, my colleague who looks at telecoms, media and technology in Asean, about what these changes mean for local banks, telcos, fintechs and consumers. We identified three enablers that are driving these changes now and not at some distant point in the future.
The first of these is the growth of e-commerce. When you purchase something online you have no choice but to pay for it electronically. In addition, we are seeing rapid adoption of new payment technologies. The most important of these is the mobile phone (a bank branch in your pocket), along with increased data coverage, speed and reliability.
The rollout of common QR codes across the region also means you can accept a payment without needing a point-of-sale machine. The final enabler is the introduction of (often free) real-time payment channels by central banks in Singapore, Thailand, the Philippines and Malaysia. With no more waiting around to receive money in your account, central banks have ensured e-payments meet consumer demand for convenience.
These enablers are coupled with four incentives to adopt e-payments. For governments, there is the prospect of greater GDP growth. This can come from productivity improvements - for example, a 2016 report by KPMG commissioned by the Monetary Authority of Singapore (MAS) estimated that over-reliance on cash and cheques costs Singapore's economy the equivalent of 0.52 per cent of GDP each year, while Bank Negara Malaysia has said the use of electronic payments could generate savings of up to 1 per cent of GDP.
Another incentive is the promise of enhanced financial inclusion. This is especially important for governments in Indonesia and the Philippines. Incumbents in the payments space are being spurred to act by the threat of inventive and well-funded new entrants such as Go-Jek and Alipay. Finally, both new entrants and incumbents are incentivised by the value they can derive from the data that e-payments generate.
So, with all this change, who will win? It differs by market. We believe the main deciding factors are the existing state of the market and the regulatory reaction. In Singapore, Thailand and Malaysia, the incumbent banks have rapidly adapted to customer demands for low-cost, convenient solutions (often after some prodding from the central bank), and this has shut down some of the space for new entrants.
But in Indonesia and the Philippines, this process is taking longer, and with added opportunities from increased financial inclusion, new entrants are more likely to gain market share. In the Philippines, we believe telcos are the likely winners, and in particular Mynt, which is owned by Globe Telecom. In Indonesia, we expect new entrants such as Go-Jek to be major beneficiaries.
Across Asean, we see banks losing US$13.1-$15.5 billion in value from lost payment income by 2022. Independents are likely to be the biggest beneficiaries, gaining US$6.4-9.3 billion of value, while regional telcos should gain US$2.0-2.9 billion of value. The balance will go to the consumer.
There is a silver lining for banks, however, as we expect they will be able to generate significant cost savings as they digitalise their businesses. Evidence from Singapore banks DBS and OCBC also suggests that as customers access banks digitally, they become more engaged and generate more income from other sources. We project local banks will be able to generate US$20-24 billion of value from digitalisation benefits by 2022.
We believe Singapore banks are best placed to benefit from these trends (gaining US$5.2-6.4 billion of net value) followed by those in Malaysia and Thailand. The challenges are larger for banks in Indonesia and the Philippines as they contend with competition for market share, pressure on fees, and the need to invest. We see US$2.8-$5.1 billion of net value at risk for these banks.
To wrap up, we think banks in Singapore, Thailand and Malaysia are well-positioned and will create value from the digitalisation of their networks, while telcos are emerging as the winners in the Philippines alongside independents in Indonesia.
- Writer is head of Asean Banks Research, Morgan Stanley