Southeast Asian banks well-placed against fintechs after their successful digital transformation, says Moody's

New Delhi [India], March 4 Banks in Southeast Asia have made significant progress on their digital transformation journey, and incumbents that are willing to invest in technology are well placed to compete with fintechs, global ratings agency Moody's said in a report.
The region has nurtured a number of high-profile fintechs but in most markets, their penetration in financial services remains low, Moody's said.
Tighter funding condition for fintechs will curb their near-term expansion. "Regulators will not shield banks from new entrants, but will also prevent the latter from forming closed loop ecosystems," it added.
The terms -- traditional banks and incumbent banks -- are often used interchangeably. These banking institutions have physical branches and are regulated by the Reserve Bank of India. The most common facilities that incumbent banks offer are deposit and lending products.
The report said regulations were established to encourage innovation, but they also prevented the formation of closed-loop ecosystems. "Regulators encourage financial innovation and do not intend to shield banks from new entrants. At the same time, they seek to prevent the new entrants from using their captive customer bases to develop closed-loop ecosystems," it added.
The report said the emergence of national retail payment systems tilts the competitive landscape in favour of incumbents.
Moody's said fintech growth had been uneven and would likely moderate. Many were able to build up huge customer bases, though their service offerings are largely limited to digital payments and expansion into other financial services remains modest, the report said, adding fintechs remain loss-making and tight funding conditions will curb their near-term growth.
Moody's report said incumbent banks have successfully established a strong digital presence. Their digital transformation has resulted in widespread customer adoption of digital channels and improved product quality.
The competitive landscape, the report said, would continue to evolve but incumbent banks have demonstrated the ability to keep up with the changes, especially the larger ones that have the scale to invest and develop digital capabilities.