What’s Next: Disruptors will not kill off banking incumbents
By Benjamin Cher September 30, 2015
- Mobile payments and wallets creating a new industry
- Malaysia has one of the most progressive payments space
BANKS are often thought of as dinosaurs, with adjectives such as ‘slow’ and ‘lumbering’ used to describe them. However, unlike dinosaurs, banks seem unlikely to go away any time soon.
Despite fintech (financial services technology) startups being the sexy new kids on the block, and a host of new digital-fuelled payment initiatives and platforms, such disruption will not kill off the incumbents, argued MOL Inc founder and chairman Ganesh Kumar Bangah (pic above).
“There is still room for current channels – while new channels grow, the current channels will still be there,” he told Digital News Asia’s inaugural What’s Next conference in Cyberjaya yesterday (Sept 29).
Despite their dinosaur label, banks have actually kept up with technology, implementing upgrades to their backend systems, and introducing self-service and online self-service options, Ganesh noted.
“In essence, banks are the biggest users of technology – they are the ones who spend the most on ICT (information and communication technology),” he said.
“You don’t hear of online independent banks today being even a close competitor to an incumbent bank,” he added.
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Instead, companies like Ali Baba and Tencent are just on the starting point of the financial services game, Ganesh argued.
Progressive Malaysia, new disruptions
Malaysia is actually one of the most progressive nations when it comes to payment systems according to Ganesh (pic), having put in place its Payment Systems Act (PDF) in 2003, while other countries only enacted similar legislation after 2007.
“That’s why we have a number of successful payment system companies from Malaysia which are innovating across the region, and around the world,” he said.
But there is disruption lurking in many areas within the financial services space, with Ganesh noting that the ubiquitous credit card terminal is being displaced by startups such as Square, where a smart device can process credit card payments.
MOL itself has formed a joint venture with Soft Space International, a Malaysian startup which developed technology that converts devices into credit card terminals.
Indeed, the mobile wallet is going to bring about another wave of disruption, affecting credit card systems and even traditional cash systems, according to Ganesh.
“If you combine the mobile wallet with an online payment gateway, you can replace traditional cash systems and even credit cards.
“This is the next area of disruption we will see in Malaysia – before any other disruption in the United States,” he declared.
Still, Ganesh was cautious, noting that despite all the hype about disruption, not all new digital technologies would turn this into reality in the near future.
However, today’s incumbents still need to know about these developments in order to prepare, he argued.
Underserved and unbanked
There is one area though, in which the incumbents are struggling to address, and which seems to be inviting digital disruptors to make a play.
That would be the underserved and/ or unbanked population. Bringing a brick-and-mortar branch to remote or inaccessible regions costs too much, Ganesh pointed out.
He cited India as an example, where the underserved are getting banking services through their mobile phones, which explains why 46% of adults in the country now have bank accounts, up from 32%.
While this still involves banks in one form or another, another potential disruption completely removes the need for such an institution.
“Peer-to-peer (P2P) services are the biggest disruption in technology today,” Ganesh said.
“This disruption is also extending into banking and financial services, with services like P2P lending, where you can loan your friend money,” he added.
P2P lending will be one of the biggest disruptions in banking in the next five to 10 years, he predicted.
The enemy within
One unique feature of the What’s Next conference is the role of the Provocateur, who challenged the arguments or assumptions of the speakers.
For Ganesh’s talk, this role was taken up by Hong Leong Islamic Bank Bhd chief executive officer Teh Maimunah (pic above), who said that while banks may have been slumbering in a way, there has been a wake-up call.
“Banks kind of woke up overnight because we are true dinosaurs, and realised that there were so many people in our space doing payments and all sorts of stuff,” she said.
But banks face stiffer challenges than the new digital disruptors, Maimunah argued, saying that they are at the mercy of regulators like central banks, which can raise or drop the fees for handling transactions “as and when they want.”
And while banks will not disappear overnight, she noted that they can perish if they become unprofitable, faced with challenges from telcos, OTT players and P2P services.
“I’m not fearful of other banks because we’re all in the same sinking boat,” Mainmunah added.
The What’s Next: The Business Impact of Disruptive Technology conference (#WhatsNextDNA) was organised by Digital News Asia (DNA).
It was sponsored by Malaysia’s national ICT custodian Multimedia Development Corp (MDeC), which oversees the MSC Malaysia and Digital Malaysia national programmes, and big data analytics company Fusionex International.
All pictures by Choo Choy May, courtesy of The Malay Mail Online.
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