PETALING JAYA: The banking business will not be as affected by financial technology as has been predicted.
CIMB Research said in a report that the fintech revolution would have a bigger impact on other industries, this despite predictions that fintech would disrupt banks’ business the world over.
The research house said the financial services sector’s highly regulated and capital intensive nature would shelter it from the fintech revolution.
In addition, customers would prefer to deal with trusted parties as financial transactions involve larger amounts of money.
“Fintech companies may not have the expertise to assess and control credit as well as other risks.
“The lack of control could also lead to fraud,” it said.
While fintech would help banks to expand customer reach and improve operating efficiencies, the fintech revolution could also create a new breed of non-financial institution competitors for banks.
However, the research house noted that most existing fintech companies seem to focus on the consumer loan segment.
In Malaysia, consumer loans account for 57.4% of the industry’s total loans.
However, not all the consumer banking business is at risk because the propositions of the fintech companies are normally more appealing to the lower income groups.
Based on CIMB Research’s understanding, Malaysian banks’ exposures to these customers are generally small.
It is relatively harder for fintech companies to penetrate the lending business of banks because of the longer duration, higher values for the deal or transaction, lack of capabilities to assess and manage credit risks, and lack of economies of scale to set up a team of dedicated staff for loan recovery.
“The most common forms of lending businesses undertaken by fintech companies are the peer-to-peer lending and SME financing but the average size of these loans are small, probably below RM100,000,” said CIMB Research.
Four local banks, namely, Maybank, CIMB, RHB Bank, and Hong Leong Bank, are leading the charge in embracing technology to expand their customer reach and increase their presence in the digital world.
Maybank, CIMB and RHB Bank have even started bootcamp-type programmes to identify fintech companies they can work with.
“These first movers should see a smaller impact from the onslaught of fintech companies, or even benefit from the fintech revolution.
“While we concede that the emergence of fintech companies would exert some competitive pressure on the banks’ businesses, the impact would only be felt gradually in the longer term, some two to three years from now,” said CIMB Research.
CIMB Research’s view is in contrast to some predictions of the impact of fintech.
Global fintech transaction values are expected to grow to US$14.4bil by 2020.
During a recent conference, Bank Negara governor Datuk Muhammad Ibrahim said that fintech is challenging the status quo of the financial industry, with the increase of fintech start-ups and widespread technologically-driven applications in most segments of the financial sector.
CIMB Group chairman Datuk Seri Mohd Nazir Razak echoed such views, stating that bankers must respond to this ‘Uber moment’ as banks have not been getting more efficient over the years.