Banks adapt to new realities

IT used to be a dream for many young people. Becoming an investment banker meant stepping into an exciting world of deal-making, presumably with fine dining and wining in the finest establishments. Huge bonuses were a regular part of the package.

To the young ones still dreaming of this life, think again. Deal making is dying. Investment banks are struggling to make a living.

If you read the new roadmaps of many local banks, any focus on investment banking in the form of capital market activity and merger and acquisition advisory is starkly absent.

Instead, some seemingly boring terminology is being used.

One is “flow banking”, which is about managing the constant “flow” of transactions that customers are involved in.

This includes payment systems, foreign exchange activity, trade finance and other treasury services.

True, banks have always provided many of these services but through different silos. Banks are increasingly trying to bundle all the offerings through a one touch point with the client.

More importantly, many of these offerings are being disrupted by newer entrants, largely fintech types.

Take the case of Wise. Many Malaysians travelling these days have Wise cards or accounts that can instantly convert your cash into currencies for use in the country you are visiting.

Exchange rates and transaction fees are lower than anything banks are offering.

No wonder then Malaysian banks are waking up to this threat – it is visible if the bank takes a look at the vast amount of money transfers being made by Malaysians from their local banking accounts into their Wise accounts.

Another big focus area now is wealth management.

Major banks such as Malayan Banking Bhd and CIMB Bank Bhd now say that wealth management is their big growth driver and they have their respective strategies to boost this segment in a bigger way.

Technology, especially artificial intelligence (AI) is being featured in a big way. Notably, local stockbrokers (many of which are part of the large banking groups in Malaysia) are also facing stiff competition from tech-focused players.

Since its launch in February last year, Moomoo Securities Malaysia Sdn Bhd (Moomoo Malaysia) has made waves here.

It now boasts one million Malaysian customers.

Notably, Moomoo Malaysia gave away lots of free stuff to get the attention of investors, many of whom are first-time investors.

Still, Moomoo Malaysia is interesting because of their user-friendly platform that enables Malaysians to trade US stocks with ease and low fees.

Whatever amount of investment money from Malaysians that has gone to the Moomoo Malaysia platform equals the loss of business of local brokerages.

Moomoo Malaysia is also quite savvy with upselling financial products to customers on their platform, using some levels of AI to offer tailor-made products and services.

It is technology that will determine the competitiveness of banks (and of course of many other businesses) going forward.

Take the case of Singapore’s DBS. Its dynamic former head honcho Piyush Gupta certainly did some magic at the bank, making it one of the most successful turnarounds to become the top bank in this part of the world. In fact, many banks in South-East Asia must be attempting to use some parts of the Piyush playbook.

Years ago, Piyush refocused towards areas such as transaction banking and wealth management.

These now feature heavily in local banks’ new plans.

More significantly, Piyush made his team think of DBS more as a tech company than a bank.

DBS has more tech-related employees than bankers and this is probably going to be the case with many banks the world over.

DBS also lays claim to making money from deploying AI models and tools.

In an interview with the Financial Times in March, Piyush says that when he joined DBS in 2009, it was “a stuffy bank, a loan shop” with a “bureaucratic government kind of culture”.

He says he then sought to turn it into “a classic western-style, meritocratic, individually driven organisation”.

It is also interesting to note that DBS was founded in 1968 as the Development Bank of Singapore to finance the country’s industrialisation and support urban development.

The bank today has delivered enormous returns to its shareholders and enjoys one of the highest returns on equity, a ratio best suited for analysing banks and financial institutions because of the unique structure of their balance sheets and regulatory environment.

One wonders if any of the Malaysian developmental banks can one day become like DBS.

As local banks seek to up their game and refocus their business, expect more layoffs of traditional bankers (think the highly remunerated investment bankers) and more focus on those who can help boost bank’s wealth management, flow banking and their technological pursuits.

The young ones still dreaming of that investment banking career best take note.