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Banks in Asia are on a burning platform: DBS chief

SINGAPORE — The banking landscape in Asia will change dramatically over the next five years, with poorer returns and compressed margins becoming common occurrences unless banks start embracing fintech and transform their businesses now, the head of South-east Asia’s largest bank said.

At the Asia PE-VC Summit, Mr Gupta was a panellist on the discussion on Fintech: The Big Disruptor. Photo: DealStreetAsia

At the Asia PE-VC Summit, Mr Gupta was a panellist on the discussion on Fintech: The Big Disruptor. Photo: DealStreetAsia

SINGAPORE — The banking landscape in Asia will change dramatically over the next five years, with poorer returns and compressed margins becoming common occurrences unless banks start embracing fintech and transform their businesses now, the head of South-east Asia’s largest bank said.

Speaking at an industry event on Friday (Sept 30), DBS Group’s chief executive Piyush Gupta said the transformation process is not an easy one and many banks will face challenges shedding their legacy. Ultimately, only a minority will succeed, he added.

“I think there’s a burning platform but you won’t see a Lehman kind of movement. You’ll see poorer returns, you’ll see margin compressions, you’ll see other people coming into the game,” Mr Gupta said on Friday in a keynote speech at the Asia PE-VC Summit 2016, which was attended by 300 visitors including those from venture capital and private equity firms.

“I think, over the next five years, the landscape is going to change dramatically and therefore, if you’re going to transform to have a reasonable position, you have to do it now … I do believe that this transformation will only be achieved by a minority of banks. It is not easy … you have to deal with legacy technology, have to reimagine customer experiences, you have to deal with fundamental cultural changes. Some will succeed, but many won’t,” he said.

Banks do not have to walk this transformation journey alone, Mr Gupta added. Instead, they can tie up with fintech firms, harness their technology capabilities and marry that with strengths that banks possess such as in clearing and settlement systems as well as consumer trust.

This also opens up opportunities for fintech start-ups, especially when not many of such firms have found successes despite the US$19 billion (S$25.9 billion) worth of investments that they received last year.

Mr Gupta said one reason behind the lack of breakthroughs is that many of these new technology, despite promising, are not tested through the business cycle.

“Take P2P (peer-to-peer), most lending solutions are based on a belief that you can come up with better credit algorithm, a better credit model either using data more intelligently or access to different kinds of data … The reality, though, is none of these algorithms have been proven through cycles and in a downcycle, you start to see delinquency rates move up for many of these solutions,” he added.

Besides that, many fintech start-ups also fail to build a large customer base to scale up their businesses, hindered by the high customer acquisition costs. Therefore, the biggest threat for banks are not these fintech firms but “platform companies” such as Alibaba, Tencent and Apple — well-known names who provide payment and lending platforms for people to transact.

“Companies such as Alibaba or Tencent or Apple or Google have the customer base and because of their customer base, they’re a far more formidable challenger for banks. You won’t see many of them and you don’t need to see many of them,” said Mr Gupta.

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