Fintech firms’ latest acquisitions underscore their potential to shake up the competitive landscape for banking in ASEAN, the new entrants are unlikely to pose a material challenge to the biggest banks in the near term as they have a different target market than incumbents. Fintech firms recently made the headlines with their acquisition of small banks in Indonesia. Notably, Singapore-based Sea reportedly plans to acquire Bank Kesejahteraan Ekonomi (BKE), according to media reports in January 2021. Indonesia’s ride hailing giant Gojek also shared plans to increase its stake in Bank Jago. Aspiring tech entrants can use leveraging data analytics on their customer bases across their regional operations, no longer having to rely with operating physical branches. This may pressure incumbent banks’ profitability over the medium term, with smaller banks and those that have sub-par digital offerings at greater risk of losing out.
Some established banks have also invested heavily in their IT infrastructure in recent years, with the pandemic providing added incentive for incumbents to accelerate their digitalization, potentially closing off openings for some new entrants. Recent acquisitions made by fintech firms also serves to help smooth the path for these firms that offer financial services in Indonesia. Indonesia have notedly moved more slowly than some other ASEAN governments in developing the “virtual banking” license guidelines. In more developed markets with dominant and more tech-savvy incumbents like Singapore, newcomers may face difficulty out-investing conventional banks in digitalization to offer distinctive value beyond niche areas. It remains unclear which companies will ultimately be able to realize benefits from the growing nexus between technology firms and banks. Tech firms that are likely to provide more formidable competition for incumbent banks over the longer term include those that have established platforms and user bases or are backed by deep-pocketed corporates.