On the impact of the Covid-19 pandemic on the neobank segmentHow can neobanks mitigate the anticipated declines in discretionary spending during the Covid-19 pandemic?
CHRISTOPHER DAVISON: Neobanks are theoretically well positioned to weather the Covid-19 storm. Global spending behaviours changed dramatically as lockdowns were imposed. Although spending on discretionary items and travel has decreased, consumers are still spending on essentials through card transactions.
Moreover, there has been a large uptick in both domestic and cross-border e-commerce. Equally, the closure of brick-and-mortar branches and physical currency exchange bureaus has led to a lot of digital money transfer activity, including remittances.
Taking into account the current constraints on cash payments and brick-and-mortar retail, what will be the long-term impact of Covid-19 on digital payment adoption in South-east Asia?
DAVISON: My view is that Covid-19 is catalysing global macroeconomic trends that were already in motion. High street stores were already struggling with competition from e-commerce; consumers were beginning to use less physical cash, and people were moving towards financial technology (fintech) firms and away from traditional banks. South-east Asia was already leapfrogging many western economies in terms of digital adoption, particularly in terms of payments and banking.
As the largest challenger bank in South-east Asia we have seen exponential growth, in part due to adoption by a digitally educated, increasingly urbanised and historically underbanked youth population.
Would the shock of Covid-19 lead consumers back towards the perceived safety of conventional banks at the expense of neobanks?
DAVISON: On a global level, the direction of travel is inescapable and universal: consumers are moving away from traditional businesses, and growth in all sectors is driven by digital and mobile offerings.
The post-Covid-19 recession will have a profound impact on both conventional banks and neobanks. The former, with expensive branch networks, large balance sheets and increasing non-performing loan books, will come under a lot of pressure.
Neobanks, however, like all new technologies, will see a reduction in funding and valuations, and will therefore need to reassess unit economics and build a sustainable business, with less focus purely on growth. This will create more disciplined, healthier and more resilient businesses. Therefore, I believe there will be clear winners in the neobank segment, at the expense of traditional banks.
When the Covid-19 disruption subsides, which segments or services offer the best potential for neobanks to boost penetration in South-east Asia?
DAVISON: Potentially the best area for the growth of neobanks will be overall lending, and products and services for small and medium-sized enterprises (SMEs). Banks have traditionally struggled to provide alternative lending to both individuals and SMEs, even in periods of economic prosperity. Neobanks can fill this gap by being more agile and leveraging real-time data and customised products. This gives us a strong position to provide working capital to companies that are able to take advantage of the recovery from the pandemic.
To what extent are the current containment measures for Covid-19 across South-east Asia impacting the pace of fintech innovation in the region?
DAVISON: We operate predominantly in Malaysia and Singapore, both of which acted relatively decisively and early to contain Covid-19. This pre-emptive rather than reactive response will not only save many thousands of lives, but will also position the economy on a much stronger footing to open up sooner and rebound. Therefore, challenger banks like us – and fintech innovation as a whole – are likely to benefit disproportionally more in South-east Asia than in many other regions.
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