Unpacking the Market Conditions of Digital Corporate Banking in Southeast Asia

With the advent of open banking, the finance sector has been undergoing radical changes. In a report published by Starfish Digital, with the support of the Open Data Institute (ODI), they argued that the application of a more open data infrastructure caused strong positive impacts on customers, small businesses, and new market entrants. Unfortunately, while the retail banking sector has been agile in adapting to these changes, the corporate banking sector in Southeast Asia is lagging behind

 What is digital corporate banking?

Through digital corporate banking, services such as account onboarding, set up, management, and maintenance will be done through digital channels. Likewise, various transactions can be done digitally as well. That said, the biggest benefit of corporate banking is the provision of real-time data from corporate banks to their clients’ treasury, ERP and finance  systems. For example, this allows Chief Financial Officers (CFOs) the opportunity to manage the company’s liquidity, minimise financial risks, optimise investment, and lower transaction errors.

The ASEAN market

According to Starfish Digital’s report, the ASEAN market is a ‘fractured market’ as there are too many countries with too many players. Essentially, the lack of an encompassing regulatory body like the Berlin Group (BG) in Europe is creating challenges in real-time corporate banking. In addition, despite the region’s acknowledgement that digital technology is a critical enabler of growth, only a limited number of regional banks have invested in the digitalisation process such as the adoption of Application Programme Interfaces (APIs). That said, Singapore has been the region's driving force of change. For example, the Monetary Authority of Singapore (MAS) and the Association of Banks in Singapore (ABS) published an API Playbook outlining guidelines for banks adopting APIs. Likewise, Malaysia, Indonesia, Thailand, and the Philippines are following the adoption of APIs. 

Hiowever, despite the progress, current corporate banking system problems still prevail. For example, Philippine bankers and chief executives opined that the current corporate banking system in the Philippines is far too unreliable, resulting in major transaction discrepancies. In addition, a General Manager from an international company in the Philippines mentioned that looking at finances through online banking platforms can be time-consuming. Since the company employs various banks to serve their needs, they must go through every banking platform to see their finances. There is no single platform where all financial data can be seen in real-time.

Barriers to adoption of digital corporate baking

Based on Starfish Digital’s findings, 81% of the 110 respondents answered that the biggest barrier is the integration of real-time corporate banking technology into the existing information technology infrastructures. Looking at internet connection alone, apart from Singapore and Thailand, most countries in Southeast Asia have slow internet connectivity. Thus, making digital banking relatively unreliable.

Other barriers to adoption include the long and complicated procurement process preventing banks from addressing corporate clients’ demands. This is made even more complex as financial institutions involved in the report have offices and procurement teams operating in multiple locations. Furthermore, these financial institutions lack a structured regulatory framework and sufficient technical skills within the organisation, which raises the risk of adoption. Likewise, the absence of competition in the digital corporate banking space makes banks less willing to invest in the digitalisation process. As mentioned in the 2017 research from the Research in International Business and Finance, banks are wary of disruptions to their services. As such, they would be less likely to push through any changes if there is no need or huge demand for it. 

Overcoming Challenges

Despite the challenges of adopting digital corporate banking, the report highlighted that finance technology (FinTech) providers could help solve these challenges. As highlighted by a Chief Information Officer, FinTechs are complementary to banks. “They can be disruptive to corporate banking relationships today as they re-imagine the financial relationships of tomorrow. The banks that will survive will be the banks that embrace change.”

For example, the way some CFOs gain their finance data is by receiving information from their treasury department or from corporate banks, usually in PDFs. This antiquated approach slows decision-making processes of CFOs as their data is non-real time. Through digital corporate banking, CFO’s gain the ability to dynamically manage their company’s finances as everything can be viewed and actioned instantaneously.  

Furthermore, FinTech can provide cost-effective solutions that provide a competitive advantage through data analytics, AI, and machine learning. In addition, FinTech can breathe new life into legacy systems by offering innovative products and solutions to legacy system-related challenges. 

In addition, according to Stanley Epstein, Director and Co-founder of Citadel Advantage, a financial services consultancy, FinTech can help lower operating costs, mitigate transaction errors, and enhance services. Essentially, with the help of FinTech, the adoption of digital corporate banking can be done. Starfish Digital is an example of a FinTech provider that can help banks adopt digital corporate banking. Through Starfish Digital’s Universal Adaptor, it can provide automated banking data that integrates finance and treasury data in real-time. 

Conclusion 

In conclusion, despite the barriers that hinder the adoption of digital corporate banking in Southeast Asia, given the market conditions in the region, it stands to reason that the adoption of digitalisation through the help of FinTech providers can help solve the problems of the current system. Likewise, it could advance the capabilities of the corporate banking sector in the region.  All that stands in the way now is the recognition that this leap forward requires funding!