Embrace digital banking or risk being replaced, traditional banks told

KUALA LUMPUR: Traditional banks are expected to be replaced by digital banks within 15 to 20 years’ time, if they do not embrace digital banking, said Asean Strategy Research Centre president Professor Chin Yew Sin.

According to him, the livelihood of a financial institution or bank in Asean is no longer dependent on scale size but rather the speed of its digital adoption.

He explained that any bank that is able to embrace the advanced technology of digital banking will have significant advantage and high competitiveness on the market over its traditional counterparts, due to customer demand.

“Digital banking is very important now because it can provide fast service and convenience to its customers,” he said during a panel discussion on “Leadership Roundtable: Enhancing Trust, Advancing Transformation and Building Talent to Future Proof Banks and Financial Institutions”, at the 2024 Asean Banking and Fintech Summit today.

Chin said customers are able to access a digital bank with round-the-clock services online even on public holidays without requiring to go to physical branches, as compared with traditional banks which require them to be present at its premises within working hours for some, if not all services.

Moreover, he said, digital banks could possibly offer more competitive pricing in terms of services due to lower operational costs, such as overhead and payroll.

“Due to lower operational costs such as not needing a physical premises or high staff hiring, these banks could offer better pricing such as marking down interest rates for loans compared with traditional banks,” he opined.

With regard to artificial intelligence (AI), Chin reckoned that digital banks would not require a high head count as AI technology could replace a significant number of staff in terms of customer service engagement.

He mentioned that some digital banks in China that employ AI technology are able to provide response within minutes to customers who apply for small loans.

Chin also said digital banks could determine whether a customer is a good candidate for bank loans, based on the customers’ spending behaviour on various platform such as e-commerce platforms.

Touching on the digital banking landscape in Malaysia, he noted that there are five entities which received digital banking licences from the central bank.

Moving forward, Chin sees more financial institutions applying for digital banking licences in order to stay competitive in the local market. In addition, he foresees that demand for its services will largely come from the younger generation who are more tech-savvy and value convenience.