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What sets these digibanks apart and what are the lessons to be learnt for the digibanks in ASEAN? Firstly, we find that these digibanks benefited from huge ecosystems (user base accounts for >80% of population) which helped them build up scale quickly and at lower costs (a factor not prevalent among majority of the digibanks in ASEAN). Secondly, these digibanks also benefited from a conducive regulatory environment and first mover advantage. They benefited from the aggressive push from regulators in early 2010s (a factor lacking in ASEAN). Lastly, a deep-dive into the dupont of close to 20 digibanks in Asia points towards 3 areas of superiority for the profitable digibanks:

1. higher fee income/assets (ie. better cross-selling capabilities);
2. lower opex/assets (ie. better economies of scale); and
3. higher leverage (ie. more efficient funding).

Digibanks also have several challenges to overcome..

Apart from these key characteristics of profitable digibanks in Asia, there are also several challenges that the ASEAN digibanks will likely have to overcome based on the experience globally. Firstly, many digibanks struggle to build scale without incurring high customer acquisition costs (CAC). These digibanks tend not to have a strong customer proposition or an ecosystem that they can tap into.

Secondly, many digibanks struggle on monetisation. A number of digibanks have reported strong growth in deposits over the last few years driven by attractive deposits rates. However, the challenge was to convert these deposit customers (cost to the digibank) to lending/fee income customers (revenue for the digibank). Thirdly, several digibanks struggle on asset quality despite claiming to be able to conduct better credit underwriting on the unbanked/underbanked segment (target segment for the digibanks) compared to an incumbent bank. However, a number of digibanks find themselves mired in asset quality issues, and eventually deciding to target a less risky segment or even the existing banked population (where the incumbent banks are very strong). Lastly, competition from incumbent banks have intensified over the last few years given the heavy investments in digitalising their operations.

There are more than 20 digibanks in ASEAN. Who could be the winners?

Given these findings, we think that only a small handful of digibanks in ASEAN are likely to be successful over the longer term and even so, the path to get there is not easy. While we expect digibanks to pose strong growth numbers over the next few years, their total loans market share is expected to still be <2% of system loans by 2030E.
As such, we do not expect significant disruption to the incumbent banks.