As banks pour investments into tech, lending seen rising

BY midyear, financial technology (fintech) is expected to play a big role in the underwriting processes of borrowings by traditional banks as the majority of financial institutions in Asia Pacific turn to artificial intelligence (AI), a study noted.

The second edition of the Fintech and Digital Banking 2025 (Asia Pacific) report—conducted by International Data Corp. (IDC) Financial Insights and commissioned by Backbase Asia-pacific Pte. Ltd.—explained that the Asia Pacific conventional banks’ digital initiatives are expected to boost momentum in 2021.

In the past two years, the report noted these financial institutions’ technology spending on governance, risk and compliance grew by double digits already. As the traditional banks make greater strides toward digital platforms, the fintech sector has been developing new capabilities as well.

The study said that these banks stand to benefit from such developments by the fintech industry through strategic partnerships.

“IDC predicts by the middle of the year, 50 percent of lending decisions in retail banking will be supported by fintech propositions, underscoring accelerating bank-fintech collaboration,” the report said.

Philippine banks are anticipated to team up with fintech players and telecommunication firms to enhance the distribution and availability of banking products, such as payments and lending, it added.

Meanwhile, IDC revealed that the majority or 60 percent of the banks in the region are seen leveraging AI or machine learning technologies to come up with data-driven decisions. This is higher compared to 48 percent in the previous year.

Using such tools allow for a “more humanistic type of customer centricity,” the study said, noting that the banks were prompted to reach out to customers with empathy during an economic slump. This approach was also complemented by heightened integration of human agents into customer engagement strategies, it noted.

“To thrive in a post-pandemic world, organizations will need to keep their customers at the center by focusing on the removal of silos, providing greater levels of convenience, overcoming financial literacy challenges, and improving accessibility to lender and payment products,” Backbase Regional Director for Asean and South Asia Riddhi Dutta said in a statement.

Digital banking sector

IN the Philippines, two digital banks have shown “significant growth,” the report noted, adding that their customer bases are expected to grow by at least 80 percent annually until 2025.

While it did not disclose the names, the digital banks in the country include ING Bank Manila and CIMB Bank Philippines.

The digital banking space is seen to grow bigger with six of the top 10 local conventional banks launching their own digital banking brands, the report said. Fintech players have also established a customer base higher than expected by 2019, the study said. The sector usually offers services in payments, wealth advisory, alternative data, lending and account origination.

With the digital space on the rise, the report said that 60 percent of the bankable customers in the Philippines are open to shifting to digital banks, resulting in the unbanked and underbanked segment being potentially cut to 20 percent of the bankable population.

“The events of 2020 have shown the resilience of the financial services industry, and that organizations must refocus their efforts on becoming even more customer-driven and platformoriented,” IDC Financial Insights Associate Vice-president in Asia Pacific Michael Araneta said.