KUALA LUMPUR: The entry of digital banks across Southeast Asia will spur innovation and increase financial inclusion among the unbanked and underserved, said Moody’s Investors Service.

       However, the impact on incumbent banks will be uneven because the large ones are in a stronger position to digitalise than their smaller peers, it said in a research note today.

       Moody’s assistant vice-president and analyst Tengfu Li said the entry of digital banks will promote growth in banking systems by enhancing the public’s access to banking services in a region where financial inclusion remains modest.

       "Many of these banks are affiliates of large consumer technology companies and can leverage their parents’ technologies and customer base to reach the mass market.

       "Digital banks affiliated with popular e-wallets and online platforms will have the advantage of brand familiarity and data capability to underwrite loans that incumbent banks traditionally avoid,” said Li.

       He added that the success of digital banks will depend on their ability to underwrite the unbanked and underserved profitably.

       Lack of track record will likely take considerable time to develop underwriting models that are sustainable across credit cycles, Li said.

       He also said that the potential volatility in financial support from technology companies is another concern.

       "The large incumbents are in a strong position to defend their franchises because they have been able to develop digital offerings that close the gap in customer experience against technology companies.

       "But, their smaller peers, especially the stand-alone banks, lack the resources to do same and will face increasing competition from both digital banks and large incumbents,” he said.

       Bank Negara Malaysia has indicated to issue up to five digital banking licences in the first quarter of 2022. - Bernama