Digital banks have been on the rise in Asia, with significant growth seen in countries like Indonesia, the Philippines, and Bangladesh. Indonesia, with its large population, has over 100 million unbanked or underbanked individuals and a challenging geography that makes traditional banking difficult. The government’s support for the fintech sector has led to a boom in the digital bank sector, with many controlled by conglomerates and tech companies. This has ultimately provided consumers and small businesses with a greater variety of banking options.
In the Philippines, the challenging geography and significant unbanked population have led to the quick adoption of digital banks as part of ambitious financial inclusion targets. However, despite strong market demand and government support, online lenders have not made significant inroads, with Fitch Ratings reporting that no digital bank has more than 0.14% of total bank deposits. Profitability remains a challenge for digital banks in the country, with BSP Director Melchor Plabasan stating that it may take up to seven years for a digital bank to become profitable.
Bangladesh, often overlooked in the fintech space, has one of the world’s largest unbanked populations, providing a promising market for digital banking. The country’s central bank has granted digital banking licenses to eight online lenders who will be required to use advanced technologies like AI and blockchain to facilitate transactions. With strong government support and partnerships with leading incumbent lenders and international organizations, digital banks in Bangladesh are poised for success.
Despite challenges in some Asian countries, the overall outlook for digital banks in the region is positive. Countries like Indonesia, the Philippines, and Bangladesh offer real market opportunities, with strong government support and less formidable incumbents than in more advanced economies. Competition will increase, and the path to profitability may be complicated by customer subsidies, but the potential for success in these markets is high.
Looking ahead, there are opportunities for digital banks in other Asian markets, such as Cambodia, Laos, and Myanmar. While these markets may be smaller than Indonesia, the Philippines, and Bangladesh, they have embraced fintech to varying degrees and are expected to continue doing so. Myanmar, in particular, had attracted significant investor interest in its fintech sector before its political situation deteriorated in early 2021. Once stability is restored and regulatory issues are resolved, the country could present opportunities for digital banks in the future.
