A WhatsApp Moment for Asia’s Banks

By Andy Mukherjee for Bloomberg

Asian banking is on the cusp of a WhatsApp moment.

Remember paying an arm and a leg for text messages? Now all the telcos in the world combined can’t match WhatsApp’s 30 billion pings a day. Financial transactions will go the same way, and Asia may lead the trend, rather than following it a decade later.

For the WhatsApp analogy, a hat tip to Nandan Nilekani, a successful Indian technology entrepreneur who later helped New Delhi set up online biometric IDs for 1 billion people. Nilekani is perhaps best known for giving the New York Times columnist Thomas Friedman the idea that the world was flat. On banking, Nilekani is really on to something.

Banks in the Asia-Pacific region, responsible for 46 percent of the global industry’s $1 trillion in profit last year, should brace themselves for a storm, says McKinsey. About $400 billion of their revenue will be at risk by 2025, the consulting firm estimates. A small part of that may be from the direct loss of market share to fintech startups. Most of it, however, will be a consequence of the price erosion that will result from banks trying to protect their turf. Tremors will be felt everywhere from consumer finance and payments to SME lending and wealth management.

There’s a compelling reason for Asia to lead this shakeup. The region is home to 55 percent of the 2 billion people worldwide who don’t have bank accounts. More than one-third of them are in India, China and Indonesia. Governments have a strong incentive to let their underbanked populations use newly acquired smartphones to bypass branches, plastic cards and even desktop internet banking.

There’s a lot of growth at stake. Take small and medium-sized enterprises. In China in 2009, they accounted for 40 percent of bank loans. That number now is 47 percent, exceeding loans to large businesses. Yet demand continues to exceed supply.

Given that 37 million small businesses buy and sell goods on Alibaba’s websites, its offshoot Ant Financial, China’s most valuable fintech firm, is arguably in a better position to satisfy SMEs’ hunger for credit than any bank. And nothing stops Jack Ma from replicating that model in India, where Ant’s Alipay has a stake in the country’s top mobile-payments firm, Paytm. A survey by McKinsey found 43 percent of SMEs in India borrowing from informal sources, partly because they had exhausted both collateral and working-capital lines.

Credit Suisse estimates that India’s retail loan assets, including SME credit, will grow to $3 trillion by 2026, five times the size of the market now. Now that any app in the country can push and pull money in and out of any bank account using a unified payment interface, lenders have lost their power to authorize transactions.

Expect this to become the blueprint for the region. Cornered in consumer lending, banks may beat a retreat to large corporate customers. The better borrowers in that group, though, have the global bond market to tap. So in the end, Asia’s lenders may be left with the worst of both the worlds.

Wireless subscribers felt avenged when their overcharging telco providers were clobbered by startups. Given just how popular banks are, savers and borrowers are unlikely to shed a tear when the lenders’ WhatsApp moment arrives.

  1. The world of financial trading is anything but flat. See, for instance, Cables, Sharks and Servers: Technology and the Geography of the Foreign Exchange Market by Barry Eichengreen and others. For a more general discussion, see A Flat World, a Level Playing Field, a Small World After All, or None of the Above? A Review of Thomas L. Friedman’s The World Is Flat.