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Will Software Eat Singapore Banks?

Software is eating the world. Famed venture capitalist Marc Andreessen elaborates on this:

“More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures.”

Thing is, Singapore banks may be next on software’s menu.

Recently, DBS Group Holdings Ltd’s (SGX: D05) chief executive, Piyush Gupta, had labelled non-banking tech companies such as Google and AliBaba as the “clear and present danger” to the banking industry. In his view, the aforementioned companies are starting to unbundle the services offered by a bank and eat into parts of what a traditional bank (like DBS Group) does.

These are some signs of what I had mentioned earlier: Software may be eating Singapore banks.

The great unbundling

A traditional bank provides many different services.

Examples include loans, cash transfers, and payment processing. Software companies, though, are starting to take on specific services that a bank traditionally offers. In doing so, the asset-light challengers may be offering lower transaction fees and the convenience of mobile as compared to the current banking incumbents.

Online payments outfit PayPal Inc, for instance, enables small businesses to receive payments online and at stores. Merchants can access PayPal’s 173 million active users. This makes PayPal’s network valuable to companies looking to build an online presence.

In turn, PayPal’s users save time from not having to visit a bank branch for a payment transaction.

Have you visited a bank lately?

Banks have brick and mortar locations that may weigh it down.

And all signs are pointing towards a lower number of branches in the future. For instance, U.S. based Bank of America (BofA) has closed 1,400 branches in its network. This represents 20% of all its branches. The closures were done to reduce BofA’s cost as its customers shift towards mobile usage instead.

Foolish takeaway

Gupta has laid out the consequences if a bank fails to adapt. He said:

“If we don’t respond suitably by digitising our own offerings, by re-imagining the customer’s journey, and leveraging new technology to give them a differentiated experience, we are going to die.”

Banks still have their advantages, of course. BofA’s Chief Executive, Brian Moynihan, mused that the cuts in bank branches go beyond cost reduction alone. The number of mobile banking users for BofA is also increasing at a rapid rate. This points towards opportunity for our local banks if they can adapt.

But that’s for another article. Stay tuned.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.