Are Banks Leaving the Door Ajar for a Non-Bank Fight Back?

As the wave of non-banks giving the Banks a run for their money crests across financial services, incumbents are fighting back to recapture lost ground by enhancing digital capabilities, collaborating with fintechs or investing in their entities themselves. 

But the race is not over.

The Appeal of Non-Banks

Examining the Business Foreign Exchange (FX) market in Asia, new East & Partners research reveals that the proliferation of non-bank providers is significantly more advanced in Hong Kong (22 percent) and Singapore (21 percent) with over one in five small and medium-sized enterprises (SMEs) and Lower Commercials engaging with these alternative providers for their FX needs. 

Why are these businesses more open to explore alternative financial service providers?

Several catalysts appear to be at play, but the most compelling factors cited by business owners and Chief Financial Officers (CFOs) who have warmed up to using alternative providers include:


  1. Better FX platform functionality (87 percent)
  2. More competitive pricing (82 percent) and
  3. Better customer service (55 percent).

Non-banks appear to understand the core FX requirements of these SMEs and deliver a relevant solution with lower costing.

Additionally, non-banks are successfully removing ingrained pain points associated with cross border payments, providing better payments visibility, faster transaction and easier onboarding customer experience.

Drivers of Non-Bank Engagement in the Asian FX Market 
% of Businesses

Source: East & Partners Asian Business Foreign Exchange Markets Report – March 2022

Does this pose a significant threat to the incumbents? Are banks at risk of being disintermediated from providing FX services altogether?

"Compliance is the next big area. With Fintechs and non-fintech
companies dipping their toes into financial products, we expect
regulators across the globe to expand their scope and take a
position on these non-regulated providers"

East & Partners Asia Business Head, Sangiita Yoong

Embedded Finance: A US$7.2 trillion Opportunity
Major banks are embedding a broad array of new functions and services into their core product offerings to create an all-in-one platform – a “super app”. Common applications include digital wallets, lending, “buy now, pay later” (BNPL) and insurance.

Helping fuel this growth are the banking-as-a-service (BaaS) and fintech-as-a-service (FaaS) trends where white label infrastructure is provided for companies to build on top of any platforms geared towards better serving their customers and reducing churn.

Singapore based Grab, for instance, has expanded beyond its initial ride hailing vertical to include deliveries, fund transfers, investment and insurance, building around its digital wallet GrabPay to become a true conglomerate. The embedded finance industry in Singapore alone is expected to grow 34 percent year-on-year to reach US$1,047 million by 2022, with a projected compounded annual growth rate (CAGR) of 20 percent thereafter between 2022 and 2029, based on the Q4 2021 Embedded Finance Survey.

Globally, the embedded finance market is projected to be worth US$7.2 trillion by 2030, twice the combined value of the world’s Top 30 banks in 2020, according to estimates by an industry expert Simon Torrance. The scale of opportunity is too important to ignore.

The Case for Banks

The majority of importers and exporters across Asia more broadly, however, especially those in Malaysia and Philippines, still rely on their banks for FX services including Spot FX, FX Options and Forward FX.

These corporates are anecdotally found to be relatively reluctant to move away from their home currency when conducting international trade, absorbing currency risks. Although value for money is one of the most powerful drivers of customer satisfaction for these firms, there also appears to be a cultural reticence to shop around. This is demonstrated by the fact that FX relationships tend to follow primary credit relationships among these enterprises.

Penetration of Non-Banks in Selected Asian Markets 
% of Total

Source: East & Partners Asian Business Foreign Exchange Markets Report – March 2022

Generally, incumbents in these markets appear to be competing on superior customer support and service (53 percent), as well as offering valuable risk management and advice, and relevant market information (23 percent) for FX, which is consistent with other business banking product offerings. It suggests that relationship managers remain the core asset of the business for these incumbents and are a clear differentiator from alternative providers.

"Initially lower cost non-bank FX offerings were viewed as a
‘race to the bottom’ that incumbent Bank majors
could simply absorb over time, however platform
functionality emerges as a key point of difference.
Banks are facing a new challenge to retain
their hard fought customer base"

East & Partners Global Head of Markets Analysis, Martin Smith

Ultimately businesses still trust banks more with their high value international transactions and currency risk management needs, with one in five (20 percent) citing counter-party risks as a reason for not using non-bank providers, while a further 13 percent also raised reputational concerns.

Top Reasons for Not Using Non-Bank FX Providers
% of Total

Source: East & Partners Asian Business Foreign Exchange Markets Report – March 2022

How can banks transform their corporate customers’ experience against the emerging trend of embedded finance?

Does your Bank have a concrete BaaS strategy to tap into the US$7.2 trillion opportunity?

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