Traditional banks risk losing SME business as open finance takes hold

KUALA LUMPUR: Malaysian banks risk losing a significant share of their small and medium enterprise (SME) business to financial technology (fintech) firms and challenger banks as open finance reshapes the financial landscape, a banking expert said.

Manaf Gardner Associates co-founder and chief executive officer Colyn Gardner said the experience in the United Kingdom (UK) showed how quickly non-traditional financial providers could gain ground in areas long dominated by established banks.

He said Malaysian banks should take heed, given the country's large SME sector.

"When you think about it, the big banks in the UK — Barclays, NatWest, Lloyds Bank — have been around for hundreds of years, and yet within the space of maybe less than 10 years, 60 per cent of lending to SMEs has now migrated to either fintech companies or challenger banks.

"That is a frightening statistic. Over 95 per cent of companies in Malaysia are SMEs, and that is a lot of business to go after. It is a lot of business to lose.

"Banks need to be very, very mindful of the fact that there is the potential to lose this business if you are not changing some of the ways you do things," he told Business Times during an open finance networking session recently.

The session was jointly organised by Manaf Gardner Associates and the Fintech Association of Malaysia.

It formed part of Manaf Gardner Associates' efforts to support Malaysia's transition towards open finance.

The firm brought in UK practitioners with first-hand experience in developing and implementing open finance to share lessons with Malaysian banks, including what had worked and what had not.

The programme was aimed at helping Malaysian financial institutions understand the opportunities and challenges arising from open finance as the country prepares for its adoption.

Gardner said the shift towards open banking and open finance would give consumers greater control over their financial data and services, allowing them to share information across financial institutions with their consent.

But the implications go beyond greater convenience for consumers.

Fintech firms could use technology and access to financial data to compete more directly with established banks, putting pressure on traditional lenders to rethink how they serve and retain customers.

Gardner said banks therefore needed to improve their services while ensuring they had the right talent and capabilities to operate in an increasingly technology-driven environment.

Looking ahead, he said Malaysia's banking sector was relatively well positioned to navigate the transition, although banks faced significant implementation challenges due to their legacy information technology systems.

Malaysia was also not starting entirely from scratch, he said, as several payment-related processes already resembled elements of open banking.

Despite the growing role of technology, Gardner said banks should not lose sight of the human element.

"Ultimately, banking should be a people business. It shouldn't be a machine business, it shouldn't be a technology business.

"You use the machines, you use the technology, but if you deny your customers access to human beings, that's a world that I would not want to see for Malaysian banks," he added.