Banks risk losing SME business as open finance takes hold

KUALA LUMPUR: Malaysian banks risk losing a significant portion of their small and medium enterprise (SME) business to fintech companies and challenger banks as open finance becomes more prevalent, a banking expert has warned. Professor Dr Colyn Gardner, co-founder and CEO of Manaf Gardner Associates Sdn Bhd, pointed to the UK as an example where non-traditional financial providers have rapidly gained market share in traditionally bank-dominated sectors.

He cautioned Malaysian banks, citing that over 95% of Malaysian companies are SMEs, presenting a vast potential customer base up for grabs. Gardner emphasized that if banks fail to adapt, they could face substantial losses. At a recent networking session, he highlighted the need for banks to embrace open banking and open finance, which could grant consumers greater control over their financial data and enable them to share information across financial institutions with consent.

This shift would not only enhance consumer convenience but also empower fintech firms to directly compete with established banks using advanced technology and access to financial data. While Malaysia's banking sector is relatively well-suited to this transition, banks will face significant implementation challenges due to outdated IT systems.

However, Gardner noted that Malaysia already shares some elements of open banking, such as certain payment-related processes, which could aid the transition. Nonetheless, he stressed that banks should not overlook the human aspect in their digital transformation journey.