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SINGAPORE (Sept 7): The rise of e-payments might create a potentially existential challenge for banks, but two Singapore banks are expected to emerge winners despite the disruption, according to Morgan Stanley Research.
Across Asean, banks are expected to lose between US$13.1 and $15.5 billion ($18.0 and $21.3 billion) in value to non-bank operators by 2022 as a result of this e-payments disruption, Morgan Stanley says in a recent report.
“In our view, this is not just about the money that can be made from processing payments. It's also about payments as a gateway to deposits and other financial products, transferring value away from banks and towards non-banks,” it adds.
However, it believes banks could still emerge net winners.
“Whilst the banks lose revenue, we project that they will be able to recover US$20-24 billion of value in cost savings from the digitalisation of payments. Hence the net impact will be a gain of up to US$11 billion in value, with Singapore's banks the biggest winners,” says Morgan Stanley.
As a result, the analysts believe Singapore's banks could potentially earn higher ROEs than Indonesian banks by 2022.
Morgan Stanley’s preferred banks are DBS Group Holdings and Oversea-Chinese Banking Corporation (OCBC). The research house in keeping its “overweight” rating on DBS, and upgrading OCBC to “overweight” from “equal-weight” previously.
Morgan Stanley has a lower target price of $30.30 on DBS, down from $30.50 previously. It has also lowered its target price for OCBC to $13.10, from $13.60 previously.
“In fact, Singapore's banks could be revenue gainers, we note that growth in e-commerce is driving strong growth in credit card payments, where merchant fees are more lucrative,” Morgan Stanley says. “We see a number of new possible revenue sources for banks from the adoption of non-cash transactions.”
At the same time, the research house says banks could also see costs falling as a result of a potential revolution in payments technologies. In particular, it highlights the possibility of lower distribution costs as well as lower costs associated with reduced use of cash and cheques.
As at 3.50pm, shares in DBS are trading 25 cents lower at $24.33 while shares in OCBC are trading 7 cents lower at $11.05.