NOW that the digital banking licences have finally been awarded by Bank Negara, all eyes will be on how the five winners will go about building their businesses.
Malaysia is seen as a relatively mature market for financial services. And as such, competing with the established traditional banks will not come easy.
Notes Tengfu Li, assistant vice-president, Financial Institutions Group, Moody’s Investors Service: “The five new digital banks in Malaysia will spur competition and innovation in the banking system, expanding financial inclusion.
“Still, large rated banks are strengthening their own digital capabilities and are positioned to withstand the competition.”
An MIDF Research analyst opines that the new digital banks would not be a threat to the incumbent banks within the next five years.
“I am not expecting them to make any huge changes within the landscape, given that they have to operate with an asset limit in the first five years. So, they are unlikely to pose any realistic competition to the incumbent banks,” the analyst says.
Under the licensing framework for digital banks issued by Bank Negara on Dec 31, 2020, the requirements for up to five years from its start of operations include maintaining at all times a minimum amount of capital funds of RM100mil unimpaired by losses; and ensuring that its total size of assets do not at all times exceed the limit of RM3bil.
By the end of the fifth year, a licenced digital bank should achieve a minimum amount of capital funds of RM300mil unimpaired by losses, else it would need to implement its exit plan from the business.
“The entry of the new digital banks is still an exciting development. We will see how it turns out.
However, I don’t think they have many advantages above that of a normal bank. For now, we’re not really expecting anything interesting unless the central bank grants them special allowances that the brick-and-mortar banks do not have,” adds the analyst.
But the licenced digital banks are gung-ho about their plans, mostly focussing on underserved markets such as the gig economy and micro firms especially those involved in online businesses.
Interestingly, one of the winners of the digital bank licence is a traditional bank, namely RHB Bank Bhd, which had partnered with Boost Holdings Sdn Bhd, itself a unit of Axiata Group Bhd.
In a filing with Bursa Malaysia yesterday, RHB Bank says its proposed digital bank is targeted to be operational in the second half of 2023, and will focus on the underserved, unserved and unbanked segments primarily within Malaysia with the aim of building a more inclusive financial sector in Malaysia.
In a joint press release by this consortium, the parties said Boost’s extensive fintech experience and RHB’s intimate knowledge in banking services and risk management will be used to build a suite of affordable and accessible digital banking solutions to markets such as the micro and small and medium businesses.
Another winner of the digital bank licence is a consortium of Aeon Financial Service Co Ltd, AEON Credit Service (M) Bhd and MoneyLion Inc. Foong Chee Mun, a co-founder of MoneyLion points out that the main difference between traditional banks and digital ones is that the latter are essentially “technology companies that are able to evolve financial products more rapidly based on customer feedback.”
He adds: “The more advanced skill and experience in data analytics and artificial intelligence that we will have also means the user experience will be more tailored towards the user needs. The traditional banks are really good at products such as mortgages and car loans.
The key to profitability for digital banks is to discover new consumer behavior and secular trends such as the rise of the gig economy, the increase in online-only small businesses and to tailor products towards these segments.”
A similar view is expressed by Datuk Izzadin Idris, group CEO of Axiata and chairman of Boost: “We are able to actively meet demand from our expanding digital-first consumer base that is seeking convenient, improved and secure user experiences for banking and credit access.”In a statement, Boost said it has been laying the foundation for a digital bank through a lending business called Boost Credit.
“Through this, Boost has developed a large digitally engaged customer base with deep data driven insights to break new ground to solve the pain points of the underserved,” it says.
Another winner of the Malaysian digital bank licence is a consortium led by GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd. GXS Bank is a joint venture between Grab Holdings Ltd and Singtel.
Their press release notes that their digital bank is expected to enable local micro SMEs and other financially underserved segments such as gig economy workers to access services that will serve them through their life cycle.
They added that over 200 roles will be expected to be filled including in the areas of product and design, data, technology, risk and compliance. Other winners of the digital bank licence are consortiums led by led by Sea Ltd and YTL Digital Capital Sdn Bhd and a consortium led by KAF Investment Bank Sdn Bhd.
Last July, Bank Negara said it received 29 applications for up to five digital bank licences.
In announcing the awards of the licences, Bank Negara governor Tan Sri Nor Shamsiah said: “Digital banks are expected to further advance financial inclusion. By adopting digital technology more widely for everyday transactions, we can significantly increase opportunities for our society to participate in the economy – by overcoming geographical barriers, reducing transaction costs and promoting better financial management.”Meanwhile industry observers reckon that there is likely a role to be played by the many parties who had applied for the licence but were not successful.
“Some of them have deep pockets and other valuable characteristics. Considering that it is going to be a competitive landscape, there could be tie-ups between the licensed digital banks and these parties,” points out an industry observer.