Digital banking is changing Malaysia’s financial landscape
Financial services and financial technology (FinTech) are supported by regulators including Bank Negara Malaysia (BNM).
Digital banking allows the offering of banking products and services through digital and electronic means. This includes retail as well as micro, small and medium enterprises (MSMEs).
The key differentiation of a digital bank is that it may not establish any physical branches. A digital bank is still required to establish a registered office in Malaysia, which also serves to handle any face-to-face complaints.
A digital bank can participate in the shared ATM network, cash out services offered by PayNet, and offer financial services through agents.
Digital banks will offer most traditional banking services including deposits, withdrawals, transfers, checking and savings accounts.
Services are provided online in real time with automation and using technology/analytics to drive smart personalized engagement.
Malaysia will issue five digital banking licenses
Various services will be offered through Application Programming Interfaces (API) and will increasingly feature Artificial Intelligence (AI).
Malaysia will issue up to five licenses for digital banking and these are expected to start operations this year.
Forward looking banks as well as fintech players with a strong tech focus are expected to form alliances to apply for the licenses.
During the initial phase, digital banks will be subject to simplified regulatory requirements by BNM to promote this foundational phase.
Digital banks will be required to demonstrate their viability and sound operations including achieving a defined asset threshold no more than RM2 billion in the initial three to five years of operations.
Licensed banks may apply for a separate digital bank license as a separate entity. This is not to be confused with licensed banks digitalising their current business operations.
Digital banking applicants must demonstrate the following:
- Robust risk management and compliance capabilities.
- Application of transformative technology in development of financial services including scalable and agile tech stack.
- Access to deep and robust customer analytics.
- Continuously serve as a source of financial strength.
- Requisite Shariah expertise (for Islamic digital banking).
An exit plan is required to be submitted for the first five years of operations including potential triggers, likely options, potential impediments, and sources of funding and liquidity for exit.
After the fifth year of operation, digital banks must comply with all equivalent regulatory requirements applicable to a licensed bank and have minimum capital funds of RM300 million.
Digital banking serves to provide banking services which traditional banks have shunned such as the underserved, unserved and SMEs.
This will help lift up companies and communities as they will now have access to banking facilities leading to economic growth and a positive impact for the country.
The potential impact of digital banking
Digital banks will also incur lesser costs than traditional banks driving down the cost of banking services through automation and self-serve technology.
Existing traditional banks face some disruption if they do not innovate and transform to meet the technological changes.
New digital banks will be without the encumbrance of legacy systems/infrastructure and unprofitable physical locations. Traditional banks may also increasingly work with newer more tech savvy digital banks.
Conversely traditional banks are expected to focus more on key services with the highest profitability especially capital intensive requirements that newer digital banks may not have the capability to handle.
There will still be a requirement to service the older and less tech-savvy generation.
Banking clients will increasingly get used to and demand customer service from any location in the world, 24/7 availability of banking services, faster and automated approvals, and smart predictive personalised services.
Thus the real life habits of people will be increasingly reflected in digital service offerings. And while business analytics and AI remain in its early stages, they will become increasingly important.
Digital banking will slowly but surely impact how banks and banking clients behave in the future.