How Digital Banking Will Benefit Malaysian Individuals & Businesses

Since Bank Negara Malaysia (BNM) launched the digital banking framework on December 31, 2020, around 40 unnamed interested parties have applied for a license. Now the bank is working on issuing up to 5 digital banking licenses in 2022.

Overseas, countries have already licensed digital banking to qualified entities. Hong Kong licensed 8 entities in 2019, including Tencent, Ping An, and Ant Group, to name a few.

In Singapore, the Monetary Singapore Authority (MAS) issued 4 digital banking licenses in 2020 to the Grab-Singtel consortium and the SEA group.

How is digital banking different from online banking?

Digital or virtual banking is commonly confused with online banking because all banking involves some sort of digitalization. Digital banking is mainly used as an umbrella term to describe all forms of financial transactions taking place with the use of technology.

It has also been used to describe financial services that take place strictly online without vendors having physical branches.

This is compared to online banking, which refers to any transaction carried out electronically using the Internet as a gateway. They include checking your balance, transferring funds to other accounts, and finding your financial statements without having to walk into a physical bank.

What are the advantages of digital banking?

Across the road, a digital banking license gave digital services the ability to do all banking like traditional banks. This includes opening an account, making deposits and payments, applying for loans or debit and credit cards, etc.

Ant Bank of Hong Kong, for example, in partnership with Alipay, has rolled out a virtual banking arm allowing users to open personal bank accounts through the e-wallet app.

Such a move also meets the criteria of the BNM, which requires digital banks to focus on financial inclusion to drive sustainable economic growth.

The top 5 criteria to qualify for a local digital banking license require businesses to:

  • Foster financial inclusion, in particular by ensuring quality access and responsible use of financial services
  • Maintain the asset threshold not exceeding RM3 billion in the first 3-5 years (fundamental phase);
  • Comply with the regulations of the Financial Services Law (FSA) and the Islamic Financial Services Law (IFSA);
  • Provide meaningful access and responsible and affordable financial solutions;
  • Protect the integrity and stability of the financial system through investment funds of RM100 million (fundamental phase).

The biggest impact here will be seen in financial inclusion, especially for Malaysia’s underserved and unserved population. For example, workers can take advantage of digital banking to help them get loans.

“The odd-job economy is an underserved segment where a lot of people don’t have access to financial products like loans because they don’t have payslips, which banks typically require in the industry. credit assessment framework. Digital banks are able to serve this group because their operating models are different, ”said Shankar Kanabiran, EY partner, in an interview with CompareHero.

Digital banking can also provide better accessibility to those in rural areas who can benefit from similar financial products, as they will not have to access physical bank branches which are typically located in urban areas.

Malaysia has recently shown growth in financial inclusion with the introduction of GO + by Touch ‘n Go eWallet. Thanks to their micro-investment function, users can earn small daily interest by investing only 10 RM in it.

It is a way of entry for those who are not familiar with higher risk and long term investments or B40 groups who do not have sufficient funds for it.

M40 consumers will also benefit from more personalized solutions with the deployment of digital banking in Malaysia. By tracking a customer’s behavior online, their AI can learn about a customer’s interests and suggest other products they want to buy.

It is also useful for businesses to travel online, which is now a necessity due to COVID-19. From cashless transactions like QR code payments to selling online, digital banking offers a safer and more convenient way to shop.

At the same time, the costs of financial services, whether you are an individual or a business, will be reduced, as digital banks rely on self-service technology and automation.

Who in Malaysia looks at the license?

So far, players like Axiata Group, Grab, Razer Inc and Sunway have all expressed interest in pursuing the license ahead of BNM’s executive announcement.

The dominance of non-banks who vouch for the license is largely due to the fact that incumbent banks can already operate in this space. Indeed, existing banking licenses already allow traditional banks to provide their services online, such as with Maybank’s Scan & Pay (formerly known as QR Pay).

Moreover, even Maybank has expressed its disinterest in applying for a digital banking license, as it has already implemented digital products through its platform.

This suggests that in the near future, digital banks may not have a huge negative impact on existing incumbent banks as long as the latter already have reliable digital offerings. “But these digital players could catalyze the expansion of the financial sector,” commented Thilan Wickramasinghe, Singaporean analyst at Maybank Kim Eng Research.

In other words, more financial inclusion.

  • You can read other articles we’ve written on digital banking here.

Featured Image Credit: Unsplash

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Jothi Venkat

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