5 Consortiums Have Been Awarded Digital Bank Licences by BNM

BANDAR SUNWAY – In December 2019, Bank Negara Malaysia (BNM) released its digital banking licensing framework that set the scene for one of the biggest disruptions to the financial services market in decades. Malaysia’s decision to open doors to digital banks came close on the heels of other countries in the Asia Pacific region.

On April 29, 2022, BNM announced the five successful applicants for the digital bank licences as approved by Malaysia’s Finance Minister.

BNM received a total of 29 applications, and throughout the assessment process, the central bank undertook strict governance and evaluation procedures to guarantee robust, objective, and consistent assessments across all applications received.

BNM highlighted that the assessment criteria cover the character and integrity of applicants, nature and sufficiency of financial resources, soundness and feasibility of business and technology plans, as well as ability to meaningfully address financial inclusion gaps.

The consortiums chosen have been divided into two categories:

1. Financial Services Act 2013 (FSA): three licensees are Boost-RHB Bank, GXS Bank-Kuok Brothers, and Sea Group-YTL
2. Islamic Financial Services Act 2013 (IFSA): two licensees are AEON Credit Service, AEON Financial Service, and MoneyLion, and KAF Investment Bank

What is Digital Banking?

Digital banking is simply the automation of traditional banking services. It enables customers to access banking products and services via an electronic/online platform. Digital banking means digitising all banking operations and substituting the bank’s physical presence with an everlasting online presence. This will ultimately eliminate a consumer’s need to visit a physical branch.

With digital payment expected to reach over US$1 trillion (RM4.2 trillion) by 2025, according to a Google-led study, regulators in countries across Asia are now pushing toward digital banks by awarding new licenses for digital banks.

Moreover, the COVID-19 crisis has turned into an unlikely catalyst to spur the adoption of digital banks, especially in Malaysia. After the COVID-19 pandemic, businesses seek alternatives to safely run operations, and consumers’ habits shifted toward cashless transactions. This is now the new reality and an opportune time for digital banks to thrive. Digital banking is expected to rise and transform the country’s financial service industry in the coming few years.

Benefits of Digital Banking

The World Bank has revealed that Malaysia has one of the highest financial inclusion rates in the world. However, Malaysia still faces challenges when it comes to financial inclusion such as reaching out to the remaining unserved population. BNM has identified that one of the ways to promote financial inclusion is through the establishment of digital banks. In its framework, BNM has outlined that serving the underserved and unserved in retail and SME are among the key requirements for organisations interested in establishing digital banks.

Furthermore, digital banks provide an additional platform for consumers and SMEs who want to transform digitally. SMEs and consumers are now turning to digital alternatives out of necessity, and digital banks offer a substitute that is safer, more effective, and more convenient. It is also a major advantage of digital banking that it is available 24/7 which means that customers can carry out transactions from anywhere and access a wide range of services.

Digital banking also uses software that enables sophisticated personalisation strategies powered by artificial intelligence (AI) and machine learning (ML). Banks will then be able to offer customers relevant financial options, interactive tools, and educational resources at the right time. Tools such as automated budgeting, spending analytics, and savings reminders will eventually be easily and readily accessible to help inform and engage customers.

Redefining Banking and Financial Inclusion in Malaysia

In a report by Fitch Solutions Country Risk and Industry Research, the firm said that the five consortiums awarded Malaysia’s first digital banking licences are well-positioned to capture the market opportunity, given their individual strengths and capabilities.

However, to operate, these digital banks must comply with the digital banking licensing framework released by BNM. Most importantly, BNM requires all-digital banks to focus on financial inclusion and the underserved and unserved market segments, which include the B40 and MSMEs in efforts to boost sustainable economic growth.

To build the Malaysia digital bank that will seek to offer seamless and secure financial services customised to meet consumer needs, Ms Pei Si Lai, the digital bank CEO designate of the GXS Bank-Kuok Brothers consortium, will assemble a team with diverse backgrounds in finance and technology, as noted in a statement.

In the same statement, Mr Arthur Lang, Singtel’s Group Chief Financial Officer and board member of the regional consortium said that they will build a platform that will provide innovative digital banking services for the underbanked as well as SMEs. He added that this aligns closely with their goal of harnessing technology to empower people across the region, bringing greater options and positive change. The consortium aims to spur fintech innovation that will transform the banking experience, making financial services more accessible, relevant and affordable.

Under the IFSA category, the AEON Credit Service (M) Berhad, AEON Financial Service Co., Ltd., and MoneyLion Inc. consortium is one of the two recipients of the digital banking licence. Daisuke Maeda, Managing Director of AEON Credit, highlighted that AEON Group and MoneyLion share the same vision and aspiration of elevating the communities in which they operate. Meanwhile, Ajith Jayaram, Chief Transformation Officer of AEON Credit, stated that they are building a digital bank at the forefront of transcending the boundaries of technology, banking, and humanity.

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