Since Bank Negara Malaysia (BNM) introduced the Digital Banking Framework on December 31, 2020, around 40 interested, unnamed parties have applied for a license. The bank is now working on issuing up to 5 digital banking licenses by 2022.
Overseas countries have already issued licenses for digital banking to qualified companies. Hong Kong licensed 8 companies in 2019, including Tencent, Ping An and Ant Group, to name a few.
In Singapore, the Monetary Singapore Authority (MAS) issued four licenses for digital banking to the Grab-Singtel consortium and the SEA Group in 2020.
How is digital banking different from online banking?
Digital or virtual banking is usually confused with online banking because all banks involve some kind of digitization. Digital banking is mostly used as an umbrella term to describe all forms of financial transactions that take place using technology.
It has also been used to describe financial services that take place entirely online, with no providers having physical offices.
This is compared to online banking, which refers to any transaction that is processed electronically using the internet as a gateway. This includes checking your balance, transferring funds to other accounts, and looking up your financial statements without entering a physical bank.
What are the advantages of digital banking?
On the other side of the dam, a digital banking license has given 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.
For example, Ant Bank in Hong Kong, in collaboration with Alipay, has launched a virtual banking branch that allows users to open personal bank accounts via the e-wallet app.
Such a move is also in line with BNM's criteria that digital banks must focus on financial inclusion in order to foster sustainable economic growth.
The 5 main criteria for qualifying for a local digital banking license require that companies:
- Promoting financial inclusion, including ensuring quality access and responsible use of financial services;
- Maintaining the asset threshold of no more than RM 3 billion in the first three to five years (start-up phase);
- Compliance with the provisions of the Financial Services Act (FSA) and the Islamic Financial Services Act (IFSA);
- Offer meaningful access and responsible, affordable financial solutions.
- Securing the integrity and stability of the financial system through capital resources amounting to 100 million RM (start-up phase).
The biggest impact here will be seen in financial inclusion, especially for the underserved and underserved people of Malaysia. For example, gig employees can benefit from digital banking to get loans.
“The gig economy is an underserved segment where many people don't have access to financial products like loans because they don't have the pay slips that banks normally need as part of credit checks. Digital banks can serve this group because their operating models are different, ”said Shankar Kanabiran, an EY partner, in an interview with CompareHero.
Digital banking may also provide greater accessibility for those in rural areas who can benefit from similar financial products, as they do not need to access physical bank branches that are typically located in urban areas.
One way Malaysia has shown growth in financial inclusion lately is by introducing GO + through Touch & # 39; n Go eWallet. Its microinvestment feature allows users to earn small amounts of daily interest by investing only 10 RM in them.
This is an option for those unfamiliar with riskier and longer-term investments, or for B40 groups who do not have enough funds to do so.
M40 consumers also get more customized solutions with the introduction of digital banking in Malaysia. By tracking a customer's behavior online, their AI can learn a customer's interests and suggest other products they might want to buy.
It is also useful for businesses to get online, which is now a necessity due to COVID-19. From cashless transactions like QR code payments to e-commerce sales, digital banking offers a safer and more convenient way to shop.
At the same time, whether you are an individual or a company, the cost of financial services will decrease as digital banks rely on self-service technology and automation.
Who in Malaysia is keeping an eye on the license?
So far, players like Axiata Group, Grab, Razer Inc and Sunway have expressed an interest in pursuing the license before the BNM framework is announced.
The dominance of non-banks vouching for the license is largely due to the fact that established banks can already operate in this area. This is because existing banking licenses already allow traditional banks to provide their services online, such as Maybank's Scan & Pay (formerly known as QR Pay).
In addition, even Maybank has expressed its disinterest in applying for the digital banking license as they have already set up digital products through their platform.
This suggests that digital banks may not have a major adverse impact on existing incumbent banks in the near future as long as they already have trustworthy 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 find more articles that we have written on the subject of digital banking here.
Selected image source: Unsplash