Malaysia will soon have 5 new Digital Banks!
At the end of April 2022, Bank Negara (the Malaysian Central Bank) announced that 5 consortiums have been granted digital bank (DB) licences. The lucky 5 were selected from the original 29 applicants.
Conventional DB licences were granted to 3 consortiums:-
(i) Boost Holdings Sdn. Bhd. and RHB Bank Bhd.;
(ii) a consortium led by GSX Bank Pte. Ltd. (a joint venture of Grab Holdings Inc. and Singapore Telecommunications Ltd) and Kuok Brothers Sdn. Bhd; and
(iii) a consortium led by SEA Ltd. (which operates Shopee) and YTL Digital Capital Sdn. Bhd.
Islamic DB licences were granted to 2 consortiums comprising:
(i) Aeon Financial Service Co. Ltd, AEON Credit Service (M) Bhd. and MoneyLion Inc.; and
(ii)KAF Investment Bank Sdn. Bhd., Money Match (a remittance provider), Carsome (an automobile e-commerce platform) and Jinerxu (the operator of the RinggitPlus portal).
3 of the 5 consortiums are majority owned by Malaysians i.e., Boost & RHB Bank, SEA Ltd & YTL Digital Capital and KAF. Each consortium has at least one shareholder with deep pockets to fund the capital required to sustain operations while the DB builds its business and scales up.
The DB will focus on the underserved and unserved, mainly the SMEs, micro-SMEs, B40s (individuals in the lower 40% income group) and customers in rural areas and the interior of Malaysia. In line with this, DBs are based on the asset light model and are intended to operate without physical branches or their own ATMs (but with access to the existing ATM network). The assets of each DB are capped at RM3 billion during the foundational phase (the first 3-5 years). They are to maintain a minimum paid up capital of RM100 million during this phase and increasing to RM300million thereafter. Before the 5 DBs can commence operations, they are to undergo a period of operational readiness to be audited by Bank Negara, which may take 12 to 24 months.
The DBs are expected to launch towards the end of 2023. It remains to be seen how much of a disruption they will cause to the Malaysian financial markets. Clearly, they will aim to ride on their existing ecosystem and network to convert vendors, customers, partners etc. to their digital banking customers while remaining cost efficient and lean.
Meanwhile, the 8 incumbent banking groups in Malaysia are expected to ramp up their digital banking capabilities in the next 2-3 years to compete with the new crop of DBs, and there is some talk that certain banks may even spin off a standalone digital bank to compete head on. The existing banks have already been providing various levels of digital banking services for some time, with some having more success on online and mobile reach than others. Their advantage is that their banking licence allows them to provide the range of digital banking services which the DBs intend to offer, and they can leverage off their existing retail and customer networks and relationships to scale up and achieve economies of scale.
While Bank Negara has no plans to issue additional digital bank licences at present, the increased choice and competition are likely to benefit customers in the long run, depending on how successful these digital banks will be and what new products and experiences they will offer to customers.