Pandemic a catalyst to push digital banking

Customer behaviours in both retail and commercial sectors during the Covid-19 pandemic have evolved in support of digital banking service

By SHAZNI ONG / Pic BLOOMBERG

THE changing customer behaviour towards traditional financial services largely influenced by the coronavirus spread, has made the digital banking business model ever more appealing, if not a safer option during a global pandemic.

The Movement Control Order (MCO) combined with urgent financial requirements due to the Covid-19 outbreak, is leading many retail and corporate customers to seek online banking services to avoid unnecessary trips to bank branches.

“Recent customer behaviours in both retail and commercial sectors during the pandemic have evolved in support of digital banking services.

“As customers and businesses seek alternatives to safely run operations, the potential is great for digital banking to be the next success story for the financial services sector in Malaysia,” said KPMG Malaysia head of financial services Adrian Lee.

He said the changing socio-economic landscape has altered customers’ money management, spending patterns and business operations, in which digital banking could provide unique values by pushing products which are customer-centric.

“Digital banking presents a value proposition poised to help companies and individuals get back into the economic saddle, and financial services providers that design their products around customer needs will stand out the most.

“The country is finally moving towards a period of economic recovery as most businesses resumed operations following the implementation of the Conditional MCO on May 4,” he said in a statement following the release of KPMG’s latest report entitled “Digital Banking: The Inclusive Agenda” recently.

Bank Negara Malaysia (BNM) is due to announce its application guidance for the five digital banking licences following a public consultation.

The updated exposure draft on the licensing framework for digital bank is due to conclude on June 30, 2020.

Interests have already been stirring among the bank and non-bank institutions, ranging from credit businesses, telecommunications, e-commerce platforms, advanced technology companies and local conglomerates.

Among those which have been reported — include e-hailing firm Grab Malaysia, telecommunication giant Axiata Group Bhd and gaming firm Razer.

Sunway Bhd is the latest party to express interest on the matter having announced it last month.

“Given the emphasis BNM has placed on financial inclusion, successful applicants will be the ones that demonstrate how their products and services will help the underserved and unserved segments rebuild themselves financially,” said Lee.

KPMG’s financial services advisory partner and head of financial risk management Yeoh Xin Yi said a successful digital bank should incorporate three areas into its strategic blueprint. The three areas are, understanding customer behaviours and expectations, improving financial literacy and inclusion, and being an active platform.

Yeoh said KPMG Malaysia conducted an online survey to understand customer appetite and concerns when it comes to digital banking.

Among the findings, the study revealed that 77% of the 1,220 respondents in Malaysia believe digital banking is the next evolution in financial services, and 82% are already using Internet banking functions of their banking service providers.

“It is interesting to note that 82% indicated they would consider opening a bank account through online platforms only if they are regulated by BNM,” she said.

Yeoh noted that despite there being more than 1,823 bank branches in Malaysia as of December 2019 and more than 37 banking institutions covering commercial banks, Islamic banks, and development financial institutions, there is still a lack of coverage for the unserved and underserved segments of the B40 (bottom 40%) and M40 income groups.

“Customers that fall into the unserved or underserved segments are more likely to have a profile that falls short of the conventional bank’s credit criteria when financing is sought.

“Digital banks can view this as an opportunity to expand its reach into untapped markets while also delivering on BNM’s aspirations for financial literacy and inclusion,” she said.

For the unserved or underserved in retail and non-retail segments, Yeoh said micro-savings or deposits, micro-financing and micro-insurance are some of the basic products that are needed.

“These ‘bite-sized’ products enable consumers to access affordable financial enabling services in manageable quantities, and introduces those who are financially unaware of products that can gradually improve their financial literacy and economic livelihood,” she said.