KPMG: Trust and innovation should be anchors for Malaysia’s 1st digital banks

By ASILA JALIL / Pic TMR

APPLICANTS for digital banking licences in the country should focus on making trust and innovation as the core factors for their ideation process and business model, especially to applicants who are not known for providing financial services.

KPMG Malaysia head of financial services Adrian Lee said a successful digital bank is one that customers can trust with their money and data.

“Building trust with Malaysian households and businesses is crucial, especially for companies not known for providing financial services and are looking to enter the digital banking space.

“We only need to look at Singapore digital bank licence applicants to see the wide variety of companies who applied. We expect to see a similar diversity of applicants here in Malaysia,” said Lee in a statement yesterday.

Lee said the trust the applicants should earn from customers goes beyond techno- logy performance and risks associated with it.

According to the firm’s Consumer Loss Barometer — “The Economics of Trust” report — 49% of local consumers have had their financial information compromised, higher than the global average of 37%.

A deeper study into the economics of trust within the financial services sector revealed that 40% of local consumers believe their financial institutions should have full or joint responsibility for ensuring mobile devices used for mobile banking are secured.

“This is why fostering trust and gaining confidence from customers is becoming a differentiator for sustainable business. The pandemic has accelerated the shifting trends of customer behaviour in support of digital banking services, so it’s an opportune time for Malaysia to have its own digital banks to serve a wider population in need of financial support in the current economic landscape,” Lee said.

Meanwhile, KPMG’s head of financial risk management and digital banking leader Yeoh Xin Yi said digital banks should unravel the underlying reasons traditional financial institutions are prevented from serving certain customer segments.

Yeoh explained that as customers are often turned away from existing financial institutions due to the higher credit risk, this constitutes that customers are unable to repay their loans.

“Consequently, if the digital bank’s loan book solely comprises ‘underserved’ customers, we can expect that a larger proportion of their loans would encounter defaults, which means the digital bank will struggle to be self-sustaining.

“This indicates that efforts should be leveraged on digitally-enabled technology architecture and experience centricity models, imposing insight-driven strategies and actions to minimise potential risks,” she said.

Successful optimisation in these aspects can provide new transactions for digital banking applicants and also enables them to provide the best services and outcomes beyond their customers’ financial needs.

Yeoh also advised applicants to consider an early consortium formation and alignment of visions and strategies that are favourable to the local landscape to ensure that submissions to Bank Negara Malaysia are thoughtful and comprehensive.

The central bank has issued a policy document on licensing framework for digital banks in December, following a six-month public consultation, and set June 30, 2021, as the deadline for the submission. The central bank plans to award up to five such licences.

Last month, the Monetary Authority of Singapore awarded digital full bank licences to Grab Holdings Inc-Singapore Telecommunications Ltd consortium, tech giant Sea Ltd, Ant Group as well as a consortium which consists of Greenland Financial Holdings Group Co Ltd, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management.