Scalability in digital banking licence bid

AirAsia, Sunway and Boost appear to be looking at the licence to monetise their sizeable database


BANK Negara Malaysia’s (BNM) offer of digital banking licences attracted applications from 29 consortiums at the end of June, six months after the central bank released its Licensing Framework for Digital Banks.

Several big corporations from various sectors and non-financial companies have officially confirmed their desire to pursue the conventional and Islamic digital banking licences.

BNM may issue up to five licences, and successful applicants will be notified in the first quarter of 2022.

Notable names like AirAsia Group Bhd, Sunway Bhd and Boost Holdings Sdn Bhd appear to be looking at the licence to monetise on their sizeable database.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid (picture) believes one of the main criteria the central bank will look at when choosing its applicants will be scalability.

This would mean the existing technological adoption in the existing business model and the number of customer databases the applicants have will be one of the main criteria that BNM will look into.

“Perhaps, the BNM would like to see these companies just leap frog in terms of their existing infrastructure because what really matters is how the general masses (the bankable and unbankable customers) would benefit from the services rendered by the digital banks,” he told The Malaysian Reserve (TMR).

Mohd Afzanizam also emphasised that data is indeed the new “oil” for companies to leverage for a digital banking licence.

However, he said the question remains on how the data can be galvanised and turn into a revenue stream for the bidders.

“Having a digital banking licence for a company is a means to an end. That is how the data can be monetised effectively,” he added.

Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff believes BNM needs to choose the final five applicants based on the criteria the central bank has set in the application guideline and should not be pressured or instructed to choose otherwise.

He added that the successful applicants should complement the existing banking services and offerings to include the underserved and unserved populations the central bank is targeting with the licence offer exercise.

“Having an experience in lending and financing will be an important consideration, as well as the capacity and capabilities of employing the best and secured technologies, not the discount talents to facilitate the digital banking transaction,” he told TMR recently.

Ahmed Razman said having strong customer data can also help in securing a digital banking licence including the type of customers the applicants currently have.

He noted that if the majority of the customers are living in urban towns and already have bank accounts with the existing banks, it might not help BNM’s achieve its intended market — the underserved and unserved population.

So far, among the Bursa Malaysia listed applicants is Pertama Digital Bhd which has secured four product partners, namely Trevo, Paywatch, Qoala and Butterfly FX to provide the expertise and tech solution to their proposed digital bank.

In a recent filing with the exchange, Pertama Digital, a financial technology (fintech) company, stated the four partners were in addition to securing Crowdo Holdings Pte Ltd and INFOPRO Sdn Bhd as consortium partners to apply for the digital banking licence from BNM.

Other listed applications include Axiata Group Bhd and RHB Banking Group Bhd.

Axiata’s subsidiary Boost and RHB have signed a comprehensive heads of agreement last month to form a consortium for the application.

The parties stated that Boost will hold a majority stake of 60% in the venture while RHB the remaining 40% should their bid turn out to be successful.

Retail finance company AEON Credit Service (M) Sdn Bhd and AEON Financial Service Co Ltd are also contenders for the licence as they have submitted a joint application to the central bank to operate a digital bank in the country.

AirAsia’s e-wallet unit BigPay has thrown its capital into the digital banking bid in association with Malaysian Industrial Development Finance Bhd and Ikhlas Capital Master Fund Pte Ltd.

BigPay COO and co-founder Salim Dhanani said the licence would enable the group to provide accessible financial services to individuals and micro-small and medium enterprises with transparent fees.

Singapore’s largest telco Singapore Telecommunications Ltd (Singtel) and its digibank partner Grab have applied for the digital bank licence, adding the application was made together with a consortium of other investors.

It is important to note the Grab-Singtel consortium was one of the winners of Singapore’s digital full-bank licence bid last year.

Green Packet Bhd has entered into a consortium with Zico Holdings Inc and M24 Tawreeq Sdn Bhd to jointly submit an application for the digital banking licence.

iFAST Corp, is leading a consortium to bid for one of the five digital bank licences on offer. The iFAST-led consortium is a synergistic partnership that seeks to build on the strengths of both local companies and international players.

According to the wealth management fintech platform, it will own a 40% stake in the digital bank if the application is successful. The beneficial equity ownership of the consortium will be 57% Malaysian.

Property developer Paramount Corp Bhd also submitted an application to the central bank as the lead applicant of a consortium which includes Star Media Group Bhd, Prosper Palm Oil Mill Sdn Bhd, RCE Capital Bhd and an undisclosed technology partner.

Meanwhile, ManagePay Systems Bhd announced its wholly owned subsidiary, ManagePay Services Sdn Bhd (MPSB), had submitted an application for a digital banking licence, in partnership with three local strategic partners.

It noted that the three strategic partners are Bumiputera entities that have expressed their interest in investing up to 45% in aggregate in MPSB’s equity if the application is successful, subject to prior regulatory approval.

ACE Market-listed technology firm PUC Bhd revealed that it has submitted an application for a digital bank licence via a consortium formed with two state governments and a conglomerate.

Property-to-medical conglomerate Sunway had teamed up with Chinese fintech firm Linklogis Inc and Bangkok Bank plc to apply for the license, according to news reports.

Sunway had recently acquired a 51% stake in Credit Bureau Malaysia which the group stated would enable it to achieve its goal of building a fintech ecosystem and securing a digital banking licence.

According to BNM, successful applicants that meet all prudential criteria will be expected to contribute towards greater financial inclusion by offering products and services to address market gaps in the underserved and unserved segments.

This includes promoting suitable and affordable financial solutions by leveraging innovative application of technology.

The central bank requires the successful applicants of the digital bank licence to maintain minimum capital funds of RM100 million, unimpaired by losses, for the first three to five years.

The digital bank promoters will then have to increase the amount to RM300 million.

The digital banks will have to face a RM3 billion capital on the asset size during the foundational phase to ensure they do not disrupt the existing conventional and Islamic banking system.