Non-fintech firms vie for digital bank licences to complete B2C ecosystem

Potential of digital banking in Malaysia is tremendous with high acceptance of the society


ONE of the main focus for the local corporate scene this year is the awarding of the digital banking licences, expected to be announced in the first quarter.

Unlike in the past, it is apparent that more non-fintech companies are vying for the licences, as the pandemic accelerates digitalisation in the country.

The bidders not only have a banking or fintech background, but they are also industry conglomerates, e-commerce operators, cooperatives and state governments. The non-fintechs have joined forces with banking companies to apply for the licences.

UniKL Business School economic analyst Dr Aimi Zulhazmi Abdul Rashid told The Malaysian Reserve (TMR), digital banking licences are attractive to non-banking companies and organisations as they are able to complete their ecosystem in their business-to-consumer (B2C) and business-to-business businesses.

“They already have ready markets in terms of the retail consumers, commercial and corporate customers using their existing products or services.

“Thus, having the digital banking licence will complete their business ecosystem, especially moving them into the digital era,” he said.

On the other hand, existing banking groups may need to perceive their strength in providing mobile banking, e-wallet support and payment gateway as sufficient enough to protect their positioning in the banking industry.

“The potential of digital banking in Malaysia is indeed tremendous with high acceptance of the society.

“This is underlined by just one component of digital banking, ie in e-wallet growth during the Covid-19 pandemic, a tremendous 89% was reported in a huge volume of 468 million in just one year!” Aimi Zulhazmi said.

He hopes that Malaysians can learn from China’s Alipay which has successfully replaced banks as the medium of exchange over a short period of time. China’s huge growth in technology has driven the nation to become a booming economy pre-pandemic.

“The same could happen in our country and certainly not a surprise as many non-financial organisations move into the fintech industry via digital banking licences,” he added.

Some of the applicants include Axiata Group Bhd and RHB Banking Group Bhd, which teamed up to form a consortium for the agreement where Axiata’s subsidiary Boost Holdings Sdn Bhd will hold a majority stake of 60% while RHB will hold the remaining 40% in the digital bank.

Sunway Bhd has also joined forces with Chinese fintech firm Linklogis Inc and Bangkok Bank plc to apply for a licence.

Sunway has a 51% stake in Credit Bureau Malaysia, which would enable it to achieve its goal of building a fintech ecosystem and securing a digital banking licence.

In addition, AEON Credit Service (M) Sdn Bhd and AEON Financial Service Co Ltd (AFS) have also joined the race for a licence, where they would acquire a 40% and 60% stake in the venture respectively.

Paramount Corp Bhd has also submitted the application alongside Star Media Group Bhd, Prosper Palm Oil Mill Sdn Bhd, RCE Capital Bhd and a technology partner.

AirAsia Group Bhd’s e-wallet unit BigPay has also partnered Malaysian Industrial Development Finance Bhd and Ikhlas Capital Master Fund Pte Ltd. BigPay CEO and co-founder Salim Dhanani believes the licence would enable them to provide accessible financial services to individuals and micro, small and medium enterprises with transparent fees.

Bank Negara Malaysia said in July that it has received 29 bidders for its digital banking licences, following a six-month application period which ended on June 30, 2021.

The licences are under the Financial Services Act 2013 and the Islamic Financial Services Act 2013, where only five applicants would be the successful bidders.

“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 on innovative application of technology,” the central bank said.

According to PricewaterCoopers Malaysia (PwC), successful digital banks are able to identify a gap in the crowded banking space beyond deposits or payment space.

“This gap needs to be of sufficient size and growth potential to build a business model that addresses customers’ needs or pain points,” it said in a statement.

Embarking on digital banking also goes beyond digitalising legacy banking approaches.

“They are able to leverage technology to innovate and build fundamentally different approaches in delivering their services.

“They also do this with agility to remain ahead of their competitors, while keeping operations costs lean in acquiring and servicing customers,” PwC said.

Digital bank is also able to differentiate their approach to banking and deliver services that are targeted, personalised and unique. They include propositions that integrate how customers live, partnerships that allow access to not only many different products but also offerings, as well as technology that enhances the customer’s experience in banking.

Of course, there are challenges that come with virtual banking including slow governance, concerns around cannibalisation and margin compression.

However, PwC believes the benefits would outweigh the challenges as they see this as an opportunity to develop business models that work around these issues.