The race for digital banking licenses in Malaysia intensifies

The race for a digital banking license in Malaysia is intensifying. (Photo by STR / AFP)

  • Submissions for digital banking license applications closed on June 30, 2021
  • It is now up to the central bank to issue up to five digital banking licenses in 2022.
  • A glance at the competition shows that many large organizations and e-wallet operators are rising to the challenge that will reshape traditional financial services.

Malaysia officially closed applications for its digital banking licenses last Wednesday, six months after Bank Negara Malaysia (BNM), the central bank, released its licensing framework for digital banks. The bank did not immediately disclose the number of applications but had recently mentioned that 40 parties had expressed interest.

The institution is expected to issue five licenses by the first quarter of next year with an asset threshold of no more than RM3 billion ($ 722.62 million) for the first three to five years of operation. After the initial phase, the limit will be removed and digital banks will be subject to regulations similar to those of conventional banks.

In a report by Malaysia Fintech News, Suhaimi Ali, Director of Financial Development and Innovation at BNM, shared the central bank’s vision for Malaysia’s digital banks.

There are three types of digital banks that they hope to see enter the market, including: “Specialists who target a specific segment of customers to target their product offerings, which could include services to SMEs using multiple technologies.

These include alternative credit scoring; ecosystem players who leverage their brand, channel footprint and existing customer base of their non-bank businesses, and innovative core banking providers who offer simple products for day-to-day banking, but use technology to gain detailed customer information and deliver hyper-personalization.

The hope, according to Suhaimi, is that this new generation of banks will challenge the status quo by introducing new ways of delivering financial products, simplifying banking products and services, and making finance more accessible to customers in general. . Such progress could potentially translate into increased financial inclusion.

Competitors of digital banking in Malaysia

Among the 40 companies that intended to apply include the telecommunications giant Axiata through a merger with the local bank RHB Group; real estate developer Sunway, budget airline AirAsia through its financial app BigPay and tech company Green Packet.

Even international brands, including US fintech company MoneyLion and South African digital bank TymeBank, are looking to provide digital banking services in Malaysia.

Malaysia’s decision to open its banking sector comes as Asian markets like Hong Kong, Singapore, and the Philippines are introducing new players, mainly fintech companies, who hire incumbents with their low-cost and newer services.

The ardent interest in the digital banking space is understandable, given that it might be the only type of banking license that will be issued by the country’s central bank, at least for now, more than 20 years after the Asian financial crisis, when banks over small capital were required to consolidate.

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