Being the first of firsts: The race of digital banks

WITH Bank Negara Malaysia (BNM) opening the submission period for the licence to create Malaysia’s first digital banks, more applicants are joining the race to compete for it.

“After months in consultation with various stakeholders, BNM has set June 30, 2021 for the submission deadline, which isn’t much time,” said KPMG head of financial services (Malaysia) Adrian Lee.

“It is likely an attempt by BNM to separate the serious applicants from the crowd,” he added.

Much like any normal race, there will be a common starting point for the applicants to fulfil BNM’s mandate for financial inclusion.

However, Lee advises the applicants to focus on trust and innovation at the core of their ideation processes and business models as well, in order to stand a chance to bag one of those licences.

“A successful digital bank is one that customers can fully 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,” he explained

Lee also said that he hopes to see a diverse range of applicants coming from various industries in Malaysia as there are in Singapore.

He further reminded that applicants must understand that trust goes beyond technological performance.

“Customer security should be prioritised, not only in their digital products and services but also in the delivery through trustworthy channels and platforms as it will be the bank’s sole point of engagement with the customer,” he added.

According to KPMG’s Consumer Loss Barometer –The Economics of Trust report, 49% of consumers from Malaysia 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 found that 40% of consumers in Malaysia believe their financial institutions should have full or joint responsibility for ensuring that 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,” Lee said.

He added that since the pandemic accelerated the shifting trends of customer behaviour in support of digital banking services, it is the perfect time for Malaysia to have its own digital banks.

The challenge now is for the applicants to demonstrate how their digital bank model can address the financial inclusion mandate.

According to KPMG head of financial risk management and digital banking leader Yeoh Xin Yi, the key is to unravel the reasons why traditional financial institutions were unable to serve certain customer segments.

“With customers often turned away from existing financial institutions due to the higher credit risk. 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,” she opined.

To soften the blow, Yeoh advised for digital banks to leverage on digitally-enabled technology architecture and experience centricity models, imposing insight-driven strategies and actions that will minimise any potential risk.

Similar to Lee, Yeoh also advises applicants to consider an early consortium formation and alignment of visions and strategies that are favourable to the Malaysian landscape as BNM weighs its decision as to who will cross the finish line and be awarded the digital bank licences. – Feb 1, 2021

Subscribe and get top news delivered to your Inbox everyday for FREE