By Ranjit Singh
THE emphasis for digital banking in Malaysia is on innovative business models that can serve underserved segments, while a key goal is to ensure that the stability of the financial services sector is preserved, according to Bank Negara Malaysia (BNM).
In an e-mail reply to FocusM, BNM said the existing licensing and regulatory framework for banking institutions was being reviewed to facilitate the entry of digital banks.
It said experiences in other markets have shown that digital banks have the potential to increase access to finance for underserved segments, for example in channelling financing towards micro and small enterprises.
“A consultation paper is on track to be issued to the public by year-end. Applications for digital bank licences will commence upon issuance of the licensing framework (expected in the first half of next year).
“For Malaysia, the key outcomes expected from licensing digital banks are largely customer focused – catalysing new user experiences as well as enhancing access and quality of financial services for underserved segments,” the central bank said.
Digital or virtual banking is a new phenomenon in financial services which has rewritten the rules of traditional banking.
Digital banks operate without a physical presence, so all transactions are done on mobile devices or a desktop computer. Audrey Yap, Accenture’s finance practice lead, told FocusM that digital banks are “branchless banks” that offer loans and credit, take deposits and sell financial products very much like conventional banks.
“Digital banks differ from conventional banks mainly because of their internal systems and the technology that they adopt,” Yap said.
She said digital banks have an AI-powered chatbot to answer customers’ questions 24/7 instead of relying on human interaction. These banks are more data-centric than conventional banks and gather data at every single contact point with customers. This is done to offer the most personalised services and products. They also rely on cloud technologies to adapt and scale their service offerings more quickly.
This is largely enabled by new technology that helps digital banks to drive down cost and increase efficiency to serve these segments.
The central bank added that admitting diverse licensees would also infuse greater competition and dynamism into the financial sector.
Yap of Accenture said digital banks around the world have grown exponentially and are expected to continue their growth trajectory. She cited the example of UK where digital-only banks could procure 35 million customers globally in just 12 months, almost triple the 13 million they have currently. According to Accenture research, they have also increased their average deposit balances five-fold in the first half of 2019.
How will conventional banks fare with the onslaught of digital banks? According to Yap, conventional banks are rising to the challenge by improving their services and products and becoming more focused on offering digital-savvy customers with improved banking experiences. She said there will still be room for conventional banks but they must up the ante on innovations and developing new business models that fit the digital ecosystem.
Since digital banking promotes “banking without human interaction”, issues of cybersecurity have surfaced. According to Yap, digital banks address cybersecurity issues very much like conventional banks in the sense that they protect customers’ funds, privacy and transaction data.
She added that there could be some difference, for instance, authentication can be done via biometrics instead of a six-digit personal identification number (PIN). Digital banks are run on cloud computing so their security systems would differ from that of conventional banks.
