KUALA LUMPUR – The competition to be Malaysia’s first digital bank has intensified with the application for digital banking licenses now open for submission. After months in consultation with various stakeholders, Bank Negara Malaysia (BNM) has set June 30, 2021 for the submission deadline which isn’t much time and is likely an attempt by BNM to separate the serious applicants from the crowd, said Adrian Lee, Head of Financial Services at KPMG in Malaysia.
Moreover, with banks and non-bank institutions vying for the license, the focus to fulfil BNM’s mandate for financial inclusion will be a common starting point for applicants. But Lee advised applicants to also keep trust and innovation at the core of their ideation process and business model.
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. The pandemic has accelerated the shifting trends of customer behavior in support of digital banking services, so it’s an opportune time for Malaysia to have its digital banks to serve a wider population in need of financial support in the current economic landscape,” said Lee.
Furthermore, the challenge for applicants to demonstrate how their digital bank model will address the financial inclusion mandate also needs to be highlighted. From a purely commercial sense, there is a delicate balancing act between improving financial inclusion and business sustainability.
According to Yeoh Xin Yi, KPMG’s Head of Financial Risk Management and Digital Banking Leader, the key is for digital banks to unravel the underlying reasons traditional financial institutions are prevented from serving certain customer segments, explaining, “With customers often turned away from existing financial institutions due to the higher credit risk, this constitutes that customers are unable to repay their loans. 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.”
“This indicates that efforts should be leveraged on digitally-enabled technology architecture and experience centricity model, imposing insight-driven strategies and actions to minimize potential risks. Successfully optimizing in these aspects can provide new tractions for digital banking applicants. Not only can they meet each customer’s unique set of preferences especially those that fall into the unserved and underserved segments, but also enables them to provide the best services and outcomes beyond their customers’ financial needs,” she added.
Additionally, Yeoh advised applicants to consider an early consortium formation and alignment of visions and strategies that are favorable to the Malaysian landscape as one way to ensure that the applicant’s submission to BNM is thoughtful and comprehensive.