Digital banks set to put up innovative competition for local major banks

KUALA LUMPUR – The newly announced digital banks are expected to put up a tough innovative competition for major banks in Malaysia, says analysts.

According to analysts from Moody’s Investor Service, the major banks, namely Malayan Bank Bhd, CIMB Bank Bhd, Public Bank Bhd, RHB Bank Bhd, Hong Leong Bank Bhd and AMMB Holdings Bhd (AmBank’s holding company), will have to fend off stiff competition from the new digital banks which Bank Negara Malaysia (BNM) announced end of April 2022.

Moody’s believe the new digital banks will allow competitiveness for deposits in the consumers as well as the SME segments but also anticipates the major banks to hold steady against competition through their entrenched franchises and ongoing digital enhancements which encourages customers’ loyalty.

“The major banks have been creating their own versions of ‘super apps’ that currently enable clients to access the whole spectrum of their financial products and services along with digital payments using application programming interfaces,” it stated in a recently released statement.

Additionally, the major banks also benefit from initiatives introduced by the government to increase payment efficiency and inter-operability such as the DuitNow and DuitNow QR code that allows for fast transactions.

On April 29, BNM revealed the five consortia which were selected to receive Malaysia’s digital bank licences which are Boost Holdings Bhd and RHB Bank Bhd; GXS Bank Pte Ltd and Kuok Brother Sdn Bhd; Sea Ltd and YTL Digital Capital Sdn Bhd; AEON Financial Credit Service Co Ltd, Aeon Credit Service (M) Bhd and Moneylion Inc; as well as the consortium led by KAF Investment Bank Sdn Bhd.

Despite that, Moody’s remarked that the new entries are not expected to materially impact the market shares of the major banks over the coming four to seven years seeing as the digital banks are predicted to remain small.

BNM explained that these digital banks are required to complete their operational readiness phase that will be certified by the central bank via audit before they are able to fully begin their operations. The process is expected to take between 12 to 24 months before they can pass the audit and truly begin their operations.

Nevertheless, Moody’s explained that other small banks in Malaysia will face increased competition from both the new digital banks and major banks and their challenge would be acquiring better technological infrastructure brought on from limited resources.

The statement from Moody’s also mentioned that Malaysia is now amongst Southeast Asian counterparts Singapore, the Philippines and Indonesia all who have introduced digital banks in their country’s financial systems.

– BERNAMA

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