MAGAZINE IT (GROUP DIGITAL BANKING & SERVICES)

REVEALING THE MAGICAL INSIGHT IN DIGITAL BANKING JULY 2020

DI G I TA L
B ANK STRATEGIES TO

LAUNCH OR BECOME A
DIGITAL BANK

COVID-19: OPPORTUNITIES pg. 2

AND CHALLENGES OF
DIGITAL BANKS

HOW BANKS IN pg. 22

MALAYSIA ARE KEEPING
UP WITH THE DIGITAL SHIFT?

DIGITAL BANKING pg. 35

IS CHANGING MALAYSIA’S
FINANCIAL LANDSCAPE

INTEREST IN DIGITAL pg. 38

BANK LICENCES
PICKS UP

COVID-19 AND THE ROAD TO A
CASHLESS SOCIETY

WWW.DIGITALBANK.COM

DIGITAL
BANKING - THE
QUICK AND
EASY WAY TO
ENTER YOUR
BANK

SPECIAL THANKS

CHIEF EDITOR

SAPPHIRE JEGIR KHAN @ JANGIR
MOHD AMIRUL HAKIKI BIN ABU BAKAR

EDITOR

SAPPHIRE JEGIR KHAN @ JANGIR

DESIGN

SAPPHIRE JEGIR KHAN @ JANGIR

FOUNDER

MOHD AMIRUL HAKIKI BIN ABU BAKAR

CONTACTS

PHONE: 03-74889769
FAX: 03-33791583

NEWS pg 1

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5 INFORMATION

Malaysia is gearing up for a 13 21
digital banking revolution What is the future of How b
banking? Malay
8 keepin
15 digital
Malaysian digital bank seals Why do consumers
pact with UK-based bank prefer digtal bank- 24
ing? COVI
10 banks
18 digital
DBS to pilot face-verifica-
tion tech to lure more digital
banking signups

The types of digital 26
banks and what they
mean for business 10 dig
featur
19 know
How digital banking
has been transform- 30
ing the financial
services industry The im
digital
traditi
consum
comm

CONTENT

HERE'S HOW pg 32

32 41
OCBC customers can Malaysia gets ready
now access digital for virtual banks
banking services with
Singpass
43
N pg 13 Malaysia's Central
34 Bank to issue 5
banks in Digital banking is digital banking
ysia are changing Malaysia's licenses
ng up with the financial landscape
l shift
ID 'positive 37 45
s see rise in
l transactions Interest in digital Prepare winning
gital banking banking picks-up strategy to secure
res you should BNM's digital
about 39 banking license

Digital banking race
in Malaysia
accelerates

mpact of
l banking in the
ional
mer &
munity bank

NEWS

COVID-19: OPPORTUNITIES
AND CHALLENGES OF
DIGITAL BANKS
The ongoing COVID-19 pandemic has meant that businesses are being challenged to rethink how day-to-
day activities are conducted.

By: SAPPHIRE JEGIR KHAN @ JANGIR support the unbanked, underserved,

Similarly in Malaysia, in and micro-SME segments. This highly
the days leading up to the
MCO enforcement, there was an anticipated initiative follows similar
increase in traditional small and medium-sized
enterprises (SMEs) opening up online announcements by regulators in South Korea,
banking accounts to facilitate the transfer of
funds in lieu of depositing Hong Kong, and Singapore. These
traditional cheques at their local bank branches.
applicants, supported by innovations and
On 27 December 2019, Bank
Negara Malaysia announced its intention to award up emerging technologies, have the
to 5 new digital bank licences in 2021 to
drive further innovation in the market to potential to modernise the Malaysian financial
support the unbanked, under-
served, and micro-SME segments. services. market.



Evidently, consumers and SMEs are

turning to digital channels out of necessity

during these challenging times. This is

proving to be an unlikely catalyst and a

further business case on the

opportunities for future digital banks in Malaysia.

1

THE OPPORTUNITIES
FOR FUTURE DIGITAL
BANKING IN MALAYSIA

1. Empowering the SMEs


The SME sector, which

contributedto38.8%ofthecountry’sGDPin2019and

employs about 10 million workers, is

negatively affected by the ongoing pandemic.

When the dust settles from the aftermath of

the MCO, these micro-SMEs and SMEs,

which are already underserved due to

high servicing costs and low revenue

potential, will require assistance from

financial institutions.



These segments face

challenges in obtaining traditional

credit facilities owing to their limited track record

and low credit scores which typically

result in high loan rejection rates. They also

have to deal with the intricacies of

lengthy processing and approval times. THE MAIN
CHALLENGES OF
Potential digital bank licence applicants DIGITAL BANKING
DURING COVID-19
can bring innovations which provide better

credit assessment as well as

lower servicing costs to micro-SMEs.

2. Boosting financial literacy 1. Target operating model

• Banks have been classified as essential ser-
As the country’s projected GDP growth may vices. Some of their staff in core unctions are
shrink in 2020, consumers are expected allowed to continue working from bank prem-
to further tighten their purse ises, while the remaining workforce are able
strings on non-essential spending. to work from home with minimal disruptions
Future digital banks will have a role to due to usage of echnologies.
play. They are likely to form various
partnerships with retailers. With their 2. Hosting data on the cloud
insights on consumer spending patterns, they
will be able to direct consumers towards • Digital banks will not have a physical presence,
promotions on their partners’ platforms. their delivery of service will bemainly through the
Internet and via mobile dial-in. The quality and
Analytics tools and platforms may bandwidth of Internet services and call centres
provide personalised information that allow have been put to the test during this MCO period.
consumers to change their spending and
savings habits. The B40 segment (the
bottom 40% income group in
Malaysia) is likely to benefit from these product
features.

2

NEWS

INTEREST IN DIGITAL
BANKING PICKS UP AMID

COVID-19

We do not expect digital banks to compete with unsustainable rates as they are required to prove their
profitability and sustainability to the central bank in order to maintain their licences.

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

The Covid-19 pandemic has triggered development of digital banking in the country.
a spike in the use of technology and
digital channels for payments and
banking transactions. With the movement control
order (MCO) which began on March 18 and with
the current conditional MCO, many prefer to con-
duct banking transactions digitally. Fitch Ratings
said on Friday that it noticed many major banks
across the region have reported a surge in online
banking activities since the onset of the pandemic.

“We expect this trend to persist even af-
ter the outbreak subsides, as customers who
were used to cash-based and over-the-counter
transactions maintain their newly adopted
habits. This, coupled with the greater adop-
tion of open banking architectures in some
jurisdictions, would force banks to innovate
more quickly or risk falling behind, ” Fitch said.

The pandemic, according to analysts, will
inadvertently spur more fintech players to
complement the incumbent banks in the

3

Despite the tough economic condi-
Besides offering attractive lending rates,
tions, these non-bank and technology players the spokesperson says digital banks can offer sim-
pler application procedures and faster processing
are taking a long term view of the bright pros- times that can encourage higher take-up rates, and
perhaps innovative lifestyle product support.
pects of the digital banking space.Furthermore,
The group’s current finance-related eco-
digital banking offers good revenue streams system consists of a money-lending and hire-pur-
chase business, an invoice factoring business and
and lower cost of operations in the long run. cross-remittance business. These businesses are
currently much smaller than the group’s property
development, healthcare, construction businesses.

One of the latest entrants is As to how Sunway is preparing for its
venture into the digital banking space in
Sunway Bhd which plans to build a financial view of the requirement of new skill sets
and added risk associated with this venture, the
technology (fintech) ecosystem and to secure spokesperson adds: “We are able to achieve this
because we understand the key success factor for
a digital banking licence with the purchase of a each of these businesses.

51% stake in Credit Bureau Malaysia (CBM). “Before we venture into digital banking,
we have completed our due diligence by meticu-
lously carrying out industry research, ensuring that
we have enough resources as well as being able
International technology and to manage any risks that are present with every
business venture.
telecommunications company Green
“From our in-depth studies, we are able to
Packet Bhd has also expressed its in- understand the key success factors for the digital
banking business.
terest for a digital banking licence.

Recently, the telco announced a venture

with China Internet giant Tencent as its lo-

cal partner for an AI-enabled electron-

ic know-your-customer (e-KYC) product.









Boost, Grab, TNG Digital,
Razer
Axiata Pay, BigPay,

Group, property firm

Paramount Corp Bhd and US-founded

financial start-up MoneyLion Inc are other players

which are also vying for a digital banking licence.

“Digital banks leverage technologies to
further improve efficiency through frictionless au-
tomated systems, offer seamless and convenient
user experiences as well as lower operational costs.
In this case, big data will also be very useful to
match the right customers with the right products.

4

NEWS

MALAYSIA IS GEARING
UP FOR A DIGITAL

BANKING REVOLUTION

• Digital banks are set to be introduced in Malaysia, with regulators ready to provide 5 digital banking
licenses.

• Delays caused by the pandemic have delayed license application processing, but digital banks still
look on-track to be introduced in 2021.

• More than 70% of Malaysians are looking forward to a digital banking revolution.

By: SAPPHIRE JEGIR KHAN @ JANGIR

Over the last 20 years, the financial facilities.
services industry in Malaysia has
slowly but surely been transitioning Traditional bank cards with magnetic strips
towards adopting digital banking services. were being phased out in favor of newer chip-
based ATM cards that promised new types of bank-
Since the early 2000s, advances in IT capa- ing and payment choices along with more stringent
bilities, combined with the deregulation of internet ID security. MEPS Cash was also introduced, the
services by the Federal Bank of Malaysia (BNM) first nationwide e-wallet scheme as an alternative
and mounting globalization efforts, saw new to making retail payments.
technologies being introduced into the Malaysian
financial sphere. This level of banking disruption hadn’t
been experienced in the country since Malaysia
By the end of 2005, there were 12 banks began performing transactions via ATMs over 40
offering internet banking facilities in the country, years ago, the first time alternatives to over-the-
and five banks had introduced mobile banking

5

counter banking were offered.

Digital banking in Malaysia ‘New players on the block’

Negara Malaysia (BNM) The interruption caused by COVID-19
has had both positive and negative
effects on the fintech service pro-
Now, Malaysia finds itself on the precipice of viders vying for the licenses. William Dale, the
another financial industry revolution, with Bank Regional Director Asia Pacific (APAC) at Mambu,
Negara Malaysia (BNM) set to issue up to five digi- a cloud-native Software-as-a-Service (SaaS) dig-
tal banking licenses for the first time. ital banking platform, said: “Banks and financial
institutions in Malaysia must decide how they’re
BNM’s release of its Exposure Draft on going to take advantage of the exciting opportunity
Licensing Framework for Digital Banks had set the that is in front of them, namely, the digital banking
stage asking for feedback from prospective digital revolution about to take place.
licensors in December 2019. But in the wake of the
COVID-19 pandemic, BNM extended its digital “Banks that are reluctant or slow to change
banking framework deadline to June 30 this year, to a more digital approach will face enormous
with possibly more delays depending on hurdles in competition from the new players on the block…”
the evolving pandemic landscape. While the deadline extension might be a boon for
fintech players, the pandemic also acted as a cata-
Both the initial announcement and the lyst to turn individuals and enterprises in Malaysia
deadline extension were met with a flurry of activ- to digital avenues for purchases, productivity, and
ity from both traditional banks and players in the content. These are trends that the coming wave of
fintech scene who are all angling to get their appli- digital banks is set to leverage.
cations in for one of these limited licenses.
“For consumers, the main benefits of
Despite eased regulations to apply, a digital digital banking will be greater access to financial
bank is still going to be a real bank, and will have services at a lower cost, with the introduction of
to comply with forward-looking BNM regulations. digital banking into Malaysia expected to ultimate-
As part of the framework requirements, digital bank ly drive down the cost of banking services through
applicants will need to demonstrate their self-serve technology and automation,” Mambu’s
sustainability and sound operational set up, includ- Managing Director APAC, Myles Bertrand, told
ing showing a defined asset threshold not exceeding Tech Wire Asia.
RM2 billion (approx. US$468 million) in its initial
3 to 5 years of operations; have robust risk manage- “Eliminating the ‘bricks and mortar’ pres-
ment and compliance procedures; be able to access ence of a bank will also have a hugely positive
to deep customer data analytics; must have strong impact on the cost of banking, for both consumers
capital strength; and must comply with the Financial and the financial institutions themselves.”
Services Act (FSA) and Islamic Financial Services
Act (IFSA) regulations, with simplified regulatory 6
requirements at the initial stage.

Banking the unbanked?

This is in line with BNM’s stated “While digital banking is undoubtedly the
objective of leveraging digital finan- way of the future, there are still many traditional,
cial services to drive financial in- established banks that have been very
clusion and to target micro-segments of the com- reluctant to accept that a
munities in Malaysia, particularly the underserved digital transformation of the banking and finan-
and the unbanked. Reports say about eight percent cial services industry is inevitable – these are the
of the Malaysian population remains unbanked, institutions that are going to get left behind […]”
and that digital banking solutions can help reduce
that to 5%. Indeed, a report by McKinsey estimated
that legacy banks that fail to evolve digitally will
The measures and regulations that the see their profits decline by up to 60% by 2025.
Malaysian federal bank is taking has been laud-
ed by observers of the ongoing financial sector
disruption, as Bertrand told Tech Wire Asia: “By
BNM issuing these five digital banking licenses,
it is providing credibility to digital banking as a
valid and viable approach to financial services,”
he noted.

“The stringent framework that is being
built around digital banking in Malaysia is also
testament to the fact that BNM truly understands
the significance of the digital banking revolution.”




Despite persistent delays, Bertrand be-
lieves embracing digital banks is the only route
for financial organizations looking to outlive this
wave of disruption – and that includes traditional
banks. “From our experience, riding the digital
banking wave in the UK and Europe, it’s those
organizations that can set aside their old ways of
thinking and really embrace the digital era that
will experience the greatest success,” he said.

7

NEWS

MALAYSIAN DIGITAL
BANK SEALS PACT WITH

UK-BASED BANK

Digital investment bank Ho Wah Genting Investment Bank (HWGIB) has inked a partnership with Nevis
International Bank & Trust, a fully-regulated banking group with a deep British heritage.

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

KUALA LUMPUR: Digital investment "Through this collaboration, both banks
bank Ho Wah Genting Investment Bank will leverage the strengths of both institutions to
(HWGIB) has inked a partnership with offer their clients online bank accounts, public
Nevis International Bank & Trust, afully-regulat- and private investment products worldwide, and
ed banking group with a deep British heritage. the clearing and settlement of digital assets across
a broad spectrum of digital platforms," said HW-
HWGIB said its clients would gain direct GIB.
access to Nevis' full suite of financial products
and efficient 24/7 online banking services. As the world adopts digital solutions,
digital assets are viewed as a viable investment
"As a fully licenced commercial bank class with the Asian markets holding 40 per cent
with payment and settlement capabilities for fiat of worldwide market shares.
currencies, Nevis International Bank & Trust will
also provide seamless banking support to Asia- HWGIB, which offers blockchain pay-
based customers following its client onboarding ment solutions, has implemented digital payment
protocols, supporting customers across 150 coun- platforms to bridge the gap between digital and
tries in nine different currencies via SWIFT bank traditional banking services.
wires.

8

HWGIB' said its agility would allow it to "Paired with Nevis International Bank
be at the forefront of empowering its clients to and Trust best practices standards in regulatory
integrate digital assets into the investment space compliance, we are confident that this marketing
more seamlessly. partnership will provide APAC customers with a
modern and efficient global platform for compre-
HWGIB chief executive officer Gavin hensive banking solutions."
Lim said it was a fully regulated investment bank
under the supervision of Labuan Financial Servic-
es Authority (LFSA).

Nevis chairman Tony Baldry deems the
pact with HWGIB as a key partnership in the Asia
Pacific region.

Baldry said the collaboration would exem-
plify the value made possible by the confluence
of traditional banking and financial technology.

9

NEWS DBS TO PILOT
FA C E - V E R I F I C AT I O N

TECH TO LURE MORE
DIGITAL BANKING
SIGNUPS

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

DBS bank customers who have other products and services by the end of 2020.
resisted signing up for a digital
banking account due to the hassle Previously, DBS customers who signed up
may now have a reason to go over to the other for digital bankingservices online were required
side. to use their ATM, credit or debit card and PIN
to complete the verification process before they
Singapore’s largest bank has partnered the could access digital banking services for the first
Government Technology Agency of Singapore time. Those who did not have their card and PIN
(GovTech) to pilot the latter’s SingPass face-ver- would have to wait up to five working days to
ification technology to draw new digital banking receive their items by post before activating their
users. digital banking accounts.

This pilot programme intends to reach out Businesses match the user’s presented
to the more than one million DBS customers who facial image against the government’s biometric
are SingPass holders and do not use digital bank- database, but do not collect nor retain any data
ing services, of which over 60 per cent are seniors submitted to ensure user data privacy and security.
aged 62 and above. DBS now has 3.4 million
digibank customers altogether. DBS had conducted a beta trial of the
SingPass face-verification technology with over
Beyond the pilot programme, DBS cus- 100 seniors, as well as students from ITE College
tomers will also have the option of using the Sing- West in July 2020.
Pass face-verification technology to sign up for

10

This new development comes on the
back of digitalisation trends that
have been accelerated by the Cov-
id-19 pandemic. During Covid-19, more seniors
have been turning to digital banking to meet their
banking needs – the number of seniors who used
digital banking in April and May more than tri-
pled compared to the same period last year.

By the end of 2019, DBS found that the
number of customers who had been conducting
their banking needs solely via mobile on the
bank’s mobile banking app DBS digibank almost
doubled from 2017 to 2019. Close to one million
DBS customers today are active on the bank’s
digital banking platforms, and have gone more
than a year without visiting a bank branch or call-
ing the bank’s contact centre for assistance.

Earlier in July, OCBC announced that its
customers can use their SingPass Mobile app to ac-
cess digital banking services via the bank’s mobile
app or Internet banking. OCBC is said to be the
first bank in Singapore to offer such a service.

Using SingPass Mobile as an alternate login
benefits customers who currently use an access
code and PIN instead of fingerprint or facial biom-
etrics to log in to the bank’s digital banking plat-
forms, eliminating the need to remember multiple
access codes and PINs, said OCBC.





Jeremy Soo, head of consumer banking According to OCBC, close to 100,000
group (Singapore) at DBS Bank, said: “Amid one people started using digital banking for the first
of the greatest disruptions ever witnessed in our time this year. The bank also recorded a 40 per cent
time, we are more cognisant than ever about the increase in digital transactions by those aged 50 to
importance of leveraging digital technology to 64; customers older than this clocked a 48 per cent
quickly serve up solutions that benefit the wider rise in digital banking transactions from 2019.
public.”

11



INFORMATION

WHAT IS THE FUTURE OF
BANKING?

New trends in finance, from open banking to the rise of fintech startups, are shaking the industry and
putting customers at the heart of the future of banking.

By: SAPPHIRE JEGIR KHAN @ JANGIR The Future of Banking is Dig-

ital Banking

While security and cost-efficiency
are strong motivators for banks,
the true value of digitalisation
is what it can do for the customer. “Digital bank-
ing makes life easier for consumers,” says Ian
Bradbury, chief technology officer for financial
services at Fujitsu. “People are increasingly en-
joying the simplicity of managing all their financ-
es in one place, setting up automatic payments or
making deposits, any time and anywhere, without
the need to queue in a bank.”

What is Digital Banking? Andwithanincreasingnumberofchallenger
banks and fintechs in the game, competition for the
Digital banking is the digitalisation of customer has never been higher. As Flavia Al-
banking services in order to reduce zetta, chief executive officer of digital banking
risk, improve efficiency and better company Contis points out, traditional banks
serve customers. It allows customers to withdraw have an advantage in both the range and com-
money, apply for loans, make payments online plexity of the products they offer. “Traditional
or on their smartphone and more. Looking to the banks have a 360 degree offering. If they were to
future of banking, digital is no longer an option for put the customer first, they already have a very
firms who wish to survive and it is a must. strong base to continue to occupy their place.”

When it comes to retail banks (rather than corporate More importantly, they have an ex-
or investment banks) going digital, there are two isting clientele, which many of their younger
elements: digitisation and digitalisation. “Digitis- competitors are still trying to build. “The cus-
ing means converting into digital format anything tomer is king and very expensive to acquire.
which is currently manual or paper-based,” says
Simon Paris, chief executive officer of fintech com-
pany Finastra. “Whereas digitalising is a whole new
way of
thinking.”

Once digitisation is complete, banks can start ex-
ploring revolutionary business processes which
were not available to them before, from iris recogni-
tion to artificial intelligence to offer superior bank-
ing services.

13

Banks need to realise that if you look after 4. “Human & Technology” as the Foundation
customers they will reward you with loyal- for the Future
ty,” continues Ms Alzetta, “customer expec- • Innovation in modern day financial servic-
tations have evolved over the years, and there
is no reason why they should not be met.” es is about unlocking potential previously
deemed unattainable, and serving demo-
Why Digital Banking Should graphics previously considered undesirable.
Include A Human Component It is about empowering individuals to take
control of their financial lives, and creating
1. The Winning Strategy opportunities to enable society as a whole
• Just as technology can help to improve op- to prosper – leveling the playing field for
economic opportunity for everyone, not just
erational efficiency and bottom line, it can profitable segments. It is ultimately about
also be leveraged to provide personalized humans – and our quest to leverage the
products and services that benefit the cus- powerful combination of human and machine
tomers. To not risk becoming a dumb pipe power to create a more equitable future that
and losing customers’ trust and loyalty, we can all aspire to.
banks and credit unions must commit to a
new engagement model that focuses on the Not surprisingly, most of the growth can
human touch and solving real problems. be attributed to the increasing popularity
of smartphones, with over 50 percent of
2. Act as a Trusted Guide for Consumer Fi- mobile users owning smartphone in 2018. With
nancial Well Being such a significant reach, it is no wonder that busi-
• Mobile technology allows consumers to gain nesses are desperately trying to transform them-
selves digitally to capture the attention of their
greater awareness of their financial situation. ever-evolving customers. Being digital-first is no
But the buck doesn’t stop there. By leveraging longer a nice-to-have, but a must-do in order to
data analytics and AI, financial institutions can survive.
proactively provide insights and take actions
to improve consumer financial well-being. In the new digital era where consumers
live a continuously connected life, they expect
3. Focus on Digital, But Don’t Neglect the information to be available when they want it and
Human Aspect how they want it. Financial services is no excep-
• While effective implementation of digital strat- tion.

egy is critical for banks and credit unions, hu- Technology has vastly revolutionized
man interaction cannot be ignored. Technology the way we communicate both personally and
can be used to augment the human experience professionally. According to the latest statistics
and empower both customers and employees. published by Statista and Hootsuite, the number
of Internet users exceeds 4.1 billion globally. The
number of mobile phone users is forecast to pass
five billion by 2019.

14

INFORMATION

WHY DO CONSUMERS
PREFER DIGITAL
BANKING?

Everything sooths with digital banking.

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

The rise of mobile banking and mobile pay- Global analytics software firm FICO re-
ments had led to hundreds of branches ports that Malaysian consumers are more
being closed in the UK alone. And ad- comfortable with using their mobile
ditionally, according to Which? the number devices to open and manage bank accounts when
of ATM’s closing was just under 500 a month compared to US and Canadian residents. FICO’s
last year – many of these were free services. Consumer Digital Banking Survey reveals that
23% of Malaysians would rather open a bank
This latest survey, however, shows that account using their smartphones, compared to only
consumers seem to prefer digital banking. In fact, 18% of US and just 16% of Canadian consumers.
of the respondents, only 20% said they would
choose the visit a bank rather than using a digital The study by FICO found that digi-
channel. Because of this, it’s important for banks tal or online account opening is quickly be-
to strike a balance between these two options. coming quite a normal activity in Malaysia
with 78% of survey respondents noting that
On the whole, consumers said they were they prefer using digital banking portals in-
satisfied with their bank’s current digital servic- stead of more traditional financial services
es. When asked if the services met their needs,
66% said they need. In addition to this, 95% Around 65% of respondents said
of consumers said they were confident their they’d want to use an everyday online
bank was able to protect their data properly. transaction account, and 45% said they would use
online services for credit cards, and 28% say they’ll
use digital platforms for obtaining personal loans.

15

The potential for digital banking in
Malaysia was given a boost after Bank Negara
Malaysia (BNM)’s announced on 27 December
2019 to issue five digital banking licenses, with
financial inclusion as a primary objective, to
complement the national agenda of shared
prosperity.

The key to
achieving success in digital
As we venture into the post COVID-19 banking in
Malaysia
world, the financial services sector will be a key
1. Understand what the customers need in the
driver of economic recovery and growth which target segments.

brings more traction and potential for digital 2. Play a key role in improving financial literacy
and financial inclusion.
banking to thrive in Malaysia. As a relatively
3. Be an active platform in the economic lifecy-
new entrant to the financial services landscape, cle of the segments it serves.

digital banking can be seen as either a disruption Pre-requisites include:

or a value contributor to the financial system. 1. Stable and sound infrastructure and network
capabilities.

2. Network enablement.
In the brunt of the pandemic, a new normal is

being redefined as we speak. Customers’ behaviors

in both retail and commercial sectors have evolved

to be more inclined towards digital banking services.



Digital banks can potentially fill the

void that is within our economic environ-

ment, by understanding the demograph-

ics and needs of customers to be an active.

platform in the econom-

ic lifecycle of the segment it serves.



KPMG’s latest re-

port aims to provide you with the

understanding of the dynam-

ics of digital banking, and how, when

implemented well, it will raise fi-

nancial awareness and literacy, and

ultimately, bring economic growth to var-

ious sectors and segments in Malaysia.



In a post COVID-19 world, the financial
services sector will be a key driver of economic
recovery and growth. As a rel-

atively new entrant to the

financial services landscape, digital

banking can be seen as either a disruption or a

value contributor to the financial system.

16

INFORMATION

THE TYPES OF DIGITAL
BANKS AND WHAT THEY

MEAN FOR BUSINESS

Neo banks, beta banks, new banks and nonbanks are all types of digital banking

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

The terms “challenger bank” and “neo The digital banking market is accelerating
bank” emerged a few years ago with around the world, largely because of recent regula-
the rise of a new type of digital bank tory changes that make it easier for new startups to
aimed at providing tech-savvy customers mo- provide financial services to consumers. The legisla-
bile-first, branchless banking services. UK-based tion not only gives bank customers complete control
Monzo and Atom Bank were some of the first digital of their financial data, but it also makes it easier for
banks on the scene. Today, Monzo has more than them to perform payment services across borders. In
1 million customers, a billion dollar valuation, and other words, consumers will be able to share
plans to launch in the U.S. soon. identity,

17

and make payments throughout the EU and EEA more user-friendly interfaces and fee-free
far more easily. services. WeBank by Tencent, Yolt, Lunar-
way, and Moven are examples of neo banks.
The new open banking reform is the UK
version of PSD2 and requires banks to share 3. Beta banks
customer financial data with other financial insti-
tutions securely and in a standard format should a • Beta banks are joint ventures or subsidiaries
customer request them to do so. of existing banks that offer financial services
through the parent company’s license. Beta
banks are often set up as a way to enter new
markets, offering limited services, but to a
The different types of digital broader consumer base. Examples of beta
banks banks include AiBank (a joint venture be-
tween China’s CITIC Bank Corp and search
The terms “challenger bank’’ and “neo bank” giant Baidu) and Simple (a partnership be-
are often used interchangeably, and these tween Bancorp and BBVA).
banks can offer everything from simple
transaction services to lending services for small 4. Nonbanks
businesses. As a result, it can be difficult to under-
stand the difference between all the digital banks • Nonbanks have no connections to traditional
that now exist. banking licenses. Instead, they provide fi-
nancial services by other means. This unique
Here’s one way to classify the current model allows the company to operate inde-
digital challenger banks based on their business pendently of existing banks. For instance,
models and the services they provide. Monese operates on an electronic money
license.
1. New banks
T dihgeitcaolnbsaunmkesr benefits of
• New banks have full banking licenses and are
direct competitors of the “big four,” offering • Easy setup – Creating an account with a
the same services as traditional banks. Exam- challenger bank is a paperless and straight-
ples include Monzo, N26, MyBank, Starling forward process. Most accounts can be set up
Bank, and Revolut. entirely from a mobile device as well.

2. Neo banks • Lower fees – With fewer operational costs,
challenger banks can price their services
• Neo banks do not have a banking license, more competitively.
but partner with financial institutions to offer
bank-licensed services. Typically, neo banks • Greater financial inclusion – Branchless
still require customers to have an account at banks have lower operational costs and can,
an existing licensed bank, and then they offer therefore, afford to accept customers who are
unable to attain traditional financial services
due to a lack of credit history or poor credit
ratings.

• Focus on security – Traditional banks are
known for being slow to adapt to the demand
for more flexible yet secure banking services.
Not only are digital banks easy-to-use but
many are security-driven and react quickly to
the latest security threats.

• Added Features – In addition to providing
digital banking accounts, many challenger
banking apps offer their customers built-in
payment, budgeting, and savings tools.

18

INFORMATION

HOW DIGITAL BANKING
HAS BEEN

TRANSFORMING THE
FINANCIAL SERVICES

INDUSTRY

By: SAPPHIRE JEGIR KHAN @ JANGIR

The significance of digital banking In its entirety, the term digital banking indi-
can be attributed to its various bene- cates not only the digitization of a bank’s product
fits like reduced operational costs, and service delivery but also all of its processes,
attracting and retaining customers, and staying from customer service to product development.
ahead of competitors by adhering to new regula- Modern methods and technologies like AI, analyt-
tions and using latest technologies. ics and big data play a crucial role in implementing
and managing a digital banking platform.
The demand graph of digital banking has
certainly grown at an unrivaled pace, with the Continuously changing regulations and
world of IoT empowering consumers and compel- surging investments in the fintech sector have
ling businesses to thread along the path towards enormously increased the number of technological
digitization for remaining competitive in the solutions available, enticing domestic and interna-
financial services space. tional banks to develop customer-friendly banking
platforms.
On-premises transactions at banks have
traditionally been considered as vital but arduous, The digital banking market, slated to sur-
primarily due to long queues and the time it takes pass a remuneration of a mammoth USD 9 trillion
to process requests like fund transfer, mortgage by 2024, has indeed been transformed due to the
loans and investment options. Digital banking ever-growing competition between financial in-
helps to address all such concerns, which is nec- structions and demand from consumers to provide
essary to meet the expectations of the tech-savvy simpler retail, corporate and investment banking
and conspicuously busy consumers of today. systems.

19

The increasing significance of digital An increasing number of consumers are
banking can be attributed to its nu- performing cross-border transactions, and the
merous advantages, some of which digital banking platforms offered by such banks
include reduction in operational costs, attracting could greatly streamline the process of fund
and retaining customers to amplify revenues along transfer. Separately, the Spanish bank Santander,
with staying in front of the competition by adher- operating in numerous European countries as
ing to new regulations and deploying latest tech- well as in the U.S., has also developed a digital
nologies. banking platform for providing its customers
with access to a range of products and services,
The overall landscape of digital banking including control on funds, managing cards,
can be defined by the emerging trends being ob- loans, among many others.
served globally, with regard to the modernization
of major banks and the rise of numerous Digital banking could potentially ease
specialized services. up the business process for these enterprises by
offering more convenience in handling transac-
tions, dispersing wages and keeping track of pay-
Digitization of major financial and ments. The new tools would help in streamlining
banking institutions major expenses, transactions, generate cash-flow
projections along with easy connectivity with
Essentially, large banks have the small business bankers for quick advice.
potential to drive tremendous in-
vestments towards digitization and Emergence of niche applications
are gradually understanding the disadvantage in pertaining to digital banking
just upgrading the legacy software and hardware
systems, which is an expensive and continuous The scope of banking has been
process. consistently expanding with every
generation and different catego-
Digital banking assistants are another nov- ries of customers may utilize one type of service
el provision available on the platforms of prom- more than any other. With shifting consumer
inent banks to support and advise its users, sig- preferences, rising disposable incomes and grow-
nifying a remarkable evolution in customer-bank ing investment opportunities, innumerable small
relationships. Representing a common trend in players wanting a stake in the domain of digital
today’s financial marketplace, Lloyd’s Banking banking have been striving to cater to specific
Group in 2018 invested in a fintech company to customer requirements and niche segments.
adopt its online banking system.
For instance, PayPal, now in operation
Lloyds’ move was aimed at meeting the for more than two decades, has simplified pay-
Group’s goal of digitization over the coming three ments and transfer of funds with a promise of
years, through which its customers operate con- security, fulfilling one of the most widely used
venient and tailored services accessible via banking functions.
smartphones.
Future growth opportunities for com-
panies planning to tap the popularity of
digital banking

Banks are expected to fully digitize their
processes and support paperless transactions,
keeping up with the declining preference of con-
sumers. towards going to physical branches.

20

INFORMATION

HOW BANKS IN MALAYSIA
ARE KEEPING UP WITH

THE DIGITAL SHIFT

By: SAPPHIRE JEGIR KHAN @ JANGIR

Striking the balance between mobile digital. Mohd Suhaimi Bin Abdul Hamid, CEO of
and online offerings as well as physi- Standard Chartered Saadiq, emphasised that their
cal branches is key. As digital busi- bank's digital agenda focuses on making digital
ness becomes more important and customers seek transactions easier by re-engineering digital at a
an efficient and easier way to conduct their trans- price to support their plans for mobile and online
actions, banks in Malaysia have been undergoing banking. He stressed that if customers find their
a broad-based digital transformation that touches digital banking solutions easy to use, then they
on their technology, culture and operations. can also influence others to use it.

At the Kuala Lumpur Leg of the 2019
Asian Banking & Finance Retail Banking Forum,
bank executives gathered to discuss the shift to
digital banking in Malaysia and their strategies
and struggles to adapt to new ways of doing busi-
ness.

Encik Ahmad Shareza Abdul Rahman
head, Mass Banking, CFS Malaysia of Maybank,
said that they are looking at network strategies to
reformat traditional banking and create new ways
to reach customers such as the use of bank kiosks
on campuses.

Banks can all agree that there is a need
for a simpler way for their customers to turn into

21

Hamid cites how their earlier plan On September 2017, the Central Bank of
of launching six branches to run Malaysia (BNM) announced plans to issue reg-
e-banking services - without tell- ulatory parameters for the conduct of electronic
ers and a head office - failed to get a headstart know-your-customer (e-KYC) processes for remit-
in Malaysia as he suggests that the success from tance transactions as part of growing movement to
other countries didn't necessarily meet local regulate such transactions. Countries like Australia,
requirements. With this lesson in tow, he stress- Thailand and India also have some form of e-KYC
es the importance of digital campaigns to grow regulation in place.
client awareness of their mobile and online
offerings especially since they don't have 'many As banks embark on broad-based digital
branches' with which they can service clients. transformation plans, deterring cybercrime ranks
high on the priority list. Encik Abdul Rahman, head
"These clients are starting to think of mass banking for Maybank & CFS Malaysia
[more] independently using digital compatibility suggests that banks need to strike the balance in
by mobile and internet banking...and so we also beefing up their cyberdefences with their digital
do a lot of campaign digitally to grow client agendas.
awareness on how to use mobile phones, for
example," he said.

However, Badrul Hisham SVP, head
retail & SME Deposits of RHB Bank mentioned
that customers in Malaysia are still slow in
adapting to online banking tools. In an effort to
make digital banking easier, RHB Bank intro-
duced the concept of e-Know your customer
(KYC).

Although progress is slow, they are see-
ing good results as the move capitalises on the
tech-savviness of Malaysia's millennial demo-
graphic. As of January 2019 about 78% of the
Malaysian population were active social media
users from 2016-2019, data from statista show.



When asked why Maybank does not ask for
verification like other banks does, Encik stated that
it isn’t necessary since their services are only used
as an e-wallet and not a full Visa account where
online transaction with cash would be involved,
adding that the balance between its benefit and risk
would be fine.

22

Digital

Banking

During

COVID-19

Assisting Customers
When They Need It
Most

INFORMATION

COVID ‘POSITIVE’:
BANKS SEE RISE IN
DIGITAL TRANSACTIONS

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

Step up offerings, encourage According to Rakesh Jha, CFO, ICICI
customers to use Bank, over 90 per cent of savings account transac-
technology tions in the first quarter were through digital chan-
nels. In the same period last year, the share of
The Covid-19 pandemic has boosted digital channels was 87 per cent.
tech-driven offerings by banks and also led to a “We have been able to connect to over
surge in digital transactions as customers stay away four lakh customers on a daily basis using cloud
from branches. The first quarter data provided by telephony and voicebots to counsel them on us-
major banks confirm the trend. ing technology,” he said.

A senior official of State Bank of India told 24
BusinessLine that the share of alternative channels
in the total transactions for SBI increased to 93 per
cent in the first quarter ended June 30 from 90 per
cent in the same period last year. “We are seeing a
lot of traction in the bank’s technology platform,
YONO,’’ he added.

For Axis Bank, the market share in UPI The RBI’s advisory to use digital means and
transactions stood at 19 per cent for the first the Government’s measures, such as allowing Near
quarter while quarterly transactions were up 163 Field Connectivity (NFC) that permits touch-free
per cent year-on-year. The bank has seen traction transactions on cards, are pushing retail customers
not only in savings bank transactions but also to go digital.
in other areas. For instance, the share of digital
channels in sourcing fixed deposits and personal Digital offerings
loan disbursements stood at 75 per cent and 65
per cent, respectively. Banks are also stepping up digital offerings.

HDFC Bank has launched Digitmat and ‘instant’
savings accounts. ICICI Bank has introduced the
video KYC facility to on-board new savings ac-
count and personal loan customers.“Our digital
trade solutions for corporates and SMEs have
proved particularly relevant now,” the bank said.




“Covid almost has had the same positive
impact as demonetisation,” said Prabhu Ram,
Managing Director and Group CEO of Payswiff,
a payment transaction solution provider, said.
Even the traditional payments made in cash to
the milkman and the paper boy have gone digital
now because of the fear of touching currency
notes due to coronavirus, he added.


25

INFORMATION

10 DIGITAL BANKING
FEATURES YOU NEED TO

KNOW ABOUT

By: SAPPHIRE JEGIR KHAN @ JANGIR Digital banking: From
Revolution to Evolution
Technology has caused the biggest shift in
the banking sector in hundreds of years, Digital banking is the digitization of all
changing the way that banks engage with traditional banking activities and pro-
customers and even with each other. grams that historically were only avail-
able to customers when physically inside of a
The shape of established retail banks bank branch.
especially is changing, spurred by the challenge
from fast, focused digital new entrants who are This includes activities like:
chipping away at revenue streams.
• Money Deposits, withdrawals, and transfers
If you are a banker, online shopper, a • Checking/saving account management
tech savvy person, or even a regular bank cus-
tomer, you must have definitely heard the word financial products
“digital banking”. • Loan management
• Bill pay
Interestingly, most people have a differ- • Account services
ent take on digital banking. There is a lot more
to digital banking than just a few features that Whenever a new concept, like digital
we can see on the surface. In this article, I will banking, comes on the scene, a lot of companies
outline all the features of Digital Banking you ask themselves the same questions:
need to know.

1. Is this just a passing fad, or is it here to
stay?

2. In the long run, will the concept measure
up to all its high expectations?



26

Technology boom has been the major driving 3. Mobile banking options
force behind the expansion of banking busi-
ness in India and across the world during the • Mobile banking is a service provided by a
last 20 years. bank or other financial institution that allows
its customers to conduct financial transactions
Now, internet and mobile access are avail- remotely using a mobile device such as a
able even in remote corners of the world linking smartphone or tablet.
people and organization across the world like never
before.

The technological revolution over the years
has transformed the expectation level of customers
and the way of functioning of organizations. First
impact was felt in improving operational ease, but
it was just the beginning.

The next stage of digital banking was to
meet increased customer expectation levels. This
compelled banks to come out with better products
and services to ensure customer satisfaction and
delight.

Digital banking: The Features

1. Online Banking 4. Unified Payment System (UPI)

• The online banking feature provides you the • Depositing money into someone’s account
luxury of banking anytime and anywhere. used to be a considerable hassle. One had to
Throughout the year, website services are visit the nearest branch of the respective bank
offered round the clock for internet banking; ex- and then, fill a deposit form. Once that pro-
cept for time needed for website maintenance. cess was done, he or she had to get in line and
make the payment. This process was full of
hassles and time consumption.

Money can be sent or requested with the
following methods:

• Virtual Payment Address (VPA): Send or
request money from/to bank account mapped
2. Personal Finance Planning using VPA.

• These days, there is a lot of competition in the • Mobile number: Send or request money from/
banking sector, and most banks want to have an to bank account mapped using mobile num-
edge over other banks to be successful. There- ber.
fore, the banks come up with advanced web-
sites that have several banking options. • Account number&IFSC: Send money to bank
account.

• Aadhaar: Send money to bank account
mapped using Aadhaar number.

• QR code: Send money by QR code which has
enclosed VPA, Account number and IFSC or
Mobile number.

27

Unified Payments Interface is an instant real-time A look at the top trending mobile wallets:
payment system developed by National Payments
Corporation of India facilitating inter-bank trans- • Paytm
a• ctions. • MobiKwik
• JioMoney
The interface is regulated by the Reserve • Oxigen
Bank of India and works by instantly transferring • State Bank Buddy
funds between two bank accounts on a mobile
platform.

Any UPI app can use payment and transfer fund
from and to UPI enabled banks. Major UPI Apps
are listed below:

• Google Pay
• BHIM
• PhonePe

6. Rewards and Loyalty Program(s)

Today, there are two performance
differentiators in banking; product
uptake and customer engagement.
The good news is that these don’t have to be
mutually exclusive, the better news is that dig-
ital rewards & loyalty programs can fulfill both
simultaneously.

G5. Digital Wallet These digitally integrated programs can
one are the days when people used challenge traditional methods of customer acqui-
to carry cash in order to shop. sition and retention by introducing cost-effective
Now mobile wallets (m-wallets), and measurable, reward and incentivisation capa-
or virtual wallets, have become quite popular. bilities.
With these mobile wallets, you can pay just by
using your smartphone. Becoming a platform for business innovation
and growth by creating more profitable and loyal
After demonetization, more people have customers.
started using m-wallets. Digital wallets are one
of the best innovations in the field of technology. For example, Citibank introduced the
Millions of people are making payments from ThankYou program that allows earning points
these e-wallets, which are easy to use. based on customers’ monthly activities within the
bank’s network as well as its partners. Customers
can later redeem them for various products,
travel experiences, etc.

28

7. Non-Internet Based Phone Banking 10. Dedicated Remote Adviser

• These services present several advantages.
They can be accessed from anywhere and at • Remote banking makes your banking expe-
any time since they do not need an internet
connection. They are free services and all rience simple and hassle-free by dedicating a
transactions are completely cashless. digital relationship manager for your service
at all times.
8. Digital Coupons and cash back
• You can be assured of a dedicated relation-
• In marketing, a coupon is a ticket or docu- ship manager at your service, for taking care
ment that can be redeemed for a financial of all your banking and financial needs, dur-
discount or rebate when purchasing a prod- ing banking hours or even beyond them.
uct. All the Indian banks give discounts on
numerous items you use in your day to day
life through coupons and cash back.

9. Automatic Bill Payments Conclusion

• Most online banks allow you to link your Digitization is a paradigm shift for
bills directly to your account and have them most legacy banks. Digital trans-
paid on time automatically. For every bill formation is a near-top priority
you set up, that’s one less thing you need to for every bank today with investments soaring
juggle every month. This can add up to a lot on technology, up-skilling staff, and innovation.
of reduced stress. With thinning margins on deposits, stiff compe-
tition across a myriad of products and evolving
consumer psychology, digitization is no longer a
choice.

This huge revolution in the banking
world has benefited one and all. From the em-
ployee working in a small office to a business-
man running a million-dollar business, digital
banking has proved to be important in their
success.

With so many benefits offered for us, it is
highly impossible for us to think a world without
digital banking.

29

INFORMATION

THE IMPACT OF DIGITAL
BANKING IN THE
TRADITIONAL
CONSUMER &

COMMUNITY BANKING
INDUSTRY

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

The digitalization of consumer bank account from your phone, no matter where
banking has become increasing- you are, or when.
ly relevant within the industry,
where customers are becoming more and more
aware of the amount of things they can now do Very few processes require a person’s
online or from their smartphones versus having physical presence in the bank anymore, if at all.
to physically go to a branch to perform transac- Some banks, which will be the main focus of
tions especially day-to-day, standard things like this are analyis nowadays 100% digital, meaning
transfers, payments, investments, and even check they don’t even have a physical branch. Some
deposits, to name a few. examples of these (in the US) are Discover,
GoBank, Moven, USAA, Ally, and Chime, to
The introduction of ATM machines in name a few.
1969, although they were not widely utilized
until the late 1980s, revolutionized the banking Just as an anecdote, upon arriving to Mi-
industry, but digitalization completely changed lan on my last vacation, I opened a bank account
it. We are not talking about the fact that you can with the German digital bank N26 in a matter
extract cash practically anywhere in the world of minutes and received my debit card by mail
(which is quite amazing), but the fact that nowa- in just a few days. The process was incredibly
days you can virtually operate and manage your seamless, and not limited to EU citizens.

30

Digital is indeed a new world for
traditional banks, and one that they
need to enter if they want to sur-
vive. Nowadays, a bank without a website, appli-
cation, or a way to operate online is unthinkable.
Nobody would open an account in a bank with no
digital service, whereas an increasing amount of
consumers are opening accounts in banks which
do not even possess a physical branch.

It is the classical “innovate or die” scenar-
The benefits of digital banking, both for the io for traditional banks, and hence my “compe-
customers and the actual bank, are evident. On the tence destroying” classification. Arguments can be
customer side, it is clear that this type of banking is made in favor of competence enhancing too, but
targeting younger, generation Y-type of customers, given the nature of Digital banking, I believe this
which have grown up in a digital world. Eventually, classification is more appropriate.
all customers will be inclined towards this type of
banking. The enabling technology for this type of
innovation is evident: the increasing processing
The processes and transactions are not only capacity of both hardware and software elements
faster, but more convenient and seamless. I literally in the tech sector. Just five years ago, there barely
opened my bank account at N26 from my smart- existed smartphone applications that allowed to
phone, and after receiving a transfer, I can now bank digitally.
withdraw cash from any ATM when needed, with-
out a fee. Nowadays, it’s the norm. This is not only
because banks became smarter, but mainly be-
This allows the digital banks not only to cause technology made it possible for them to
realize higher profits on standard operations, but offer this type of service. More and more, as tech-
also to offer an increasing amount of free services nology and devices continue to evolve, banks will
which customers love checking accounts, debit/ be able to offer an increasing amount of products
credit cards, transfers, and deposits (to name a few) and services (think of mobile wallets and digital
are usually free of charge, something unheard of payment platforms).
from banking services just a few years ago.
It was long ago stated that digitalization
Second, there are virtually no significant and technology would eventually impact the
barriers to entry to this market. Eventually, more robust financial services industry — that time has
and more digital banks will flood the industry. now come and, like in other areas such as tradi-
Perhaps some government regulation will limit the tional retail, it is an “adapt or die” type of world,
number of banks, yes, but in todays increasingly where some players will inevitably perish —
globalized world, there is no reason as to why a small, local community banks in this case.
bank cannot be based in one country, and have
customers from another. So although my scope here
is limited to the US, this is really a global trend and
issue for traditional banks.

31

HERE'S NOW

OCBC CUSTOMERS CAN
NOW ACCESS

DIGITAL BANKING
SERVICES WITH
SINGPASS

By: SAPPHIRE JEGIR KHAN @ JANGIR remember multiple access codes and PINs, thus
benefiting customers who access their digital
OCBC is the first bank in Singa- banking platforms using the conventional meth-
pore to offer this service, which od instead of by fingerprint or facial biometrics.
started on July 4, the bank said in
a statement on Thursday. Using SingPass Mo- Aditya Gupta, who leads OCBC’s digital
bile as an alternate log-in eliminates the need to business team in Singapore and Malaysia, said

32

inclusion and accessibility are central to the organi- The Monetary Authority of Singapore’s
sation’s digital transformation. “I believe that offer- chief fintech officer Sopnendu Mohanty said the
ing SingPass – a trusted and widely used mode of regulator has been working closely with the fi-
digital authentication in Singapore – as an alternate nancial industry to facilitate adoption of founda-
log-in, gives more of our customers the confidence tional digital infrastructures, such as the national
and convenience to bank with us digitally.” digital identity, for seamless integration with the
growing digital economy.

Mr Sopnendu Mohanty, the Monetary
Authority of Singapore's (MAS) chief fintech
officer, noted that the foundation of Singapore's
digital economy is laid by the seamless integra-
tion of public digital infrastructures with essen-
tial services.

"MAS has been working closely with the
financial industry to foster adoption of
foundational digital infrastructures such as na-
tional digital identity," he said.

"With the convergence of SingPass Mo-
bile, MyInfo and PayNow, customers can open
bank accounts, access banking services and make
payments online seamlessly yet safely."

Digital banking transactions in Singa-
pore have surged amid the Covid-19
pandemic. Among OCBC custom-
ers, close to 100,000 “digital debutantes” started
using digital banking for the first time this year.
The bank also recorded a 40 per cent increase in
digital transactions by those aged 50 to 64; custom-
ers older than this clocked a 48 per cent increase in
digital banking transactions from last year.

33

HERE'S NOW

DIGITAL BANKING IS
CHANGING MALAYSIA’S
FINANCIAL LANDSCAPE

By: SAPPHIRE JEGIR KHAN @ JANGIR that it may not establish any physical branches. A
digital bank can participate in the shared ATM net-
Financial services and financial tech- work, cash out services offered by PayNet, and offer
nology (FinTech) are supported by financial services through agents.
regulators including Bank Negara
Malaysia (BNM). Digital banks will offer most traditional
banking services including deposits, withdrawals,
Digital banking allows the offering of bank- transfers, checking and savings accounts.
ing products and services through digital and elec-
tronic means. Tjis includes retail as well as micro, Services are provided online in real time
small and medium enterprises (MSMEs) with automation and using technology/analytics to
drive smart personalized engagement.
The key differentiation of a digital bank is

34

Malaysia will issue five digital banking n exit plan is required to be
licenses submitted for the first five years

• Programming Interfaces (API) will increas- Aof operations including potential
ingly feature Artificial Intelligence (AI).
triggers, likely options, potential impediments,
and sources of funding and liquidity for exit.
• Forward looking banks as well as fintech
After the fifth year of operation, digital
players with a strong tech focus are expected banks must comply with all equivalent regulatory
to form alliances to apply for the licenses. requirements applicable to a licensed bank and
have minimum capital funds of RM300 million.
• Digital banks will be subject to simplified
regulatory requirements by BNM to promote This will help lift up companies and com-
this foundational phase. munities as they will now have access to banking
facilities leading to economic growth and a posi-
• Digital banks will be required to demonstrate tive impact for the country.
their viability and sound operations including
achieving a defined asset threshold no more The potential impact of digital
than RM2 billion. banking

• Licensed banks may apply for a separate digi- • Digital banks will also incur lesser costs than
tal bank license as a separate entity. This is not traditional banks driving down the cost of
to be confused with licensed banks digitalis- banking services through automation and self-
ing their current business operations. serve technology.

Digital banking applicants must • Existing traditional banks face some disrup-
demonstrate the following: tion if they do not innovate and transform to
meet the technological changes.
• Robust risk management and compliance
capabilities. • New digital banks will be without the encum-
brance of legacy systems/infrith newer more
• Application of transformative technology in tech savvy digital banks.
development of financial services including
scalable and agile tech stack. • Conversely traditional banks are expected
to focus more on key services with the high-
• Access to deep and robust customer analytics. est profitability especially capital intensive
• Continuously serve as a source of financial requirements that newer digital banks may not
have the capability to handle.
strength.
• Requisite Shariah expertise (for Islamic digital • There will still be a requirement to service the
older and less tech-savvy generation.
banking).
• Banking clients will increasingly get used to
35 and demand customer service from any loca-
tion in the world, 24/7 availability of banking
services, faster and automated approvals, and
smart predictive personalised services.

• Thus the real life habits of people will be in,
they will become increasingly important.



HERE'S NOW

INTEREST IN DIGITAL
BANK LICENCES PICKS

UP

By: SAPPHIRE JEGIR KHAN @ JANGIR

AFTER a lull in the last few after which it was to open applications for the
months, interest in Malaysia’s licences.
digital banking licences is pick-
ing up again, even as a number of new digital “We understand that, most likely, the
banks in the region have just been launched or [Bank Negara] guidelines will be finalised by
are about to go live. the end of this year, after which the central bank
will open the application process early next
“Things are picking up as we go into year,” says Lee.
the Recovery Movement Control Order period.
What we find is that there are more people com- Bank Negara plans to issue up to five
ing on board to say that, because of the delay in digital bank licences. Last year, technology firm
[the feedback to Bank Negara Malaysia] guide- Grab, telco Axiata Group Bhd (which owns
lines, they have more time to look for partners e-wallet Boost) and at least five banks — CIMB
[to jointly apply for a licence]. And what that Group Holdings Bhd, Affin Bank Bhd, Hong
means is that it’s like a second wind for some of Leong Bank Bhd, AMMB Holdings Bhd and
these players who were not [seen as] the front- Standard Chartered Bank Malaysia Bhd — sig-
line competitors for the licences. So, I think nalled their interest in pursuing a licence. Since
they are taking the opportunity to talk to more then, a few more have openly expressed inter-
partners,” says Kelvin Lee, financial services est, including Sunway Bhd, Green Packet Bhd,
assurance partner at PwC Malaysia. gaming firm Razer Inc and Hong Kong-based
investment banking firm AMTD Group. Prop-
Two months ago, Bank Negara an- erty firm Paramount Corp Bhd and US financial
nounced on its website that given the disrup- start-up MoneyLion Inc were also reported to be
tions caused by the Covid-19 outbreak, it was keen.
extending the April 30 deadline for the industry
to provide feedback on its proposed digital According to Lee, the companies
banking licensing framework to June 30. The remain keen on a licence, but
central bank had initially expected to finalise its the banks are less so. “I haven’t
policy document by the first half of this year, heard of anyone who has dropped out. The inter-
est is still there, I would say. But, for the banks,
37

we gather that they are not so keen on the licences in Malaysia. It has already submitted a bid for a
because they feel that the Bank Negara guidelines digital wholesale banking licence in Singapore, in
didn’t give them regulatory arbitrage. So, I think, a partnership with Xiaomi Finance, SP Group and
lot of the banks feel that it may not be worthwhile Funding Societies. AMTD also holds a virtual
to apply for a licence.” banking licence in Hong Kong.

He points out that even if they were to Developments elsewhere
apply for a licence, it may take two to three years
for them to actually set up their digital bank. “So, a Meanwhile, Tonik Digital Bank Inc, the
lot of the incumbent banks are thinking that there is
no point to wait so long, when under their current first licensed digital-only bank in Asean, has
licensing regime, they can actually launch their postponed its July launch in the Philippines to
own version of a digital bank. I think many of the September. “Tonik has had to delay its launch …
incumbents are planning to do that before the new due to the effects of the [Covid-19] lockdown on
players come on board.” regulatory and logistical execution,” its founder
and CEO Greg Krasnov tells The Edge.

The Covid-19 pandemic has, nevertheless,
been somewhat positive for Tonik. “Covid-19 has
increased demand for digital financial solutions
by three to five times, which will have a positive
effect on Tonik’s customer acquisition at launch
and going forward,” Krasnov says.

The Covid-19 outbreak and ensuing disrup- Tonik, which announced last week that it
tions this year have made digital banking a priority had raised US$21 million in new financing from
for banks. “It has become more real. Banks had investors, is 60% owned by Singapore-based
difficulty onboarding customers [during the lock- fintech firm Tonik Financial Pte Ltd, with the
down] as customers couldn’t go to branches. And remainder owned by local partners comprising
they couldn’t send agents out to sell their loans and two family offices. It received a banking licence
credit cards, so some of them were hit hard. Had from The Philippine’s central bank last month,
there been a virtual bank in this lockdown period, it becoming the first fintech company in the region
would have been business as usual,” Lee remarks. to clinch one.

Some players are already putting the Meanwhile, in April, Singapore delayed
building blocks for a licence in place. Just last its decision to announce the list of successful
week, Green Packet Bhd said it would buy Singa- digital bank licence applicants until the second
pore-based e-KYC (electronic know your custom- half of the year due to the coronavirus outbreak.
er) specialist firm Xendity Pte Ltd for US$10 mil- Originally, it was to have announced the winners
lion in a bid to offer complete end-to-end solutions this month. It plans to issue up to five digital bank
to banks and financial institutions. licences.

In April, Sunway Bhd bought a 51% stake Hong Kong, which issued eight virtual
in Credit Bureau Malaysia to advance its ambition banking licences in May last year, has a head
of building a financial technology ecosystem and start in the region. ZA Bank was the first to fully
securing a digital banking licence. launch, in late March, while Mox Bank — a
virtual bank jointly backed by Standard Char-
In March, Hong Kong-based investment tered Bank, PCCW and Hong Kong Telecom
banking firm AMTD, backed by tycoon Li Ka- — launched pilot services in April. On June 11,
shing, said it was seeking a digital bank licence AirStar Bank, another virtual bank licence holder,
officially launched its services.

38

HERE'S NOW

DIGITAL BANKING RACE
IN MALAYSIA
ACCELERATES

By: MOHD AMIRUL HAKIKI BIN ABU BAKAR

The pandemic has disrupted Ma- ring: gaming giant Razer, conglomerate Sun-
laysia's digital banking plans, but way Group, telecoms company Green Packet.
the ensuing delay may be a boon Hong Kong investment bank AMTD may also

for interested firms that now have more time to bid for a license.

select partners. The original contenders for up

to five digital bank licenses include ride-hailing The Malaysian banks and Standard

giant Grab, telecoms juggernaut Axiata Group Chartered are shifting gears because they can

Bhd (owner of e-wallet Boost) and the banks likely launch their own variation of a digital

CIMB, Affin Hong Leong, AMMB Holdings bank with their existing banking licenses. That

and Standard Chartered Bank. approach would probably be more efficient

than going through the long process to set up a

Those banks are now reportedly less digital bank under Bank Negara's guidelines.

interested in obtaining a license, while several

non-financial firms may throw their hat into the Kelvin Lee, financial services assurance

39

partner at PwC Malaysia, told The Edge Malay- Meanwhile, would-be digital bank appli-
sia that the banks may "feel that the Bank Negara cants are moving to strengthen their positions.
guidelines didn’t give them regulatory arbitrage." In April, Sunway took a 51% stake in Credit
Bureau Malaysia, its first foray into fintech and a
Under Malaysia's regulatory framework move that could support its bid for a digital bank
for digital banks, the licenses will allow the license. Sunway plans to offer digital financial
holders to conduct either conventional or Islamic services to SMEs.
banking business in Malaysia. Capital require-
ments are fairly stringent, with an absolute
minimum of RM 100 million (US$23.7 million)
necessary during a three to five year foundational
phase and thereafter RM 300 million.


In June, Green Packet said it would ac-
quire Singapore-based e-KYC firm Xendity for
US$10 million. Xendity is a partner of Malay-
sia's Credit Reporting Agency.

The factors driving the rise of digital Also in June, OCBC's insurance arm
banking in neighboring markets don't necessarily Great Eastern made the largest ever investment
apply in Malaysia. About 92% of Malaysians in Malaysia fintech, paying US$70 million for
have a bank account; credit-card penetration is a 22% stake in the Axiata Group's Boost. The
relatively high, and the country is not a regional investment will support the expansion of Axia-
hub for financial services like Singapore. ta's digital financial in Malaysia, Indonesia and
Bangladesh, company executives say.

However, pandemic-induced disruptions
have likely shaken incumbents out of compla-
cency. During a lockdown that lasted nearly three
months - March 18 to June 10 - Malaysian banks
struggled. They couldn't add new customers as
people were not permitted to visit bank branches.
Sellers of loans and credit cards were not permit-
ted to do in-person sales visits. Had they been
more digitally adroit, they could have weathered
the lockdown better.

40

HERE'S NOW

MALAYSIA GETS READY
FOR VIRTUAL BANKS

By: SAPPHIRE JEGIR KHAN @ JANGIR

Malaysia is set to introduce strong value propositions whilst safeguarding
digital banking following the the integrity and stability of the financial sys-
passage of a new regulatory tem as well as depositors’ interests, taking into
framework by its central bank in December. account that such digital banks have not op-
The central bank said it would issue up to five erated in a full financial and economic cycle,"
licenses to qualified applicants to set up digital Bank Negara Malaysia said in a statement on
banks. its website.

The licenses will allow the holders to Malaysian regulators are treading a
conduct either conventional or Islamic banking tried-and-true path. Across Asia, regulators
business in Malaysia. Capital requirements are have shown little appetite for pathbreaking
not low, with an absolute minimum of RM 100 digital banking models.
million (US$23.7 million) necessary during a
three to five year foundational phase and there- Fintechs are often permitted to do busi-
after RM 300 million. ness that does not require a banking license.
But to access that coveted pathway into the
"The Bank has adopted a balanced ap- formal banking system, startups often need to
proach to enable admission of digital banks with partner with traditional financial institutions

41

or other established firms. Otherwise, they don't 92% of Malaysian adults have a bank account.
usually have enough funding or financial know-
how to meet regulatory thresholds.

It is thus no surprise that some of the
biggest names in Malaysia's finance, telecoms
and tech sectors are planning to submit bids for
digital banking licenses. Among the expected
bidders are telecoms giant Axiata, ride-hailing
juggernaut Grab, gaming company Razer as
well as banking giants Maybank and CIMB.

A Pricewaterhouse Coopers survey
published in November 2019 found
that 74% of respondents expressed

interest in becoming a customer at a virtual

bank, compared to 61% in Singapore and 56%

in Hong Kong.



With that in mind, perhaps digital banks

in Malaysia could focus on improving the bank-

ing experience for consumers and businesses.

45% of Malaysian respondents said they were

looking for a virtual bank that could provide a

better mobile and digital experience, compared

During a recent earnings call, Axi- to 40% in Singapore and 30% in Hong Kong.
ata executives confirmed that the
company is in discussions with a
number of possible digital banking partners. If it
were to win a digital banking licenses, an Axiata
neobank could begin operations as early as the
second half of 2021. Axiata Digital currently op-
erates a leading Malaysian e-wallet, Boost, and
the micro-lending platform Aspirasi.

Bank Negara Malaysia further empha-
sized that the digital banks should support finan-
cial inclusion efforts. Its statement specifically
mentions "underserved and unserved segments."

However, Malaysia does not have a large
population excluded from the formal financial
system. Bank Negara Malaysia estimates about

42

HERE'S NOW

MALAYSIA’S CENTRAL
BANK TO ISSUE UP TO 5

DIGITAL BANKING
LICENSES

By: SAPPHIRE JEGIR KHAN @ JANGIR the exposure draft outlines the proposed frame-
work for the licensing of digital banks to offer
Bank Negara Malaysia plans to banking products and services to address market
issue up to five licences to quali- gaps in the underserved and unserved segments.
fied applicants to establish digital
banks to conduct either conventional or Islamic It added that such digital banks were
banking business in Malaysia. expected to offer meaningful access to and pro-
mote responsible usage of suitable and afforda-
The central bank has issued the Exposure ble financial solutions to financial consumers.
Draft on Licensing Framework for Digital Banks
that forms part of the series of measures adopted “The bank has adopted a balanced ap-
by the bank to enable innovative application of proach to enable admission of digital banks with
technology in the financial sector. strong value propositions whilst safeguarding
the integrity and stability of the financial system
In a statement Friday, Bank Negara said

43

as well as depositors’ interests, taking into ac- During the above mentioned foun-
count that such digital banks have not operated dational phase, it said licensed
in a full financial and economic cycle, ” it said. digital banks will be subjected
to a more simplified regulatory requirement
“To achieve these outcomes, an asset relating to capital adequacy, liquidity, stress
threshold of not more than RM2bil in the initial testing and public disclosure requirements.
three to five years of operations will be applied.
This functions as a ‘foundational phase’ for
the licensees to demonstrate their viability and
sound operations, and for the Bank to observe
performance and attendant risks, ” Bank Negara
said.

The central bank said digital banks
would be required to comply with the require-
ments under the Financial Services Act 2013 or
Islamic Financial Services Act 2013, including
relevant requirements that comprise, amongst
others, standards on prudential, business con-
duct and consumer protection, as well as on
anti-money laundering and terrorism financing.


“On the minimum capital funds, digital
banks will be required to maintain minimum
capital funds unimpaired by losses of RM-
100mil during the foundational phase, and
RM300mil thereafter, ” Bank Negara said.

The central bank invites written feed-
back on the Exposure Draft, including areas to
be clarified or elaborated further or alternative
proposals that the bank should consider.

44

PREPAREHERE'S NOW WINNING
STRATEGY TO SECURE
BNM’S DIGITAL BANKING
LICENSE

By: SAPPHIRE JEGIR KHAN @ JANGIR In the wake of the Covid-19 pandemic,
the central bank had announced that the dead-
To win a digital banking license, line to respond to consultation papers on the
applicants must convince Bank digital banking licensing framework has been
Negara Malaysia (BNM) that extended to June 30, 2020, and possibly be-
they have a winning strategy, including the yond.
right business model and technology, said Ernst
& Young Advisory Services Sdn Bhd (EY). To get through the first round of screen-
ing, EY said applicants must be able to demon-
Financial inclusion, innovative tech- strate financial inclusion, including offering
nology and capital strength of at least RM100 meaningful access and responsible, affordable
million will be the key factors for Malaysian financial solutions.
applicants, the consulting firm said.





45