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Digital Banking in Malaysia

Updated On : October 2020

For the last 20 years, the financial sector in Malaysia is gradually transitioning towards adopting digital banking services. Recently in Malaysia, there has been seen a revolution in the financial sector with the release of Bank Negara Malaysia (BNM)'s licensing framework for digital banks' draft. BNM aims to boost sustainable growth by in the finance sector with the help of digital banks. BNM is all set to issue digital banking licenses to five banks. Due to COVID-19 BNM had extended its digital banking framework deadline to June 30, 2020.

What are BNM's Digital Banking Framework Requirements?

  • Applicants will have to demonstrate their sustainability and sound operational setup
  • They will have to show asset threshold that should be less than RM2 billion (approx. US$468 million) in its initial 3 to 5 years of operations
  • Robust risk management and compliance procedures are required
  • Access to deep customer data analytics
  • A strong capital to run digital banking business
  • Compliance with the Financial Services Act (FSA) and Islamic Financial Services Act (IFSA) regulations

According to PWC, organizations need to take into consideration the following points when planning to have a digital bank:

  • Creating value for Customers:

    A successful digital bank is the one who can identify the gaps and bridge the gap by addressing the customer's needs

  • Build a common organizational DNA:

    By having a common organization DNA, a digital bank can achieve their winning proposition by leveraging technology to adopt the best digital banking solutions. They also follow agility to remain competitive and also keep operational costs balanced in acquiring and servicing customers

  • Acquire the right capabilities to gain a competitive advantage:

    Digital banks can gain a competitive advantage by keeping the approach focused to customers like personalization and be unique. This will help the banks to wider their products and services and adopt the latest technologies to enhance the customer experiences

  • Reinvent the box:

    Developing business models around legacy concerns like slow governance, cannibalisation and margin compression. The organizations can drive digital transformation or create a sandbox for new products and operate on a standalone basis

A survey of banking consumers in the Asia Pacific (Malaysia, Singapore and Hong Kong) conducted by PWC. 4,534 people were surveyed, of which 1,517 respondents were from Malaysia. The survey says that 74 percentage of Malaysian's are interested in becoming a customer of a virtual bank. 77 percentage of respondents are interested in additional services provided by their banks beyond financial products.

BNM's objective is to serve the micro-segments of the communities in Malaysia especially the unbanked segment with help of digital financial services. As per the reports, eight percentage of the Malaysian population is currently unbanked and with the help of digital banking solution, it will reduce to five percentage.

Digital banking is undoubtedly the future of the banking industry. To gain competitive advantage and deliver the best customer experiences, the banks and financial institutions should start adopting digital banking solutions.

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