A few months after Singapore’s announced in June 2019 the guidelines for the new digital banks (Digital Full Bank and Digital Wholesale Bank) licences, Malaysia also made public the requirements for the digital bank licences in December 2019.
As per the guidelines, Malaysia will issue up to five licences. Licensed banks and Islamic banks may apply in a joint venture with new players. (Foreign companies can also apply, but preference will be accorded to the application, in which the controlling equity interest in the proposed digital bank resides with Malaysians.)
The digital banks in Malaysia are expected to kickstart in the first half of this year.
Also Read: Why Kubia is not in a rush to apply for Singapore’s digital bank license
According to fintech experts, a new digital bank licence will enable non-traditional financial services players to participate in areas where tech is the focus to be an enabler. Existing fintech players can look at maturing their product offerings and expand further with the new license. For those who are not in the fintech field today can look now enter with clear guidelines.
For the new digital banks, the unbanked and underbanked population (SMEs and individuals) are the key target market. With this population joining the digital economy, it will herald a new era in the fintech space.
But a moot question remains. How are the new banks going to affect the traditional brick-and-mortar banks? Will the customers ditch their existing banks for the new entrants, effectively making them redundant?
e27 spoke to a few fintech experts for their opinions.
“There is now a new space where the digital bank will serve in areas that the traditional banks do not necessarily want to serve. There is a collaborative opportunity here for both existing and new entrants to take the financial services industry to a new level,” said Jasmine N, former CEO of Razer Fintech, which has applied for a digital full-bank licence in Singapore.
However, there is always a possibility that traditional banks, which are averse to innovation, will disappear. “There is a danger that the new digital banks will replace the old ones. But I believe that the banks which work to meet their customers’ requirements will continue to change and transform,” she added.
Adrian Yap echoed Jasmine’s views, adding the introduction of new players into the digital banking landscape would give the much-needed fuel that that little flame needs.
“The new entrants backed with capital and talent without the shackles of legacy infrastructure will completely change the way we experience banking in the next couple of years. My gut feeling tells me that customers will be very willing to ditch their existing banks for the new entrants,” said Yap, CEO of MoneyMatch, a cross-border money transfer platform in Malaysia.
The new entrants will hit the ground running with more unique and innovative ways to provide financial services to customers, and existing banks will try to play catch-up with their modest attempts at digital banking, he added.
“I do see that banks eventually give up in this digital race and focusing solely on providing the pipes for fintech players and other new digital banks to process transactions. I see the role of banks evolving in the future by shrinking in functionality but not in its importance. Banks will always have a role to play in our ecosystem and economy just not the role that it is currently playing right now,” he observed.
His business partner and Co-founder of MoneyMatch Naysan Munusamy also believes the new era of digital-only banks will over a period transform the landscape. They will also force traditional banks to either evolve themselves or more likely trim their offerings to stay profitable and relevant in the new era.
“My caveat, though, is that this new era will take quite some time to take effect, several years at a minimum. In my opinion, people are over-simplifying what a bank does and trying to replicate several online services and offer them cheaper. The reality is that banks are very complex machines with a wide range of financial products providing banks with diverse ancillary income,” shared Munusamy, who is also Managing Partner at TH Capital
Elaborating further, he said most commercial banks make substantial profits on their treasury products and solutions which are often capital-intensive. New digital banks won’t be able to match them with their limited capital.
Additionally, the cost of regulatory compliance and putting in place robust risk management processes won’t come cheap. It makes the profitability target that the market regulator has made mandatory a strict criterion to fulfil, bearing in mind that major disruptors in most other industries are still bleeding money.
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“Nonetheless, the opportunity remains very real but will take a while to really mature. But I feel traditional banks will be forced to go through a paradigm shift and possibly narrow down their financial services to profitable verticals with high capital requirements such as complex treasury products. And then they will work in collaboration with fintech startups to remain relevant,” he explained.
Varun Mittal, a fintech expert who has been tracking the Singapore and Malaysia digital bank landscape extensively, has a different view and said digital banks wouldn’t have much impact on traditional banks. “The entry of these new banks isn’t going to make anyone obsolete,” said the Global Emerging Markets FinTech Leader at EY.
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