Traditional banking will morph into wholesale banking in coming decades: MoneyMatch’s Naysan Munusamy

On April 29, Malaysia’s central bank, the BNM, unveiled the consortiums that were awarded digital banking licences in the country. The KAF Investment Bank-led consortium, where local remittance company MoneyMatch is a member, was one of the awardees. This consortium secured the licence under the Islamic Financial Services Act (IFSA) 2013.

According to MoneyMatch Co-Founder Naysan Munusamy, digital banks will usher in a new era in the banking sector in the country.

In this interview, Munusamy shares insights into how digital banks will transform the banking industry in Malaysia, what the licence means for MoneyMatch, its customers, and the market, and how the emergence of new-age technologies such as DeFi impact digital banking.

Below are the edited excerpts from the interview:

Malaysia introduced digital-only banking before the emergence of COVID-19 but the banking industry and user behaviour have transformed since then. What does this change mean for the digital-only banking space in the country?

Over the past two years, the pandemic has undoubtedly changed the user behaviours towards banking and financial services in general in terms of the user’s acceptance and comfort with using fully online channels, even for large and vital financial transactions.

These changes bode well and are positive for digital banking players because some traditional barriers, such as a lack of trust to conduct financial transactions online, have now eroded further. The country has emerged more digitally savvy than before the pandemic.

It was Singapore that introduced the digital-only bank first in the region. How are Malaysia’s digital-only banks different from that of Singapore? Are there any fundamental differences?

Yes, there are a few major fundamental differences. One, while there may be four digital bank licences awarded in Singapore, only two are allowed to serve the retail and corporate customers as full digital banks. The other two are wholesale banks and are only allowed to serve corporates. Therefore, for the ordinary Singaporeans on the street, they would soon have two more additional choices for banking.

In Malaysia, all five digital banking licensees are allowed to serve retail and corporate customers. Two of them are focused on Islamic products but all market segments. Therefore, the Malaysian customer will now have five new banking choices once launched.

Also Read: MoneyMatch to expand to S’pore with US$4.4M Series A, confirms bid for digital bank licence in MY

What does a digital banking license mean for MoneyMatch and its existing customers? How is this going to change the way people do banking?

It’s a great evolution for MoneyMatch as we keep scaling new heights. As a consortium partner, our customers will now have access to the digital bank’s larger suite of products, such as deposits, lending, and investments, besides the cross-border payments service.

The digital bank allows us to be our customers’ primary banker rather than an alternative financial service provider. It essentially sets off a paradigm shift in the way people do banking as they no longer have to visit any physical branches from the beginning to the end. Thus, it opens up the competition, eventually benefiting the consumer.

How many companies are there in your consortium? What exactly are the roles of MoneyMatch and other parties? How does this partnership work?

KAF Investment Bank is the primary lead in the consortium. The equity members of the consortium include MoneyMatch, Jirnrexu and Carsome.

All the partners have significant roles to play, from building up specific segments of the digital bank to ramping up business development through our partnerships.

You obtained a licence under IFS Act 2013. What exactly does this licence mean? What all products can you sell under this act? How is this different from existing Islamic bank products?

I’m afraid I can’t go into details of our planned Islamic products yet. Nevertheless, it’s a combination of digitising existing Islamic products with better margins for the consumer and innovating new Islamic financial products to be launched in the market subject to regulatory approvals.

How is digital banking poised to change the banking industry in Malaysia? How will the emergence of DeFi and blockchain impact the sector? Will they make traditional banks irrelevant?

There won’t be an overnight impact. According to Malaysia’s digital banking framework, there’s a certain step-up period with an asset threshold of up to MYR 3 billion (US$685 million) by the fifth year.

Therefore the combined impact of all five at MYR 15 billion (US$3.4 billion) is still considered minor and not too significant as all the major banks in Malaysia have assets in the hundreds of billions each.

Also Read: 25 notable startups in Malaysia that have taken off in 2021

However, the paradigm shift in how a general consumer approaches banking and financial services will ultimately change the industry fundamentally over the coming decades.

DeFi and blockchain are more of a booster towards digitising the sector rather than having any fundamental impact in the short term.

Digital banking and DeFi will certainly not make traditional banking irrelevant in the short term. We could potentially say that digital banking and DeFi could make traditional banks much less relevant over the coming few decades. But even then, there will still be a strong need for wholesale banking, and we will see traditional banking morph more and more into wholesale banking.

Digital banks are intended to achieve financial inclusion. Do you have a roadmap at MoneyMatch to achieve this goal?

Yes, we certainly do, together with our digital banking consortium partners. However, I’m afraid we can’t reveal the details of the roadmap.

What we can reveal, though, is that the three startup partners (Carsome, Jirnrexu, and MoneyMatch) have already been actively working towards serving more and more of the underserved communities here in Malaysia. Therefore, this is essentially a boost to our work in the underserved sector.

As per a press release, MoneyMatch is in talks for a Series B round. Can you share the names of the potential investors? Are your existing investors participating? What are your plans with the capital being raised?

Yes, we are raising our Series B right now, and we do have a potential lead. However, we are keeping it confidential for the time being as the deal is still being executed. We’ll, however, reveal and announce it soon.

The digital banking licence win unlocks a vast range of new opportunities for us. We will build new product suites and segments of the digital bank’s core technologies in a digital banking service model. This is above our core business (the cross-border payments), which has grown rapidly throughout the pandemic and serves as a base for our regional expansion.

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