Malaysia’s first 5 Digital Banks will be.....?
There is much anticipation and excitement in the air about who will be Malaysia’s first 5 Digital Banks to be licensed by Bank Negara (BNM) since BNM issued the Licensing Framework for Digital Banks (LFDB) (Exposure Draft) on 3rd March 2020. The LFDB gave interested applicants the opportunity to seek clarification and propose alternative possibilities for BNM to consider. Feedback submission deadline was 30 April 2020. Digital banks will offer banking products and services to underserved or unserved market primarily through digital or electronic means. It will have no branches like traditional commercial banks.
Briefly, all applicants for a Digital Banking licence have to submit a business plan to BNM that describes specifically how they intend to serve the “unserved and/or underserved target segments” which they have first identified by market studies and analysis. They then need to list out the proposed financial products and services that will be offered to the target segments.
During the first 3-5 years called the Foundational Phase, the licensed Digital Bank has to maintain at all times a minimum amount of capital funds of RM100 million and ensure that its total size of assets do not at all times exceed the limit of RM2 billion. An exit plan is also to be submitted at the time of the application to ensure that if the business model used by the licensed Digital Bank has become unsustainable, it can unwind its business operations in an orderly manner without causing disruption to its customers and the financial system.
Finally BNM states that preference will be given to an application where the controlling equity interest in the proposed licensed Digital Bank resides with Malaysians.
Trust is the key thing with new Digital Banks. Who is behind the Digital Bank matters. Take Marcus UK, a unit of Goldman Sachs which attracted 50,000 customers within two weeks when it launched a savings accounts in 2018 to compete with high street banks. Their competitive savings rates, ease of opening accounts and their low-cost business model put high street banks at a disadvantage. It now now 500,000 savers and US$27 billion in savings. Marcus had helped Goldman to diversify into consumer banking and provided billions of dollars of cheaper deposit-based funding to fuel its investment banking activities. It is really a goldmine out there for digital banking players if they play it right.
Malaysians in general are still slow in trusting mobile banking accounts. Many are quite afraid that a wrong press of a button may suddenly see their monies vanish into thin air! It’s the younger generation that has no qualms about digital banking. But they are not the ones with the money. We wil have to see how the digital banking narrative unfolds.
- Bank Negara Malaysia. Licensing Framework for Digital Banks Exposure Draft. 3 March 2020. https://www.bnm.gov.my/index.php?ch=57&pg=137&ac=924&bb=file
- Marcus by Goldman Sachs. Marcus Savings accounts. www.moneysupermarket.com
- The Star. Starbiz. 11 June 2020. London. Savings surge forces Goldman to shut Marcus to new UK clients.
This article is part of our ongoing research on the book "Malaysia's Digital Economy".