KUALA LUMPUR, Malaysia — The deadline for applying for a small number of digital banking licenses in Malaysia expired on Wednesday, with multinational enterprises and e-wallet providers among those positioning themselves to compete with the country’s traditional banks in offering financial services. The central bank, Bank Negara Malaysia, would not immediately announce the number of applications, but said roughly 40 parties had showed interest last month. For the first three to five years of operations, the institution expects to grant five licenses by the first quarter of 2022, with an asset barrier of no more than 3 billion ringgit ($722.62 million). The limit will be lifted after that initial period, and digital banks will be subject to the same laws as traditional banks. “While several businesses have expressed an interest in bidding,” Tushar Mohata, an analyst at Nomura, told Nikkei Asia, “we anticipate licenses will eventually go to players who fulfill the central bank’s condition of serving the underserved and unserved areas and bring fresh technologies to the table.” E-wallet providers, seen as potential disruptors to traditional banks, are among the parties anticipated to apply for digital bank licenses; most traditional banks have kept out of the contest. “This is not surprising,” said Keith Wee of UOB Kay Hian, “since traditional banks are already commencing on their individual digital projects, coupled with the fact that their current licenses allow them to operate in the same sector as digital banks.” Telecommunications major Axiata, through a partnership with local bank RHB Group, real estate developer Sunway, discount airline AirAsia via its financial app BigPay, and software firm Green Packet are among the enterprises that have expressed an interest in applying. State energy corporation Petronas, casino operator Genting, and Singaporean digital platform operator Sea, which obtained one of the four digital bank licences recently awarded in Singapore, are among the big names rumored to be interested in a license. Petronas denies any involvement. In an email, Petronas stated, “Petronas is pursuing an ongoing aggressive digital transformation plan to generate and unlock new value throughout its entire business chain with the ultimate goal of becoming a data-driven corporation.” “Digital banking is not part of Petronas’ present digital transformation plans.” Malaysia’s central bank is pressuring digital bank companies to encourage more digital transactions among Malaysians. During the pandemic, being cashless has become a necessity. It focuses on underserved and unserved customers, such as individuals who have difficulty getting financial services from traditional banks because to a lack of information or because they have higher risk profiles, low financial literacy, or a limited grasp of how to get financial services. Customers who live in places where there are no physical banks are also included in this group. Banks have also been obliged to improve their digital presence due to the coronavirus pandemic, social alienation, and other new habits. Tushar of Nomura believes that digital banks may pose a price challenge to traditional lenders. “While having digital banks focus on underserved and unserved markets by definition should mean limited competition for incumbents,” Tushar explained, “we are cognizant that competition will intensify in select segments such as deposit pricing, fees, and later, loan pricing, where there may be some overlap with conventional banks.” The first asset cap, according to Wee of UOB Kay Hian, may help reduce the possible medium-term threat to traditional banks.” Based on the combined asset size cap of 15 billion ringgit, this translates to less than 1% of total system loans and deposits “”It’s all about the bases,” he explained. “As a result, we believe that the disruption caused by the five new digital banking players will be minimal, and that these banks will be able to coexist with existing banks to help expand the range of financial products and financial inclusion for the underserved market.” The initial asset cap, according to Tushar, will reduce the risk of financial instability. “This will allow new entrants to demonstrate viability,” he said, “and the central bank will be able to observe associated risks and develop the required supervisory power to adequately monitor them going ahead.” Tushar went on to say that digital banks must have an exit strategy in place to ensure that failed business models can exit the system without regulatory involvement or the use of public monies. Continue reading
