The impact of COVID-19 on Malaysia’s looming digital banking revolution

By Myles Bertrand, Managing Director, APAC, Mambu

The Malaysian banking and financial services industry is at an exciting tipping point, with the Malaysian regulator, Bank Negara Malaysia (BNM), poised to issue up to five digital bank licenses later this year. These licenses will be on offer for organisations providing either conventional or Islamic banking services, as outlined in BNM’s Exposure Draft on the Licensing Framework for Digital Banks, released by the organisation in December 2019.

While originally the final framework document was expected to be released mid-2020, the consultation period for the Exposure Draft has now been extended until 30th June 2020 due to the upheaval caused by the COVID-19 pandemic. This means that the final document, as well as the decision-making process on the licenses, will also be delayed somewhat.

Malaysia’s BNM is following closely in the footsteps of the regulators in Singapore and Hong Kong, which issued similar frameworks in the last two years.

Guidelines for these new Malaysian digital banks stipulate that they may not establish any physical branches, however all must have a registered office in Malaysia. Malaysian digital banks will offer many of the same services as traditional banks, including deposits and withdrawals, transfers, and a range of checking and savings accounts. It is expected that the introduction of digital banking into Malaysia will drive down the cost of banking services through automation and self-serve technology, and due to a reduction in the expenses associated with a traditional ‘bricks and mortar’ presence.

Impact of COVID-19 crisis on the banking landscape

While the formation of the digital banking landscape in Malaysia is still under consultation, it’s impossible to ignore the impact – both known and unknown – of the coronavirus pandemic on the economy of Malaysia, the Asia Pacific, and indeed the world. The COVID-19 crisis is having an enormous impact worldwide and it is impossible to know what the world will look like on the other side. What we do know, however, is that the post-COVID world will very likely be far more digitised than it currently is, especially when it comes to financial systems. The use of cash was falling even prior to the COVID crisis, and this trend has been accelerating rapidly in recent weeks due to a fear of infection from bank notes. With ‘contactless’ payment methods now being actively encouraged, never before has it been more crucial for financial institutions to be able to offer digital services that customers can access without leaving their homes.

Digital vs traditional banks: what are the advantages?

Even before the COVID-19 crisis it was clear that digital banking was the way of the future. In the current climate it is more apparent than ever that banks and financial institutions that proactively plan how they are going to ride the digital wave are the ones that will thrive in this new era. Businesses that fail to evolve will ultimately cease to exist, with McKinsey & Co. estimating that legacy financial institutions that fail to evolve will see profits decline by up to 60% by 2025.

Digital banks have many advantages over traditional banks, including the following benefits:

Digital banks allow integration of multiple products

Whereas traditional banks often have individual functions managed separately (for example, physical branches, internet banking and mobile apps), digital banks are able to have a single view of customer data, and are in a position to automate core processes and eliminate errors and duplication.

Ability to provide best-in-class customer experience

Digital banks are lean and agile, able to pivot in response to changing market conditions, and can grow and scale rapidly. They are also perfectly positioned to be responsive to customer needs, changing, adding or updating individual products and services in direct response to customer behaviour. Digital banks built on a cloud platform are also able to roll out new products and update existing ones without any impact to the customer experience, unlike traditional banks where upgrades and maintenance can cause disruptive service outages and interruptions.

Improve data security for customers

Cloud-based digital banking platforms, such as Mambu’s composable banking platform, have built-in functionality for constant security upgrades and improvements to be made, offering greater peace of mind to customers, and a distinct advantage over traditional banks working on cumbersome and outdated legacy systems.

Planning for a digital transformation

Digital banking is about to hit the mainstream in Malaysia, regardless of the impact of COVID-19, and it is vital that Malaysian banks and financial institutions have a clear roadmap of how and when their digital transformation will commence, and what it will look like. In some cases, this will mean launching smaller, more agile ‘digital arms’ of existing banks – a strategy we at Mambu like to call ‘launching speedboats from cruise ships’ – and for other organisations it may entail a more gradual evolution into a digital entity. Yet another strategy we’ve seen have great success in the UK and Europe is to collaborate with other businesses to launch a brand new standalone digital bank. The opportunity for collaboration is incredibly exciting, especially between businesses that may have traditionally viewed themselves as competitors, such as traditional banks and fintechs.

Whatever the strategy chosen, the most important thing is that there is a plan for action. From our experience around the world we know that it will be the Malaysian organisations that proactively embrace change and are open to trying new ideas that will thrive in this new digital era.

Mambu’s upcoming webinar for focusing on digital banking in Malaysia, will feature speakers from Amazon Web Services, Oliver Wyman, TymeBank and OakNorth, as well as Mambu.  The webinar will be held on May 6. Further information can be found here

Myles Bertrand is the Managing Director, APAC, for Mambu, the only pure SaaS digital banking platform.



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