The competition to be Malaysia’s first digital banks has intensified with the application for digital banking licenses now open for submission. After months in consultation with various stakeholders, Bank Negara Malaysia (BNM) has set 30 June 2021 for the submission deadline which isn’t much time and is likely an attempt by BNM to separate the serious applicants from the crowd, said Adrian Lee, Head of Financial Services at KPMG in Malaysia.
With banks and non-bank institutions vying for the license, the focus to fulfil BNM’s mandate for financial inclusion will be a common starting point for applicants. But Lee advised applicants to also keep trust and innovation at the core of their ideation process and business model.
“A successful digital bank is one that customers can fully trust with their money and data. Building trust with Malaysian households and businesses is crucial, especially for companies not known for providing financial services and are looking to enter the digital banking space. We only need to look at Singapore’s digital bank license applicants to see the wide variety of companies who applied. We expect to see a similar diversity of applicants here in Malaysia,” said Lee.
Lee further explained how applicants must first understand that trust goes beyond technology performance.
“Customers’ expectations and perception matters, just as much as the actual performance of the technology and risks associated with it. Customer security should be placed front and center, not only in their digital products and services but also in the delivery through trustworthy channels and platforms as it will be the bank’s sole point of engagement with the customer,” he added.
According to KPMG’s Consumer Loss Barometer –The economics of trust report, 49% of consumers from Malaysia have had their financial information compromised, higher than the global average of 37%. A deeper study into the economics of trust within the Financial Services sector found that 40% of consumers in Malaysia believe their financial institutions should have full or joint responsibility for ensuring that mobile devices used for mobile banking are secured.
“This is why fostering trust and gaining confidence from customers is becoming a differentiator for sustainable business. The pandemic has accelerated the shifting trends of customer behavior in support of digital banking services, so it’s an opportune time for Malaysia to have its own digital banks to serve a wider population in need of financial support in the current economic landscape,” said Lee.
The challenge for applicants to demonstrate how their digital bank model will address the financial inclusion mandate also needs to be highlighted. From a purely commercial sense, there is a delicate balancing act between improving financial inclusion and business sustainability.
According to Yeoh Xin Yi, KPMG’s Head of Financial Risk Management and Digital Banking Leader, the key is for digital banks to unravel the underlying reasons traditional financial institutions are prevented from serving certain customer segments, explaining: “With customers often turned away from existing financial institutions due to the higher credit risk, this constitutes that customers are unable to repay their loans. Consequently, if the digital bank’s loan book solely comprises ‘underserved’ customers, we can expect that a larger proportion of their loans would encounter defaults which means the digital bank will struggle to be self-sustaining.”
“This indicates that efforts should be leveraged on digitally enabled technology architecture and experience centricity model, imposing insight-driven strategies and actions to minimize potential risks. Successfully optimizing in these aspects can provide new tractions for digital banking applicants. Not only can they meet each customer’s unique set of preferences especially those that falls into the unserved and underserved segments, but also enables them to provide the best services and outcomes beyond their customers’ financial needs,” she added.
Additionally, Yeoh advised applicants to consider an early consortium formation and alignment of visions and strategies that are favorable to the Malaysian landscape as one way to ensure that the applicant’s submission to BNM is thoughtful and comprehensive.
“In essence, once a digital bank has decided which business operating model to adopt, the bank can start designing its business, technology and operational structure that will ensure end-to-end processes that are practical and trust-enabled for each customer segments they serve. In this digital age, the value of trust cannot be overstated. Trust will be a key driver of the applicant’s brand reputation, technology transformation, customers satisfaction and loyalty, and will surely be the enabler of a sustainable digital bank,” concluded Lee.