Malaysia’s financial sector will likely see stiff competition unfold over the next couple of years when digital banks make their debut and try to wrest market share from traditional lenders.
This is a scenario that is already set to play out in neighbouring Singapore, where the central bank recently issued four licences to non-bank companies.
Malaysia’s central bank, Bank Negara Malaysia, is the final stages of developing a licensing framework for digital banking, Assistant Governor Adnan Zaylan Mohamad Zahid said in a speech at a virtual financial technology conference on December 2. He didn’t provide a time line for launch.
According to a senior executive at a Malaysian fintech firm, the framework is expected to be released by March, and the central bank may award licences by the end of 2021.
“Usually, announcement of the winners takes a year after a licensing framework is launched. However, we may see the digital banking licence may be awarded in 2021 as the regulator has been actively engaging with the industry players,” he tells Asia Asset Management (AAM), speaking on condition of anonymity.
He is keen to apply for a licence and expects competition to be intense because many companies, including foreign ones, are hoping to become Malaysia’s first digital bank.
He says local firms that are likely eyeing a licence include telecommunications company Axiata Group, property developer Sunway Holdings and technology firm Green Packet.
Foreign companies that are expected to apply include Singapore’s Grab Holding Inc – a regional ride-hailing company whose co-founder Anthony Tan is a Malaysian – Razer Inc and Sea Ltd, which have all built a “strong presence” in Malaysia, he says.
Grab, via a consortium with telecommunications giant Singapore Telecommunications Ltd., was one of the winners of a digital banking licence in Singapore.
Razer manufactures computer gaming devices and has its own e-wallet service in Malaysia, and Sea operates Shopee, one of the largest e-commerce sites in the country.
Given the strong interest expected, Bank Negara will have to design the licensing framework carefully, according to the top executive of another Malaysian fintech firm.
The rules and capital requirements will determine whether smaller companies will be encouraged to apply, or whether it’s likely to only draw large players and foreign firms.
Capital requirement under Bank Negara’s initial draft was only 100 million ringgit (US$24.79 million) Singapore’s central bank, meanwhile set a S$1.5 billion ($1.13 billion) capital requirement for a full digital banking licence.
“The licensing requirements will determine whether we will see large companies like Axiata and Grab applying for the licences via consortium or by themselves,” the second executive tells AAM, speaking on condition of anonymity “However, no matter how Bank Negara develops the framework, I expect one of these two companies to win the digital banking licence, as they are able to reach out to the unbanked and underserved population.”
Although 92% of Malaysian adults have bank accounts, only 39% are able to borrow from traditional banks, according to data published on Bank Negara’s website. Although the central bank didn’t provide reasons for the gap, there are many Malaysians who are self-employed who may not have documents that traditional banks require to support loan applications.
