26 February 2022

Digital Banking ~ Will Traditional Banks go away?

Accelerating the digital transformation for financial services, BNM said it will issue up to 5 Digital Banking Licenses in 1Q 2022.

In addition to enabling the innovative application of technology in the financial sector, digital banks are expected to offer products and services to address market gaps in the underserved and unserved segments. This includes promoting suitable and affordable financial solutions by leveraging the innovative application of technology.

According to BNM, it has received a total of 29 applications from a diverse range of parties, ranging from banks, industry conglomerates, technology firms, e-commerce operators, FinTech players, cooperatives, and state governments. 💢💢💢

Malaysia's market got potential meh?
Is it a very Profitable Business to venture into?

Based on a 2019 study conducted by Google, Temasek, and Bain, 40% of Malaysian adults were "underbanked," meaning they lacked access to financial services, while 15% lacked a bank account. 👀

The goal for digital banks is to reduce this figure to 5%. While we believe that competition in certain sectors, such as the SME space, credit cards, wealth management, and deposits, may intensify. we believe that these digital banks will typically serve distinct customer segments.

Picture credit to Medium

But, awareness is gaining traction here...

According to extracts from an online article by ASEAN Briefing, a Visa Consumer Payment Attitudes study discovered that:
  • over 74% of Malaysians were aware of digital banking
  • 66% expressed an interest in adopting such services
  • barely 23% stated they still prefer to use cash as payment
And, the reason why they are interested in utilising digital banking:
  • 78% to pay bills
  • 69% in sending money to family and friends
  • 62% in making payments at retail outlets
  • 61% in managing deposits and withdrawals
The survey also found that these numbers indicate that Malaysians want to adopt digital banking and other FinTech services but are awaiting the necessary tools and infrastructure. Looks promising! 😍😍😍

What can we expect from these Digital Banks?

Because the digital bank was still considered a new thing here, we can anticipate that these new digital banking entrants will be busy during the Foundational Phase (three to five years), ironing out hurdles and limitations related to infrastructure, regulatory, building a sustainable customer network, and competition from incumbent financial institutions.

The adoption of technology and digitalization at every level of banking operation will change the financial landscape. Automation will streamline processes, speed up turnaround time and minimize human error.

Adopting blockchain and artificial intelligence (AI) in eKYC 
and data mining will smoothen customer authentication and quicken identification, support onboarding of customers remotely, and facilitate data analytics.

Let's get some hindsight from Hong Kong 😎

According to a prominent newswire, Hong Kong's virtual banks remain unprofitable due to competition from established banking rivals and high capital requirements. It would take years for the bank to scale up, achieve critical mass, and generate a profit.

Mox Bank and ZA Bank, two of Hong Kong's leading digital banks, predict they will break even by 2024. Other global examples suggest that some challenger banks will reach break-even after five to six years. While the banks are gaining traction, they have yet to pose a serious threat to established banks.

☺ We will blog more on Digital Bank in Malaysia ☺
☺ Stay tuned ☺

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1 comment:

  1. In the next five to ten years, traditional banks and cash will become obsolete according to some "harder-to-reach" groups and underbanked people.


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