, Malaysian Digital Banks: 29 Applicants For A Maximum Of 5 Licenses, The Nzuchi News Forbes

Malaysian Digital Banks: 29 Applicants For A Maximum Of 5 Licenses

, Malaysian Digital Banks: 29 Applicants For A Maximum Of 5 Licenses, The Nzuchi News Forbes

Malaysia is neither one of the largest nor most underbanked markets in Southeast Asia, but it still has generated intense interest from would-be digital banks. As the application period for digital banking licenses closed June 30, Bank Negara Malaysia (BNM), Malaysia’s central bank, received 29 applications for a maximum of just five licenses. The applicants are an eclectic bunch: everything from major platform companies and an airline to conglomerates and state governments. Incumbent lenders, private-equity firms and fintechs have also applied.

The 29 applicants are competing in a country of 32 million where the vast majority of adults has a bank account –  about 92% per World Bank data – but where a significant underserved market segment exists, largely in rural parts of the country. Bain & Company estimates that 55% of Malaysia’s adult population is unbanked or underbanked. Consultancy Oliver Wyman reckons that just 39% of Malaysians are able to get a loan from their bank.

Malaysians are fairly dedicated savers, which augurs well for the digital retail banking business. The country has a gross savings rate of about 25%, comparable to Hong Kong’s, but well below Singapore’s 45%. However, since Malaysia is a middle-income country (its per-capita GDP is about US$11,000 compared to Singapore’s nearly US$60,000), its digital banks will not be able to thrive as secondary banks for retail customers. They have to serve as primary banks almost from the get-go. Working in their favor will be relatively moderate customer acquisition and service costs, a luxury that digibanks in both Singapore and Hong Kong do not enjoy.

At the same time, Malaysia’s incumbent banks are not as dominant as their counterparts in Singapore or Hong Kong. There is no equivalent to DBS or HSBC in Malaysia. This will work to the advantage of Malaysia’s digital banks.

On the other hand – and this is something the digibanks must not overlook – Malaysians are relatively satisfied with their existing banks, incumbents say. According to a survey of 7,000 respondents conducted by the Association of Banks in Malaysia (ABM) in 2019, 81% of Malaysian bank customers are satisfied with their banks. “Staff behavior underpins the reason for satisfaction scores and is the key reason attributed to high satisfaction,” ABM said in a Nov. 2020 statement.


Confirmed contenders

There are some familiar faces from Singapore’s digital banking race among Malaysia’s contenders. The most prominent is the Grab-Singtel consortium. Grab-Singtel are hoping that their victory in the regional financial center of Singapore will help pave the way to another win in neighboring Malaysia. Their consortium appears to be the only confirmed applicant that has also won a digital bank license in the city-state. Grab already has a foothold in Malaysia’s ride-hailing and food-delivery segments and its e-wallet GrabPay is one of the top digital wallets in the country. With a digital bank license, Grab could easily offer users in its existing ecosystem a much larger array of digital financial services.

iFAST, a Singapore-based wealth management fintech that came up short in its bid for a digital bank license in Singapore, also applied in Malaysia. While Grab-Singtel have a clear target market of users of the Grab (drivers, passengers, merchants) and Singtel (mobile subscribers) ecosystems, iFAST’s positioning is less clear. iFAST aims to focus on “unserved and underserved market segments,” according to The Business Times. That sounds like just about every other digital bank in the world.

More intriguing – and a potential source of differentiation – is iFAST’s promise to offer customers free life insurance, interest-free loans for daily necessities, and micro investments. iFast’s partners include credit-co-operative Koperasi Angkatan Tentera Malaysia Berhad, private investment holding company THZ Alliance and Lee Thiam Wah, the founder and major shareholder of grocery chain 99 Speed Mart.

, Malaysian Digital Banks: 29 Applicants For A Maximum Of 5 Licenses, The Nzuchi News Forbes

Another strong applicant is telecommunications conglomerate Axiata Group (owner of the Boost e-wallet) which teamed up with RHB Banking Group. Boost will hold a 60% stake in the consortium and RHB the other 40%. Boost has plenty of fintech experience as one of Malaysia’s leading e-wallets, but needs a banking license to move into the highest-margin segments of financial services.

Perhaps the most ambitious applicant of them all is AirAsia, which is looking to fintech as a way to revive its fortunes as the pandemic continues to ground international travel. AirAsia’s e-wallet unit BigPay applied for a license in a consortium with partners including the state-owned Malaysian Industrial Development Finance Bhd (MIDF), the private-equity fund Ikhlas Capital Master Fund Pte Ltd, and a foreign conglomerate “with fintech expertise.”

AirAsia would likely qualify as an “ecosystem player,” one of the three categories of digital banks BNM is aiming to introduce. According to the regulator, ecosystem players should “leverage their brand, channel footprint, and existing customer base from their non-banking businesses.”

If AirAsia wins the license, it will be able to transform BigPay from an e-wallet vying for market share in a crowded field (Malaysia has more than 50 of them) into a full-fledged digital bank. BigPay will be able to draw up on a user base of 1.3 million in Malaysia and millions more who use AirAsia’s flight services.

Possible contenders

Among the unconfirmed bids, two stand out. One is Sea Group, which is banking on digital finance to drive its future growth. Sea has already won a digital bank license in Singapore and acquired Indonesia’s Bank BKE, which it will transform into a digital bank. Malaysia would be a logical place to expand for Sea given that its e-commerce arm Shopee is the top online shopping platform in the country by site visits, while its Sea Money e-wallet is also available. Sea is reportedly applying for a Malaysia digital banking license together with local conglomerate YTL Berhad, whose business interests span hospitality, property, technology, and more.

Meanwhile, gaming company Razer, which lost out on a digital banking license in Singapore to Sea and Grab-Singtel, is also a possible contender. Besides Singapore, Malaysia is the only market where Razer’s digital wallet is in wide use. Hong Kong-listed Razer has a market capitalization of US$18.6 billion, allowing it to easily meet BNM’s capitalization requirements for digital banks.

The gaming hardware maker’s focus on the youth market may also appeal to the Malaysian central bank, which has named “specialist” digital banks as one type of digital lender it wants to see. According to BNM, specialist digital banks should target a very specific customer demographic – so going beyond the generic “unserved and underserved.”

With 29 applicants for a maximum of five licenses, there will be far more losers than winners in this race. Now that the applications are in, it’s time for the waiting to start. If everything proceeds as planned, BNM will name the winners of the licenses in the first quarter of 2022.

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