Digital Banking: Financial Services Disruption in Malaysia

Digital Banking in Malaysia

Banks in Malaysia enter the digital banking fray to uplift the country’s financial well-being.

The digital approach is increasingly becoming integral in the banking ecosystem worldwide. Financial services providers are radically turning to digital technologies to advance legacy banking services. There is no wonder that financial institutions have been uniquely positioned in the empowerment of the economy. This is why they require to evolve to deliver an effective banking experience in today’s digital era. As the year 2020, largely affected by the COVID-19 pandemic, created massive havoc across industries, it brought opportunities to the banking industry in several ways, towards digital banking. The Malaysian banking ecosystem is not an exception to this disruption.

Recently, Bank Negara Malaysia has invited applications for digital banking licenses that are required to submit by June 30, 2021. Through this licensing framework, the central bank of Malaysia may issue up to five of them to qualified applicants that will enable the innovative technology application to elevate the financial well-being of individuals and businesses and foster sustainable growth in the country. 

The move follows Singapore’s approval of four digital banking licenses. In December 2020, the Monetary Authority of Singapore (MAS) approved four successful digital banking licenses to operate digital banks as Digital Full Bank (DFB) and Digital Wholesale Bank (DWB).

Digital Banking Ecosystem in Malaysia

Digital banking promises huge opportunities for traditional financial services. This banking model involves advanced technologies with the internet to process banking services such as opening bank accounts, fund transfers, remote payments, and other bank operations without visiting a branch. Digital banking will open new opportunities in the future of Malaysian banking. Australia, Brazil, Canada, China, Germany, Hong Kong, South Korea, South Africa, Taiwan, the Philippines, the UK, and the US have already established their digital banks. Singapore recently joined the list and Malaysia is now in progress.

FinTech has become an integral part of Malaysia’s financial sector with an increasing middle-class population, greater mobile phone penetration and strong government support for the digital economy. Internet banking in the country has quadrupled in the last decade, reaching a 90 percent usage rate in 2018. Mobile banking is also thriving thanks to 4G network coverage, affordable data, and 5G is in the works, as per the International Monetary Fund (IMF). Indeed, Malaysia ranked high among the 139 countries surveyed in the WEF’s 2019 Network Readiness Index ahead of Italy, China and Chile. Additionally, Malaysia became first among countries in emerging and developing Asia.

As Bank Negara Malaysia released a licensing framework for digital banks, this move will now foster the country’s financial services to the next level. The central bank’s vision is to bolster financial inclusion in Malaysia’s countryside and is looking for companies that can help it achieve that goal. Under the regulatory framework for digital banks, the licenses will allow the successful applicants to operate either conventional or Islamic banking business in Malaysia. The licensing framework adopts a balanced approach to enable digital banks’ entry with robust value propositions, security to integrity and stability of the country’s financial system and depositor’s interests.

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