PETALING JAYA: As Malaysia embarks on its digital banking licensing framework, incumbent banks are feeling the pressure as more non-bank players enter the digital fray.
While the competition could be good for consumers, analysts said banks could lose some market share and customer base if they fail to buck up in their digitalisation and investment efforts.
Hong Kong began issuing digital bank licences early this year, while Singapore plans to issue up to five such licences this year.
The country’s digital bank licensing framework would be issued for industry consultation by year-end, according to Bank Negara.
Governor Datuk Nor Shamsiah Mohd Yunus was reported as saying that the framework, which is now being finalised, would be on the central bank’s regulatory requirements for interested parties to be given a licence. More than 10 parties to date have expressed interest in setting up virtual banks in Malaysia.
S&P Global Ratings, which expects Malaysian regulators to issue the country’s first digital banking licences in the next 12-24 months, said it would allow local tech and telecoms groups such as Grab Holdings Inc and Axiata Group Bhd to compete directly with banks in lending and deposit-taking.
Global tech giants like Alibaba Group and Tencent Holdings, which already have a meaningful share of Malaysia’s digital payment market, could challenge the Malaysian lenders, it noted.
To manage this threat, the international rating agency felt that banks would need to invest heavily in technology.
Amid the digital wave, banks in Malaysia have been embracing technology and innovation to gear up for competition, among themselves and with non-bank or fintech players.
In some areas, lenders have been forming strategic partnerships with fintech firms to create a win-win situation.
PUBLIC BANK BHD (PBB) managing director Tan Sri Tay Ah Lek said in pursuing digitalisation initiatives, the bank takes a holistic approach where it takes into consideration customer needs, associated and potential risks, as well as its competitiveness in the industry.
“PBB upholds a fine balance in developing and enhancing its digital capability, while preserving its stability.
“With this practical approach, the bank has been competing effectively and efficiently on the digital front, with its digitalisation initiatives providing value proposition to consumers and boding well for its business growth.
“Over the last three years, PBB has invested about RM400mil in IT-related capital expenditure, which includes spending on digital infrastructure.
“In addition to tapping on digital solutions, the bank has been highly focusing on embracing digital to enhance customer experience, ” he told StarBiz.
PBB’s digital customer touchpoints, namely, PBe internet banking and PB engage mobile banking, have been recording good growth in customer base.