Digital bank race heats up

Co-exist: People using ATM machines in Kuala Lumpur. Conventional banks and new digital banks will co-exist as everyone in the ecosystem has an important role to play.

IT is less than a fortnight until the closing date of Bank Negara’s digital bank licence application and the heat it is generating is intense.

Companies are now scrambling to meet the deadline of the application on June 30, which is just 11 days away. It is set to be a crowded race as the central bank will issue only up to five licences.

Bank Negara has previously said that about 40 parties have registered their interests to apply for the licences, of which it is only looking at issuing up to five by the first quarter of next year.

Only a handful of companies have openly stated their interests such as telecommunications giant Axiata Group Bhd, which is partnering RHB Bank Bhd; Sunway Bhd; AirAsia Group Bhd through its card-based money app BigPay; tech firm Green Packet Bhd; and the Sarawak state government.

But as the deadline approaches, more names are starting to surface, including that of conglomerates who are not in the banking or financial services sectors.

State-owned energy company Petroliam Nasional Bhd (Petronas) is the heavyweight in the ring, after it emerged alongside other names such as Genting Bhd and New York Stock Exchange-listed Sea Ltd, which is partnering infrastructure conglomerate YTL Corp Bhd, according to recent reports.

Sea is a Singaporean tech giant that holds one of the four Singapore digital banking licences. It also owns game developer Garena, Shopee and digital payment system SeaMoney.

StarBizWeek gathers from market talks that other names which have since come to light are MyEG Services Bhd, a local investment bank, AEON Credit Service (M) Bhd, United States-based fintech startup MoneyLion and Malaysian fintech firm Soft Space Sdn Bhd.

The fear of missing out is overwhelming, to the point a senior officer of Bank Negara has to remind all applicants to respect the application process.

In a YouTube talk show by Fintech Fireside Asia on Thursday, the central bank’s financial development and innovation director Suhaimi Ali said there were “a lot of people trying to use connections” to get a headstart in the application process and he has laid down the final word – stop lobbying.

“One message to all potential applicants out there is to stop lobbying. And because at Bank Negara, we abide by a strict governance process in assessing applications.

“I would like all parties to respect that process,” he says.

Suhaimi adds that there is a significant amount of interest from non-banks but regardless if a consortium is bank-led or not, each submission will be assessed equally.

The red-hot interest in the digital banking space is understandable, considering that this could be the only type of banking licence that will be issued by Bank Negara, at least for now, more than 20 years post-Asian Financial Crisis when banks with smaller capitals were required to consolidate.

Besides RHB Bank, it does not seem like other conventional banks are interested in applying for the licence, except for CIMB Group Holdings Bhd probably, which has been making great strides on the digital front through its wholly-owned subsidiary Touch ‘n Go Sdn Bhd, which owns 51% in TNG Digital Sdn Bhd, the joint-venture company with China’s Ant Group that runs the Touch ‘n Go eWallet.

Unless the brick-and-mortar banks are open to explore partnerships on the digital front, they do not need a digital bank licence because they are allowed to digitalise their current operations using their existing licence.

Meanwhile, MyEG, which is primarily involved in providing e-services for the government, confirms that it will be applying for a digital banking licence.

In an email response to StarBizWeek, the company said it is applying as a part of a consortium, the composition of which will be disclosed at the end of the month.

“At MyEG, we believe that technology can transform banking and financial services. With our 21 years of experience and track record in harnessing the power of technology to bring essential government services to the masses in the most reliable, efficient and affordable manner, we are confident that we are in a prime position to leverage our insights and expertise to do the same for banking.

“Digital banking services would be complementary and synergistic as well as a value-add to MyEG’s range of existing e-government and commercial service offerings,” it says.

MyEG adds that in aligning with Bank Negara’s objectives to provide banking services to the underserved and unserved markets, the group already has a long and established track record in engaging these very same markets, given its vast existing user base that spans all levels of society, income levels and age groups, with a geographical reach that stretches to all corners of the country, even to the rural and interior areas.

Besides Petronas, it is learnt that an oil and gas services company is, or was, interested in joining the fray, at least until its auditors pointed out some matters pertaining to statutory audit.

Serba Dinamik Holdings Bhd, which was in the limelight recently over the accounting queries of about RM3bil transactions by its auditor KPMG, is also said to be among those wanting to apply, although its latest stance is not immediately known.

The company declined to comment if it is planning to enter the digital banking space.

While Reuters recently reported that gaming firm Razer Inc is considering applying, sources tell StarBizWeek that the Singapore-based company is not.

In a media briefing on Berjaya Corp Bhd’s (BCorp’s) strategic transformation plan on Tuesday, group managing director Jalil Rasheed said Razer Fintech did look at digital banking but did not find the right partners to do it.

Razer Fintech is the financial technology arm of Razer Inc, of which BCorp holds a 49% stake through its wholly-owned subsidiary Berjaya Fintech Sdn Bhd.

It partnered BCorp in 2018 to roll out the Razer Pay e-wallet in Malaysia.

MIDF head of research Imran Yassin Md Yusof tells StarBizWeek it is not surprising to see many parties from various sectors interested in this, as it gives them the opportunity to enter the banking space since it is very unlikely for new traditional banking licences to be issued.

“With the proliferation of technology usage, accelerated by the Covid-19 pandemic, we expect that digital banking has a bright future.

“It also allows for the setting up of a bank without having to invest heavily in the cost associated with setting up a bank such as the cost to develop a branch network.

“For those that already have some bank-like products such as e-wallet providers, it also means that more products can be offered and these parties can utilise the ‘deposits’ more efficiently,” he says.

MIDF Research believes that digital banks will compete with traditional banks over the long term.

“Having said that, it is not that traditional banks will not be competitive in the future as their existing licences already allow them to offer their products digitally.

“The shift will likely be on how customers perform their banking needs and the strategies that banks employ to meet these needs,” says Imran, adding that the research house believes more customers will shift towards digital channels to perform their banking and it is likely this will lead to more branch network rationalisation, for instance.

The most recent one came from HSBC Bank Malaysia Bhd, which is closing down 13 branches in Malaysia by the year-end to focus on digital banking.

In fact, if one were to take a step back to observe the industry statistics in Malaysia, it seems that banks are cognisant that their writings are on the wall if they do not change.

Over the past 10 years, there has been an 11.14% decrease in bank branches from 2,055 to 1,826, a 20.74% drop in staff to 100,175 people and a reduction of automated teller machines (ATMs) and cash deposit machines by 29% and 82.5%, respectively, in the push for a cashless society.

Vision Group managing director Chua Zhu Lian says corporations are looking into digital banking to pursue business diversification strategies, given that the Covid-19 situation has significantly impacted core businesses which has previously been thought of as resilient, even under worst-case scenarios.

“There are also corporations that are looking to secure the licence to offer their users a more comprehensive set of services in order to strengthen their market position and expand their revenue streams into banking or financial services.

“I believe conventional banks and new digital banks will co-exist as everyone in the ecosystem has an important role to play.

“We will certainly see greater product innovations originating from both conventional and digital players, which will drive digital and financial innovations to greater heights, and this is extremely positive for our nation’s development,” said Chua, who is also the investment director of Fortress Capital Asset Management.

Vision Group is a Sarawakian-owned company with a niche in banking and finance, technology and digital transformation.

“We see great potential in Sarawak’s push towards a digital economy and are constantly finding opportunities to work with the state government and local businesses to accelerate the development of a highly agile and innovative digital economy in Sarawak,” he says.

An investment banker says it is rather obvious who the five recipients would be, at least for the first round.

“Naturally, it will be for those with deeper pockets first, those who can afford to fail in this pilot phase as the financial sector moves into digital banking.

“After everything stabilises and when all kinks are ironed out, then probably Bank Negara will open up more licences and allow the smaller players to come in,” he says.

Expect more names to be bandied about in this crowded space as the closing date draws nearer.

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