MALAYSIA may be considered an ageing society that is generally less digitally connected than youth but about 38% of Malaysians are expected to have a digital bank account by 2026.
Opportunities in the financially underserved segment – the micro, small and medium enterprises (MSMEs), self-employed individuals within the gig economy and retirees – are drawing groups like the 60:40 Boost-RHB Bank
Bhd consortium into this new challenge of digital banking.
Industry findings estimate 55% of the country’s adult population is unbanked or under-banked, and just 39% of Malaysians are able to get a loan from their banks.
This could be due to the nature of their businesses, insufficient credit documentation and collateral, or that they fell short of the minimum annual turnover requirements for loan applications.
“The consortium aims to reach a significant portion of these customers in the first five years of operations,’’ said Boost group CEO Sheyantha Abeykoon, quoting studies that showed 66% of Malaysians are keen on digital banking services.
They also believe that digital banking is more efficient, convenient, accessible and secure.
Various elements are at work to help make this pioneering effort a success – Boost’s extensive fintech experience and the RHB Banking Group’s intimate knowledge of banking services, risk management and compliance, liquidity, capital as well as operational and responsible financing.
Through Boost Credit’s micro-financing, Boost has disbursed RM1bil worth of loans in Malaysia; about 42% of its customers have never received credit from other financial services providers before.
Digital banks deliver banking services online, which include, among other things, account opening, withdrawal and deposits, remittances, credit card facilities, bill payments as well as loan applications and disbursements.
Using the latest technologies – artificial intelligence (AI), blockchain, biometric security and cloud – it allows seamless end-to-end processing of banking operations which can be conducted via a mobile banking app.
By 2025, Malaysia is expected to be ahead of the Philippines and Singapore in the adoption of digital banking which is expected to grow by 16%, said boutique management consultancy 27Group.
About 20% of Malaysian adults have a digital bank account, said global financial comparison platform Finder.com, which estimates that figure to hit 29% by 2022, and 38% by 2026.
As a full spectrum fintech player, Boost is one of the few fintech companies in the region with a robust ecosystem of fintech solutions spanning its:
> digital lifestyle app Boost Life
> merchant solutions Boost Biz
> quick and low-cost micro-financing and micro-insurance Boost Credit
> cross-border payment ecosystem Boost Connect.
Over the past few years, Boost has built a track record of simplifying access in digital financial solutions through its large AI-based lending business, Boost Credit, that is already operating at scale.
“We have developed a huge digitally engaged core customer base with deep data-driven insights to break new grounds and build strong value propositions that solve the pain points of the under-served,’’ said Abeykoon.
RHB Banking Group is already operating in nine countries in Asean, providing conventional and syariah-compliant banking and financial services.
The digital bank helps RHB realise an opportunity to further expand its offerings to micro SMEs, and the under-served retail individuals who have traditionally been more difficult for incumbent banks to serve.
“The digital bank is a long-term investment targeted towards sustainable growth.
“As such, we are committed to channel the required resources to support the business plan that had been submitted to Bank Negara, as well as to responsibly capitalise the digital bank,’’ said RHB Banking group managing director and group CEO Mohamad Rashid Mohamad.
While digital banks may indeed find a niche, a word of caution is that we are an ageing society and also, it may take some time for people to make the switch.
The main problem will be related to scale, and how long it will take for people to switch to digital banking, as it does not make sense to keep on giving unsustainable perks, said Etiqa Insurance & Takaful Bhd chief strategy officer Chris Eng.
The adoption of e-wallets had soared as people were attracted to the freebies and discounts given but the situation has somewhat normalised now.
Not every Asian digital bank is a success story but those that have developed a productive business model and scaled effectively have thrived, said McKinsey & Co.
In Hong Kong, a McKinsey survey of personal financial services found that 93% of consumers use digital banking at least once a month; a notable difference since the 2017 survey is that age and affluence no longer matter as adoption is near-uniform across age groups and income levels.
But the best of banking innovation may not lie in fresh infrastructure approaches; it is product innovation that makes the difference, said former Inter-Pacific Securities head of research Pong Teng Siew.
The trouble is product innovation benefits cannot be easily captured by any bank due to the generally homogenous nature of banking products.
Qualitative service differences and sub-market posturing do enable some banks to capture lasting competitive advantages and build business moats around them.
Many banks try to product differentiate by attempted branding of otherwise similar products, coming out with marketing campaigns around product branding, labelling and re-packaging rather than outright new products, said Pong.
As an alternative channel of financing, digital banking helps to meet an important goal of financial inclusion, and also the nation to realise its ambition towards digitalisation.
The challenge is to make it work and meet the needs of the under-banked and under-served.
Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.
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