Fintech Firms in Malaysia will be Supported by Established Financial Institutions as they Apply for a Digital Banking License, Senior Analyst Says

The ongoing race and competition between local Fintech firms for acquiring a digital banking license in Malaysia continues to intensify, particularly after Bank Negara Malaysia (BNM), the nation’s central bank, revealed additional details regarding the licensing process.

BNM’s Exposure Draft on Licensing Framework for Digital Banks (posted on December 27, 2019) noted that the Malayasian reserve bank will be issuing up to five online banking licenses to eligible companies in order to offer such services, for either regular or Islamic banking in the Asian country.

BNM has also established a minimum RM100 million (appr. $24 million) capital fund that’s unaffected by potential losses for the digital banks’ foundational phase. The figure will reportedly be increased to RM300 million.

Imran Yassin Yusof, a senior analyst at MIDF Amanah Investment Bank Bhd, noted that local financial technology (Fintech) firms will be supported by established financial institutions, which appear to be the ideal candidates for receiving a digital banking license.

In statements shared with the Malaysian Reserve, Yusof said:

“We believe that e-wallet providers could be the major contenders. With the capital requirement set at RM100 million, those with strong backers, such as Boost, Grab, Touch ‘n Go (TNG) and BigPay, are deemed the strong contenders.”

He added:

“We will not be surprised if telecommunications (telco) players are also interested in the venture.”

Although several local financial institutions are interested in acquiring the virtual banking license, Yusof revealed that established financial services’ participation in digital banking activities might be redundant due to the limited space in the industry.

He explained:

“We opine that it is a bit redundant for established banks to apply for the license. Their current banking license already allows them to offer their products through digital means. It could also tie up their capital. However, we do not discount the possibility of established institutions joining some of the Fintech or e-wallets to form partnerships and apply for the license.”

With a user base of around 150 million, telco provider Axiata Group Bhd is considered one of the leading contenders for its potential role in the establishment of a virtual banking industry in Malaysia. Axiata Digital Services Sdn Bhd, the group’s digital division, has been handling the Fintech-related projects for the telco, which include managing Boost, one of the country’s most widely-used electronic wallets.

Established in 2017, Boost is one of the biggest cashless payment providers with more than 4.6 million users.

Boost has been chosen as one of the main platforms to distribute the government’s e-Tunai Rakyat initiative, which offers RM450 million in incentives to support the country’s e-commerce projects.

Mohd Khairil Abdullah, CEO at Axiata Digital Services, has previously noted that the group is interested in becoming a key player in Malaysia’s virtual banking industry.

Grab Malaysia is another potential candidate for a digital banking license.

According to analysts, Grab Malaysia’s involvement in online banking activities could be  beneficial as it is already in the process of trying to obtain a virtual banking license in Singapore

Grab Holdings Inc is teaming up with Singapore Telecommunications Ltd in order to establish a digital bank, in which Grab will reportedly have a 60% stake.

The virtual bank will cater to customers who extensively use digital communications.

Grab has successfully introduced its e-wallet, GrabPay, and now the tech company could take advantage of its large customer base to further expand its operations. There are reportedly over 160 million Grab users based in Singapore, Vietnam and Malaysia.

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