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Wow, 29 applications for up to 5 digital bank license to be awarded by BNM

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Yes, there were 29 applications to be among the first few digital banks to start operating in Malaysia. Bank Negara Malaysia (BNM) may issue up to 5 licenses in 2022. Article in themalaysianreserve.com BNM said that various parties including those from state governments has applied for the license.

Among notable groups that have applied for the license include Axiata Group Bhd and RHB Banking Group Bhd. Axiata’s subsidiary Boost Holdings Sdn Bhd and RHB signed a comprehensive heads of agreement last month to form a consortium for the application. There are a few more notable names too, do refer to the Article in themalaysianreserve.com

Why do we need digital bank licenses if current banks already have online banking systems?

Digital banks would not have transactions over the counters at all as every form of financial transactions would take place using technology. A smartphone would definitely be required for all these financial transactions to happen. When we say everything will be done digitally, we are talking about opening an account, making deposits and payments, applying for loans or debit and credit cards, etc. Everything.

Some segments could be better served by digital banks too.

A very good example would be the gig economy where many would not have salary slips and without this, the credit assessment with a traditional bank will be harder. Digital banks would have their own way to serve this group. Another group would be the rural folks who may not be able to have access to the bank branches which are usually only in bigger towns and cities. I guess we have to note that if the digital banks could have a process to serve these groups, then the current traditional banks are definitely capable of emulating it too.

Are digital banks common today?

Singapore awarded 4 digital bank licenses in December 2020. What are these banks doing thus far? These 4 are the Grab-Singtel partnership, the Sea Group, the Ant Group and Greenland Financial. All four are expected to turn operational in 2022. Article in fintechnews.sg

Hong Kong awarded 8 digital bank licenses and they are as follows Airstar Bank Limited, Ant Bank, Livi Bank Limited, Fusion Bank, Mox Bank Limited, Ping An OneConnect Bank, WeLab Bank, AZ Bank Limited. Please read the article in fintechmagazine.com

So we can say that the licenses have been given but operations have not really started. In fact some of these entities which had won licenses in Singapore and Hong Kong are also part of the 29 entities which had submitted its applications to BNM for a license out of the potential 5 license which will be granted the the successful ones.

How big would these digital banks become?

Digital banks would also have to safeguard the interest of their users. In Malaysia, the 5 requirements for digital bank include driving financial inclusion (this means get all users who may not be served by current banks so that they too have access to banking services), maintain asset threshold of RM3 billion in the first 3-5 years (this means that the size of the digital bank would be very small versus the traditional banks), comply with FSA and ISFA regulations (Financial Services Act 2013 and Islamic Financial Services Act 2013), offer meaning access and affordable financial solutions and safeguard the integrity and stability of the financial system.

Please note that digital banks would also be regulated the same way as traditional banks. Thus, if it were to face huge financial issues, they would also be affecting the whole banking industry and not just the digital ones.

This is why we can see that even for the more advanced financial centres such as Singapore and Hong Kong, they are still taking a conservative approach when it comes to digital banks. The sandbox approach remains critical to the success of integration of digital banks into the financial market in the future.

Hope this helps everyone to be a little more knwledgeable about digital banks. I seriously think these are important to have and yet I do worry at the same time for the many people working in traditional banks who may also lose their jobs in the future as the whole industry continue to evolve. Instead of bank tellers, could many of them evolve into customer service which serves the customer in their digital banking needs instead?

Remember, digital banks would still need to take care of their customers and not everything can be done without human intervention. The digital bank without a good customer service, I wish them all the best. In the beginning, there will be more issues first… before everyone starts to understand and could start to be more comfortable with them. When one job closes, another opens. This is the world we live in.

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