The Race Toward Digital Banks Heats Up


Financial digital disruption is no longer a mere concept, but is holding truth as digital banking proponents emerge globally. The America and European regions are no strangers to it – having led the shift towards digital banking from much earlier on. Certain Southeast Asian (SEA) countries have also seen successes in rolling out innovative digital banking value proposition, such as KakaoBank in South Korea and WeBank in China.

Malaysia’s Central Bank (Bank Negara Malaysia – “BNM”) opened up applications for digital banking licences in Dec 2020, spurring great interest and activity within the financial industry.

Months of partnership building and business planning culminated in 29 digital banking license applications being submitted to BNM at the deadline of 30th June 2021.

Great opportunity for the private sector to venture into banking

Online transactions in Malaysia registered a 49% increase in 2020 from 2019, whilst e-Wallet payments reflected a 131% y-o-y increase. Boosting the shift in digital payment is the prolonged lockdown impact due to Covid-19, which forced online shopping and payments. The Malaysian government also leveraged on popular e-wallets such as Boost, BigPay, Grab and Touch ‘n Go to disburse monetary aid (cumulatively RM1.245 billion1) in the form of e-Wallet vouchers.

As customers become increasingly comfortable with digital payments, it is to be expected that this trend will continue post-COVID. The concept of a fully digital bank with no physical branches would not be too unfamiliar a pill to swallow. A study revealed that due to digitalization, 600 bank branches in Malaysia are expected to close by 20302. While we expect new digital banks to only begin operations in 2023 or 2024, incumbents would be hard-pressed to take this opportunity to reposition their digital approach towards early adopters.

Different Models & Strategies

According to Suhaimi Ali, director of BNM, a Malaysian digital bank applicant typically exhibits four primary models:  specialist, ecosystem-backed, innovative basic banking provider, or Islamic banking model.

  1. Specialist model – focuses on custom-designed products for very specialised client demography in order to stand out in an increasingly crowded market.
  2. Ecosystem-backed model – increases service quality and offerings via formation of robust partner ecosystem. Challenger banks such as Revolut, N26, and Starling Bank have demonstrated the effectiveness of a partnership model. These platforms feature strong data analysis capabilities to drive customer insight and enhance the credit assessment engine.A well-established platform such as mainstream e-wallet and e-commerce platforms can leverage its captive customer base to enable faster customer acquisition at a lower cost.
  3. Innovative basic banking providers – these banks offer simple products that are easily accepted by customers. It leverages on extensive consumer data to deliver personalized and actionable interaction and tailor-made services based on individual profiles.Coupled with IFTTT (IF This Then That) technology, banks can offer creativity in product innovation and automation. Monzo, a UK-based challenger bank, uses IFTTT to automate savings in new ways, such as transferring to a savings pool when users go to the gym, or if it rains. This promotes financial literacy while creating a fun and unique experience for its customers.
  4. Islamic banking – uniquely, Malaysia is one of the very few countries to witness the birth of a new Islamic digital bank. The Islamic digital bank is expected to offer Islamic products under the IFSA governance.

Uphill path to profitability

Despite significant client growth and company expansion, majority of western digital banks are still loss-making. In fact, only 13 of the world’s 249 digital banks have made a profit, of which, 10 are based in the Asia Pacific (APAC) region3.

Compared to global digital bank leaders such as Chime, N26, Nubank, Revolut, and Monzo which are still loss-making, APAC digital banks such as WeBank in China and KakaoBank in South Korea boast among the most sustainable business models that have generated positive returns two years after their debut. These are platform-based businesses that have leveraged on existing captive client base, big data, and ecosystems to provide innovative goods and services at a significantly lower cost.

Among the pitfalls faced by the pioneer digital banks include incurring high customer acquisition costs and selling financial products at lower rates than incumbent traditional banks. Going down these routes will prove unsustainable in the long run.

While Europe and America remain a leader in digital banking, APAC’s digital banks are being reshaped for greater robustness and sustainability based on lessons learnt by earlier venturers. APAC digital banks often pull significantly different strategies in ensuring business sustainability.

It’s easy to understand why BNM has placed such high emphasis on qualifying the 5-year business plan for these bidders; BNM has set a clear goal of expanding financial inclusion to the unserved and underserved market. With over 90% of the population banked, BNM is pursuing a different approach to financial inclusion while enhancing the overall financial system and accessibility. This goal leads to a financially harmonious environment in which incumbents and newcomers complement rather than compete.

Effective use of transformative technologies

Any new digital bank must rely on technology to succeed. Emerging technologies may be used by greenfield digital banks to reduce overall costs and increase efficiency. With legacy systems in place, incumbents often take a long time to offer the same service or require workarounds involving extensive architectural modification.

With data becoming the new oil in digital banking, having strong data processing and analytics capability benefit the customer and business insights significantly. To facilitate fast loan processing, platform players often construct an Artificial Intelligence (AI)-based credit evaluation and rating engine. With this, digital banks enjoy a higher degree of automation which optimizes the operational cost.

Having said that, new digital banks need to be careful not to overspend on technological development while neglecting to adopt more commercially available solutions. This may result in higher cost and delayed time to market. Collaborating with a dependable and technologically advanced partner would be highly recommended.

With BNM’s acceptance of cloud deployment, it is anticipated that several new banks will use established cloud technology for its cost-effectiveness and scalability. Major cloud providers have aggressively taken the lead in providing guidance and assistance in fulfilling RMIT requirements.

INFOPRO’s AI-driven Digital Banking Platform

INFOPRO’s AI-driven Digital Banking platform is designed to bring technological advantage to financial institutions regardless of size. With over 50 pre-integrated modules, new digital banks are able to assemble banking modules to meet their niche rapidly.

INFOPRO’s Digibank-in-a-Box was launched in partnership with Huawei and TMOne Cloud Alpha Edge. The solution is a one-stop centre for end-to-end banking software with advanced technology enablement designed to relieve digital banks of the burden of spending too much time developing their technological skills. This allows them to concentrate on their core business plan.

1 eTunai Rakyat (RM450mil), ePenjana (RM495.4mil) and eBelia (RM300mil)
2 Roland Berger. (May 2021). Branching out – The Future of Retail Banking Networks
3 Boston Consulting Group. (June 2021). Emerging Challengers and Incumbent Operators Battle for Asia Pacific’s Digital Banking Opportunity.



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Block B3 Level 8, Leisure Commerce Square, No.
+60 (3) 7876 6666