Malaysia has been one of Asia’s countries at the forefront of the digital banking movement. In 2018, it ranked second in the Asia Pacific (APAC) region for digital banking adoption, with almost half its population using online services. By 2020, the figure had risen to 63.8%, and digital banking trends in Malaysia show no signs of this growth slowing down. 

The reliance on digital banking in Malaysia increased even further in 2021, partly due to the pandemic. With movement restriction orders and people actively avoiding spending time outside their homes, the move to online banking was inevitable. In Malaysia, this rose to 90% of people using this method of managing their finances at least once a month. 

This turn to digital banking has pushed traditional banks to introduce new services to keep up with the demand and compete with the latest fintech solutions.

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While Malaysian banks have been pioneers in adopting new technologies to provide their customers with better services, the government only issued their first completely digital banking licences in early 2022. Now, a country that was among the first to introduce mobile banking apps, is investing substantially in new technologies such as biometric security, artificial intelligence, and blockchain.

As the country accelerates its digital transformation in many sectors, the need for finance and banking to evolve apace is more crucial than ever.

New digital banking licences

Bank Negara Malaysia (BNM), the country’s national bank, received 29 proposals for digital banking licences before the July 2021 deadline and announced the five successful bids in April 2022. 

These new permits will allow non-bank businesses to provide fintech solutions similar to those provided by traditional banks, such as credit-earning bank accounts, loans, and other financial services, including the incorporation of blockchain technology into banking. By offering banking services online, the new banks help those in more remote areas of the country access financial products for personal and business purposes. 

The successful consortiums consisted of traditional banks in partnership with other financial institutions and fintech conglomerates. They were:

Boost Holdings Sdn. Bhd. with RHB Bank Berhad

In their application for a digital banking licence, Axiata Group Bhd’s fintech unit, Boost Holdings Sdn. Bhd., partnered with one of Malaysia’s largest banks, RHB Bank Bhd. 

The marriage of the telecom giant and the traditional bank to deliver fintech services offers RHB, which owns a 40% share of the conglomerate, the opportunity to modernise its services and offer competitive online financial options. 

GXS Bank Pte. Ltd. and Kuok Brothers Sdn. Bhd.

GXS Bank Pte. Ltd. was established in 2020 by Singapore-based mobile app Grab and telco giant Singtel to provide digital financial services in the country. It received its Singaporean banking licence in November 2021 and secured one of Malaysia’s first digital banking licences in collaboration with Malaysian investment holding firm Kuok Brothers Sdn. Bhd.

KAF Investment Bank Sdn. Bhd.

Malaysian registered KAF Investment Bank Sdn. Bhd. has offered investment and financial advisory services for over 45 years. Its successful digital licence application brought together some Malaysian companies, such as Carsome, MoneyMatch, and Jirnexu. Announcing the receipt of its licence, the bank’s Deputy CEO, Thariq Usman Ahmad, said, “The digital banking licence would further enable KAF to deploy robust digital strategies with our partners for wider financial inclusion through multi-channel deliveries.” KAF recently appointed Rafiza Ghazali as its newly founded Digital Islamic Bank CEO. 

Sea Limited and YTL Digital Capital Sdn Bhd.

Southeast Asian tech giant SEA Limited, the parent company of gaming company Garena and eCommerce site Shopee, combined with one of Malaysia’s most successful conglomerates, YTL, to secure its digital banking licence. As two of the region’s biggest companies, their move into online financial services will disrupt traditional banking and make fintech products more accessible to many underserved Malaysians. 

AEON Financial Service & Credit Service and MoneyLion Inc.

American fintech company MoneyLion joined forces with two subsidiaries of Hong Kong-founded company AEON to land its digital licence for Malaysia. The AEON/MoneyLion consortium was, like KAF, awarded its permit under the Sharia banking laws of the Islamic Financial Services Act 2013. In a country with a predominantly Muslim population, offering Sharia-compliant banking services is essential and an intelligent move. 

Surprisingly, AirAsia parent company Capital A, which also owns BigPay and the Sunway Group, failed in their bids to secure licences in this round. 

As digital banking in Malaysia enters a new era, those who can provide rapid, secure, enhanced access to financial products will likely flourish. Still, financial experts FitchRatings believe that these new entities will not pose an immediate threat to traditional banking. However, as digital banking trends in Malaysia evolve, they change how people access and grow their money, meaning that those conventional financial institutions that don’t develop innovative technologies are likely to get left behind.