10th May 2022 - 3 min read
Fitch Solutions Country Risk and Industry Research foresees that digital banking will be in high demand in Malaysia, due to the benefits that it can offer to consumers and businesses, as well as the increasing digital literacy among the public. This is following Bank Negara Malaysia’s (BNM) announcement of the successful applicants for its five digital banking licences.
According to Fitch Solutions, one key advantage of these digital banks lies in the convenience that it provides as customers can perform banking and financial services entirely online without needing to visit physical branches. This caters to consumers’ growing preference for easier and faster banking and payment options.
Another reason that digital banking will see high demand in Malaysia is the perks that it will also bring to businesses, especially small and medium enterprises (SMEs). Among other benefits, digital banks will provide this group with more competitive borrowing rates, easier access to loans, and faster fund approvals and disbursements.
“Margins will be more attractive for digital banks as they will not be investing as much in physical infrastructure and people. Additionally, as digital banks utilise data analytics to generate insights regarding consumer behaviour, businesses can gain better access to more personalised solutions for consumers,” the firm added.
Fitch Solutions also said that compared to incumbent banks, digital banks will be able to better cater to financially underserved segments, who may lack the credit history required to obtain loans via traditional channels. This will enable groups such as gig economy workers and rural residents to receive loans and gain access to broader financial services – thereby promoting financial inclusivity.
Finally, the firm stated that the establishment of digital banks will promote competition within the financial services market, which in turn, encourages innovation and increases consumer choice. It said that large players that currently dominate the sector have had little incentive to offer more innovative services and lower costs to consumers.
“We expect to see considerable innovation in the breadth and complexity of financial services over the next 5-10 years. The downside risk is that not all of these new businesses will survive to maturity as a poor choice of business model, lack of capitalisation and the dominance of just one or two players could see some investments fail to pan out,” Fitch Solutions further commented.
BNM had announced the five successful applicants for the digital banking licences at the end of last month, after conducting a rigorous assessment of all the applications received. Among other criteria, the applicants were required to demonstrate their commitment to driving financial inclusion, as well as ensuring quality access to financial services, particularly for the underserved and unserved communities.
(Source: The Edge Markets)
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