23rd June 2021 - 3 min read
Research house and brokerage firm UOB Kay Hian has commented that the upcoming arrival of new digital banks will not jeopardise the position of traditional banks in the near to medium term. In fact, the new players will even complement the incumbent banks to provide financial products and increase financial inclusivity for the underserved market.
To justify its statement, UOB Kay Hian said that digital banks are essentially limited by their asset cap in the foundational years and the fact that they can only focus on underserved market. “Based on the combined RM15 billion asset size cap, this equates to less than 1% of total system loans and deposit base. As such we opine that the disruption from the five new digital banking players is likely to be muted, and these banks should be able to exist together with the traditional banks to help enhance the range of financial products and financial inclusion of the underserved market,” it said.
For context, Bank Negara Malaysia (BNM) had previously said that it intends to issue a total of five digital banking licences to qualified applicants. The licencing framework for digital banks that was subsequently published dictated that these new digital banks are only allowed to have an asset threshold of not more than RM3 billion each. They are also required to abide by a simplified regulatory framework during the initial three to five years of operation (the foundational phase), with a focus on the unserved and underserved groups within Malaysia.
UOB Kay Hian further noted that most traditional banks seemed to have opted out from applying for the licence, preferring to focus on their own existing digital initiatives. The Covid-19 pandemic has prompted the banks to fast-track their digital banking transformation progress as consumers show a growing preference for online banking following the onset of the new normal. This includes an accelerated adoption of the electronic-Know-Your-Customer (eKYC) technology, allowing the onboarding of customers without requiring them to visit bank branches.
Aside from that, UOB Kay Hian said that many banks are also likely to refrain from applying because their existing licences already allow them to compete in the same space as digital banks. It said that as of now, only RHB has expressed clear interest in the licence, having submitted a joint-bid alongside Axiata Group. CIMB, meanwhile, is said to be still in the midst of considering; if it does join the race, it will probably do so through its subsidiary, Touch ‘n Go.
Application for the digital banking licence is slated to end on 30 June 2021, and the results are expected to be announced by the first quarter of 2022. As of April 2021, BNM said that as many as 40 parties have registered their interest in applying for a digital banking licence, including BigPay, AirAsia, Grab, Razer, and Sunway. Since then, more parties have expressed their intentions to bid, such as Pertama Digital.
(Source: The Star)
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