Insight – Harnessing the potential of digital banking

MALAYSIA can be considered an aging society that is generally less digitally connected than younger people, but around 38% of Malaysians are expected to have a digital bank account by 2026.

Opportunities in the financially underserved segment – ​​micro, small and medium-sized enterprises (MSMEs), the self-employed within the labor economy and retirees – attract groups like the 60:40 Boost-RHB Bank Bhd consortium in this new challenge of digital banking.

Industry findings estimate that 55% of the country’s adult population is unbanked or underbanked, and only 39% of Malaysians are able to get a loan from their banks.

This may be due to the nature of their business, insufficient credit documentation and collateral, or the fact that they have not met minimum annual turnover requirements for loan applications.

“The consortium aims to reach a significant portion of these customers within the first five years of operation,” Boost Group CEO Sheyantha Abeykoon said, citing studies that showed 66% of Malaysians are interested in banking services. digital.

They also believe that digital banking services are more efficient, convenient, accessible and secure.

Boost e-wallet

Various elements contribute to making this pioneering effort a success – Boost’s extensive fintech experience and RHB Banking Group’s intimate knowledge of banking, risk and compliance management, liquidity, capital as well as operational and responsible financing.

Using micro-finance from Boost Credit, Boost disbursed RM1 billion in loans in Malaysia; about 42% of its customers have never received credit from other financial service providers before.

Digital banks provide online banking services, which include but are not limited to account opening, withdrawals and deposits, remittances, credit card facilities, bill payments as well as loan applications and disbursements.

Using the latest technologies – artificial intelligence (AI), blockchain, biometric and cloud security – it enables seamless end-to-end processing of banking transactions that can be performed through a mobile banking app.

By 2025, Malaysia is expected to overtake the Philippines and Singapore in digital banking adoption, which is expected to grow by 16%, said management consultancy 27Group.

About 20% of Malaysian adults have a digital bank account, said global financial comparison platform Finder.com, which estimates the figure will rise to 29% by 2022 and 38% by 2026.

As a full-spectrum fintech player, Boost is one of the few fintech companies in the region with a robust ecosystem of fintech solutions covering its:

> Boost Life digital lifestyle app

> Boost Biz merchant solutions

> rapid and low-cost micro-financing and micro-insurance Boost Credit

> Boost Connect cross-border payment ecosystem.

Over the past few years, Boost has built a reputation for simplifying access to digital financial solutions through its large AI-powered lending business, Boost Credit, which is already operating at scale.

“We’ve developed a huge, digitally-engaged grassroots customer base with deep, data-driven insights to innovate and build strong value propositions that solve problems for the underserved,” Abeykoon said.

RHB Banking Group already operates in nine ASEAN countries, providing conventional and Syariah-compliant banking and financial services.

Digital banking helps RHB realize an opportunity to further expand its offerings to micro-SMEs and underserved individuals who have traditionally been more difficult for incumbent banks to serve.

“Digital banking is a long-term investment aimed at sustainable growth.  “Digital banking is a long-term investment aimed at sustainable growth. “As such, we are committed to channeling the necessary resources to support the business plan that had been submitted to Bank Negara, as well as responsibly capitalizing digital banking,” said the Managing Director and CEO of the RHB Banking group, Mohamad Rashid Mohamad.

“Digital banking is a long-term investment aimed at sustainable growth.

“As such, we are committed to channeling the necessary resources to support the business plan that had been submitted to Bank Negara, as well as responsibly capitalizing digital banking,” said the Managing Director and CEO of the RHB Banking group, Mohamad Rashid Mohamad.

While digital banks may indeed find a niche, one caveat is that we are an aging society and it may take some time for people to make the switch.

The main issue will be the scale and time it will take for people to switch to digital banking, as it doesn’t make sense to continue delivering unsustainable benefits, said Chris Eng, director of the strategy of Etiqa Insurance & Takaful Bhd.

The adoption of e-wallets had skyrocketed as people were lured by the freebies and discounts given, but things have normalized somewhat now.

Not all Asian digital banks are successful, but those that have developed a productive business model and scaled efficiently have thrived, McKinsey & Co said.

In Hong Kong, a McKinsey survey of personal financial services found that 93% of consumers use digital banking services at least once a month; a notable difference since the 2017 survey is that age and wealth no longer matter, as adoption is almost uniform across age groups and income levels.

But the best of banking innovation may not lie in new approaches to infrastructure; it’s product innovation that makes the difference, said Pong Teng Siew, former head of research at Inter-Pacific Securities.

The problem is that the benefits of product innovation cannot be easily captured by any bank due to the generally homogeneous nature of banking products.

The qualitative differences in service and the posture of the sub-markets allow certain banks to seize sustainable competitive advantages and build commercial moats around them.

Many banks attempt to differentiate products by attempting to brand otherwise similar products, launching marketing campaigns around branding, labeling and repackaging of products rather than outright new products, Pong said. .

As an alternative financing channel, digital banking enables an important goal of financial inclusion to be achieved, and also the nation to realize its ambition towards digitization.

The challenge is to make it work and meet the needs of the underbanked and underserved.

Yap Leng Kuen is a former editor of StarBiz. The opinions expressed here are those of the author.