What is Digital Banking?
Bank Negara Malaysia (BNM) issued a framework for digital banking last year and we’re starting to see banks such as Bank Islam making progress.
Many people have misunderstood digital banking as just online banking, which is already widely available. Online banking means accessing banking features and services through your bank’s website or app from a computer or device. Digital banking, on the other hand, is actually the digitalisation of all traditional banking activities available in a physical bank branch.
What is Digital Banking?
So, what can we expect from a fully digital bank? All banks employ some form of digitalisation, but digital banking will be fully automated, without the need for physical branches to support operations. Every single transaction will only be conducted digitally.
In Malaysia, we do not yet have a fully operating digital banking institution yet, but Bank Negara Malaysia (BNM) has issued the framework and outline applicants must comply with the Exposure Draft on Licensing Framework for Digital Banks.
In brief, the framework states that applicants must adhere to the Financial Services Act 2013 or Islamic Financial Services Act 2013. More consequently for us, BNM requires all digital banks to focus on financial inclusion, especially for underserved and unserved populations; this includes the B40 and Micro, Small and Medium Enterprises (MSME.)
Why Digital Banking?
Traditional banking, which is the main banking system we utilise today, involves a large number of personnel and branches. Digital banking completely eliminates the need for these operational costs, and helps more people access banking services. This also means that we will no longer be beholden to the banks’ operating hours to manage our finances and perform transactions.
Digital banking aims to be straightforward without the need for manual intervention. With lowered costs, digital banks can pass on savings to customers via higher interest rates or lower lending rates.
As an additional benefit, people will no longer need to travel to brick-and-mortar branches, this is especially attractive in light of the pandemic.
Who Operates Digital Banks Then?
While digital banking would reduce the need for traditional banking employees, in turn, it will require more tech-savvy talents. So in truth, it doesn’t remove job opportunities, it increases the demands for a different set of skills.
This will diversify the skill sets in the banking sector, involving people from multidisciplinary backgrounds. So, if you’re interested in finance and IT, a new field may be about to open in Malaysia for you.
Since most processes of digital banking will be automated, it relies on advanced technology in big data, machine learning, combined with high degrees of automation, leveraging cloud, analytics, and artificial intelligence (AI).
How Things Stand in Malaysia Now
As stated earlier, BNM has launched the framework bidders must follow to obtain a digital banking license.
BNM will give a maximum of 5 licenses, and as applications closed, there were a confirmed number of 29 bids. Among the confirmed contenders include Singapore’s Grab-Singtel consortium and iFast. Notable local bidders include an Axiata-RHB partnership and AirAsia, featuring their e-wallet BigPay.