Editor’s note: This interview is part of a Q&A series with some of the contenders vying for a digital banking license in Malaysia.

Axiata-RHB consortium is often seen as one of the forerunners to win a digital banking license in Malaysia as the consortium has brought together one of the largest telecommunications groups in the region and the country’s fourth-largest banking group.

While the consortium is joining a crowded field vying for digital bank licenses, partnering with RHB Bank Bhd is seen as a good move, according to analysts. Axiata’s experience and expertise in operating an e-wallet also help.

“Although it is not really a necessity, in our opinion, we believe that partnering with banks will give some benefit to the consortiums as banks can provide experience in regulatory, risk management and credit evaluation,” MIDF Research Vice President Imran Yusof told TechNode Global.

Experience from e-wallet providers will be useful in terms of deposit-taking, client acquisition, and understanding the market of such products, he added, although the research house cannot be entirely certain on how this will be evaluated by Bank Negara Malaysia.

Malaysia central bank announced last month that it has received 29 applications for digital banking licenses. A diverse range of parties has submitted their applications ranging from banks, industry conglomerates, technology firms, e-commerce operators, FinTech players, cooperatives, and state governments. Notable bidders include a joint venture between ride-hailing-to-fintech group Grab and Singtel, Paramount-Star Media Group, iFAST Corporation Ltd, AirAsia’s BigPay-MIDF-Ikhlas Capital consortium, AEON Credit Service (M) Bhd, among others.

As equity partners in the consortium, Axiata‘s subsidiary, Boost Holdings, will own a majority stake of 60 percent, while RHB Bank Bhd will own the remaining 40 percent in the digital bank, subject to approval from Bank Negara Malaysia.

Axiata has controlling interests in six mobile operators under the brand names of ‘Celcom’ in Malaysia, ‘XL’ in Indonesia, ‘Dialog’ in Sri Lanka, ‘Robi’ in Bangladesh, ‘Smart’ in Cambodia and ‘Ncell’ in Nepal, as well as minority interests in ‘Idea’ in India and ‘M1’ in Singapore.

Axiata Digital, the digital services arm of the government-linked telco conglomerate, has recently rebranded its fintech arm Boost Holdings to Boost, unifying all fintech services that span payment services, alternative lending, digital insurance, content services, and merchant solutions under one roof. It owns and operates Boost e-wallet and provides microloans online under the brand Aspirasi. Boost is also backed by Singapore-based insurer Great Eastern, which acquired a 21.875 percent stake in the entity for $70 million in June last year.

The Khazanah Nasional-backed telecoms firm has been busy expanding its digital service business including digital marketing business under ADA, which saw Japan’s SoftBank Corp investing $60 million into the business in May.

Axiata’s Malaysia mobile operator Celcom Axiata Bhd is also in the midst of merging with Telenor’s Digi.com Bhd, the third-largest mobile services company in Malaysia. The merged entity will have a subscriber base of 19 million.

RHB Banking Group, on the other hand, is a multinational regional financial services provider with a  presence in 9 countries in the ASEAN region, with more than 14,000 employees. Its core businesses are structured into five business pillars, namely Group Community Banking, Group Wholesale Banking, Group Shariah Business, Group International Business, and Group Insurance.

Earlier in June, Axiata Digital CEO Mohd Khairil Abdullah told DealStreetAsia in an interview that the group has been working with the country’s central bank for a few years to ensure that it meets the regulatory requirements that can eventually help it secure the license when he expressed his optimism for the consortium’s application. “… while we do not want to count our eggs before they hatch, we think we do have a solid chance,” he was quoted as saying.

Boost CEO Sheyantha Abeykoon

In an interview, Boost Chief Executive Officer Sheyantha Abeykoon told TechNode Global what are the opportunities Axiata sees in digital banking. The ongoing pandemic which has changed how businesses operate, the need for businesses to digitalize are among the reasons digital financial services are set to thrive, he noted.

“Digital banks will be better positioned and equipped to meet the needs of the underserved and unserved markets, with their business needs. With mobile-only banking products offer simplicity, ease of access, and often lower fees, they are the next frontier of financial innovation towards financial inclusivity, primarily dominated by traditional banks,” Sheyantha said.

Digital banks will complement the offerings of traditional banks to provide solutions to the segments that they do not currently serve. It is less of a market disruption than enhancing the range of financial products and financial inclusion of the underserved market by co-existing with traditional banks, he opined, when asked about how digital banks will have an impact on the banking sector in the short and long run.

In the interview, he also shared how the consortium will position the digital bank should the consortium were granted a license and what are the competitive edge the consortium has against other contenders.

Does the Axiata-RHB consortium have what it takes to win a digital banking license in Malaysia?

Let’s hear from Sheyantha:

What are the opportunities Axiata Digital sees in digital banking in Malaysia?

The pandemic situation has changed how businesses operate. There is a tendency towards business digitalization with a clear digital presence to improve efficacy and competitiveness, as consumers cannot visit brick-and-mortar branches in person.

The stage is set for digital financial services to thrive as small and medium enterprises (SMEs) start to value digital financing products and services:

  • Opportunity to interact remotely with financial institutions without any physical visits.
  • Avoid long process of turnaround time and extensive physical collaterals submission for financing.
  • The majority of SMEs need the working capital urgently during the pandemic period. Quick digital disbursement (after approval) is increasingly important.

Digital banks will be better positioned and equipped to meet the needs of the underserved and unserved markets, with their business needs. With mobile-only banking products offer simplicity, ease of access, and often lower fees. They are the next frontier of financial innovation towards financial inclusivity, primarily dominated by traditional banks.

Visa’s recently released Consumer Payment Attitudes study highlighted that over 74 percent of Malaysians are aware, and 66 percent are interested in using digital banking services.

The study showed that Malaysians look forward to the digital banking experience for their basic banking needs, with the highest interest to use digital banking services for bill payments (78 percent), transferring money to family and friends (69 percent), payment at retail locations (62 percent) and deposits and withdrawals (61 percent).

The study also showed that Malaysians are motivated to switch to a digital bank for better rewards (78 percent) and lower costs (72 percent).

What competitive edge does the Axiata-RHB consortium have compared to other applicants? How will the consortium position the digital bank or enhance its existing products should it be granted a digital bank license?

We are not starting from scratch. As the FinTech holding arm under Axiata Digital leading the digital bank bid, Boost Holdings has already had a track record and experience serving the underserved and unserved segments since 2017.

Through partnering with an established bank and like-minded partner like RHB — no stranger to digitalization, we can tap into their inherent know-how and capabilities in governance and regulations in running a bank to enhance our digital bank venture.

We believe our business model from the get-go resonates with the core aspirations of digital banking. We work closely with our like-minded partners in commercial and strategic to build a robust digital socio-economy for our target segment.

As we complement our partners’ strengths and weaknesses and vice-versa, we believe we have a winning combination of innovative experience, captive relationships, responsive controls, and a credible team to present compelling value, which gives us an advantage.

What differentiates us: We have done our homework. Our engagements with the underserved and unserved segments will continue as we are committed to enabling financial inclusivity and expanding our digital socio-economy ecosystem in the country.

For instance, our existing micro-financing platform offers 100 percent digital financing ranging from 1,000 MYR to 100,000 MYR (~$236 to $23,600), which covers supply chain financing and working capital financing that integrates into customers’ back-end and simplifies their business.

Furthermore, our products are shariah-compliant and come with optional insurance coverage underwritten by our insurance partner, Great Eastern, as additional protection. These micro-insurance products come at an affordable premium from as low as 1MYR per day.

Bank Negara Malaysia wants digital banks to focus on “underserved and unserved” segments. How substantial are these segments?

Commercial segment: Despite being the backbone of the country’s business environment, 98.5 percent of the businesses establishments are SMEs at approximately 906,000. More than 600,000 are MSME businesses. These businesses contribute close to 40 percent of Malaysia’s gross domestic product (GDP).

However, the digital adoption among SMEs in Malaysia lags behind larger enterprises, according to World Bank.

Consumer segment: Almost 70 percent of adults within the 668 million population in Southeast Asia are unbanked, and only 33 percent of Southeast Asia SMEs have access to loans and lines of credit, based on a study by Bain & Company, Google, and Temasek (2020): The Future of Southeast Asia’s Digital Financial Services.

According to global consulting firm Bain & Company, around 55 percent of Malaysia’s adult population is still underbanked and unbanked. According to a KPMG survey, 77 percent of the 1,220 respondents in Malaysia believe that digital banking is the next evolution in financial services.

More than 80 percent of the respondents are already using the internet banking functions of their banking service providers. Given lockdowns and physical distancing measures, it will accelerate this growth with consumers increasingly requiring access to financial services in the new normal.

There is plenty of room to grow in Malaysia in serving the underserved and unserved segment.

What is Axiata-RHB’s strategy or plans to serve these segments? What kind of technology/innovation does the consortium plan to introduce to serve these segments?

It is still too early to talk about the digital bank strategy as we have yet to secure a license from Bank Negara. However, we have been actively serving the underserved businesses that do not have access to the full spectrum of financial services. For instance, a family-run food stall with only one or two owners may require small working capital to fund their business but do not have traditional financing access.

These individuals or micro/nano businesses cannot seek support from traditional banks due to insufficient documentation, or their financial history does not fit the banks’ requirements.

Therefore, we support them with micro-financing and micro-insurance offerings to sustain their businesses, helping them get the income source as they struggle to make ends meet during this challenging period.

We offer end-to-end digital financial services that serve and empower micro-enterprises and SME businesses. Through emerging technologies such as machine learning, AI Big Data processing, and robotic process automation (RPA), we eliminate stacks of paperwork and long wait times, thus providing a rapid, fully digital financing experience to customers.

The micro-financing application only takes 3 minutes online, especially on its user-friendly digital application on any device. Applicants can expect fast processing and turnaround time. Once approved, the financing amount will be deposited into the applicants’ registered bank account within 48 hours.

In view of the wide range of applicants, what criteria would Bank Negara Malaysia emphasize or prioritize when granting a digital bank license?

Bank Negara Malaysia has said their primary consideration is applicants who can deliver the core value proposition and prioritize outcomes instead of the types of institutions.

Successful applicants must demonstrate capabilities that meet all prudent criteria to contribute towards greater financial inclusivity by offering products and services to address market gaps in the underserved and unserved segments.

This includes promoting suitable and affordable financial solutions by leveraging the innovative application of technology. Beyond this, we cannot speculate what the regulator emphasizes.

At Boost Holdings, we are already serving the underserved and unserved segments and will continue to do so. The digital banking license will help us close the gap and stitch various parts of our business to enhance the synergies between them.

How will digital banks have an impact on the banking industry in the short and long term?

Digital banks will complement the offerings of traditional banks to provide solutions to the segments that they do not currently serve. It is less of a market disruption than enhancing the range of financial products and financial inclusion of the underserved market by co-existing with traditional banks.

Traditional banks’ risk appetite is more profoundly and comprehensively accessed, with their current product offerings mainly cater to the preferred customer segments only. Most MSMEs who fall into the unserved or underserved segment are more likely than others to have a deficient profile to the bank’s minimum requirement.

They will need an institution that can provide them with access to customized services that match their profile and behavior, micro-savings and deposits, micro-financing, and micro-insurance are some of the basic products needed.

Besides that, the digital bank will also offer a different kind of experience. Existing incumbents are limited in their ability to deep dive into data analytics using big data because of constraints that they may have with the legacy infrastructure, which digital banks would not as they would start fresh.

Based on your estimation, what is the timeline for a digital bank to break even or be profitable? What are the risks and challenges in running a digital bank? How will Axiata-RHB manage the risks and challenges?

It is still too early to ascertain profit, risk, and challenges of digital banks as we have yet to secure a license. However, having ventured into digital financial services since 2017, we continue demonstrating our competencies and capabilities to support micro-SMEs, underserved and unserved businesses, and individuals through our comprehensive digital products and offerings.

Our successes are backed by our expertise, advantage, and partnerships locally and overseas to grow our ecosystem and reach our target segment. We are also pleased to see that through our digital platforms, micro-SMEs are encouraged to embrace technology and become a part of the digital economy as they continue their business aspirations during this pandemic season.

Our business model and practices that we put in place have stood the test of time. We even passed the COVID-19 test, so we are fairly confident. But it does not mean we are getting complacent. We will continue to test our business model and refine what we want to do based on our technology’s advantage in data science, AI, and machine learning for the underserved and unserved segment.

Featured image credits: Axiata

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