Editor’s note: MIDF is part of a consortium applied for a digital banking license.

Consortiums partnering with banks or financial institutions and e-wallet operators will have an upper hand in securing a digital banking license in Malaysia, according to analysts.

“Although it is not really a necessity, we believe that partnering with banks will give some benefits to the consortiums as banks can provide experience in regulatory, risk management and credit evaluation,” Imran Yusof, Vice President and Head of MIDF Research told TechNode Global. “These are some of the important aspects in the banking industry and we believe it will not be any different with a digital bank.”

Similarly, experience from e-wallet providers will be useful in terms of deposit-taking, client acquisition, and understanding the market of such products, he added.

However, Imran said the research house cannot be “entirely certain” on how this will be evaluated by Bank Negara Malaysia, the central bank.

Bank Negara Malaysia is expected to select up to five winners from a pool of 29 applicants for digital banking licenses as soon as this week. The central bank aims to announce the digital banks with the publication of its annual report at the end of March, Governor Nor Shamsiah Yunus said last month.

Notable applicants that have officially announced their applications include Grab-Singtel venture (which secured one of Singapore digital bank licenses in 2020), Axiata-RHB consortium, Paramount-Star Media Group, Singapore-listed wealth platform iFAST Corp Ltd’s consortium, AirAsia’s BigPay-MIDF-Ikhlas Capital consortium, AEON Credit Service (M) Bhd and its parent AEON Financial Service Co Ltd, among others.

Several reports noted that local conglomerate Sunway Bhd has also led a consortium for the application. Malaysia-listed tech firm Green Packet Bhd has teamed up with Singapore-listed Zico Holdings Inc. and digital Islamic factoring platform M24 Tawreeq and a group consisting of Genting Plantations Bhd, the plantation arm of Malaysia’s gaming conglomerate Genting Bhd., technology firm PUC, Pahang and Sabah state governments, has also submitted its application.

Apart from meeting financial inclusion objectives of serving the unserved and/or underserved segments, applicants for the digital bank licenses will be assessed on their ability to contribute to the proposed digital banks in a few areas such as risk management and compliance capabilities, adoption of relevant new technologies and digital innovations and their access to deep and robust customer analytics, among others, according to Sophia Lee, the Co-Head of Financial Institution Ratings at RAM Ratings, a rating agency in Malaysia.

“As such, applicants such as financial institutions and established FinTech players that have their own e-wallets and/or lending platforms could have an upper hand in some of these areas,” she told TechNode Global in an email interview.

Applicants with consortium partners which have prior experience in digital banking in other countries may have an added advantage on the technology capability aspects,” she added.

It is worth noting that Singapore-headquartered super app Grab operates GrabPay e-wallet in several markets in Southeast Asia while AirAsia’s FinTech arm BigPay operates e-wallets mainly in Malaysia and Singapore. Regional telco Axiata, which partnered with Malaysia’s fourth-largest financial group RHB Banking Group for the application, runs Boost e-wallet in Malaysia while Green Packet operates KiplePay e-wallet. Besides offering credit cards, personal loans, and other financial services, Aeon Credit also operates AEON Wallet App in Malaysia.

The iFAST consortium has roped in Yillion Fintech Pte Ltd which provides the core digital banking technology and capabilities for Yillion Bank. Yillion Bank is one of the four digital banks in China founded by Zonfar Financial Holding and Hong Kong-listed Meituan Dianping.

Sunway is said to have roped in Tencent-backed Chinese fintech firm Linklogis Inc and Bangkok Bank PCL to apply for a Malaysian digital bank license, Reuters reported in June last year, quoting sources. Sunway declined to comment when contacted by TechNode Global.

Malaysia’s move to issue digital bank licenses comes at a time when regulators across Asia including Singapore, Hong Kong, and the Philippines are opening up the banking industry to digital players, encouraged by higher smartphone penetration and better internet connections.

Neighboring Thailand is also preparing rules for the setting up of virtual banks as the central bank seeks to promote FinTech to spur competition and wider access to banking services, Bloomberg reported last month.

Central Banks and consumers hope that digital banks could bring financial inclusion to underserved segments, helped by advanced technology. The demand for online banking services and digital payments have also increased significantly, thanks to Covid-19 pandemic.

While some opined that several consortiums chose to partner with government-linked companies, army-linked entities and state governments to some extent do imply “connections” is more important or equally important than capabilities, MIDF’s Imran has begged to differ.

“The fact that government-linked companies (GLCs) are linked to some of the consortiums does not imply that ‘connections’ is a factor at all. We believe that any consortium that will be granted the license will be based on merit. We believe that the GLC’s participation in these consortiums are based on business opportunities and decisions,” he added.

In a chat session organized by Fintech News Malaysia last year, Suhaimi Ali, Director of Innovation and Development at Bank Negara Malaysia (BNM), has revealed that they are “seeing a number of parties using their political connections to lobby and get a head start in the digital banking license process”.

“I would like to communicate to all potential applicants out there, to stop lobbying, in Bank Negara Malaysia we abide by a strict governance process in assessing applications, and I would like all parties to respect that process,” he was quoted as saying.

RAM Ratings: Bright future for digital bank

RAM Ratings’ Lee pointed out that digital banks have the advantage of significantly lower cost of operations given the reduced need for human intervention and not having any physical branches.

“Their focus is also on delivering simpler, faster and more convenient solutions to consumers. By utilizing technologies based on artificial intelligence or other forms of predictive algorithms along with big data analytics, digital banks may undertake alternative assessment of credit risks to enable greater financial inclusion,” she explained.

In China, the average cost for a WeBank customer per account per year is as low as 3.60 yuan ($0.50), as compared to 20 yuan ($2.83) to 100 yuan ($14.15) for traditional banks, according to media reports.
But Tencent’s WeBank, China’s first digital bank that started in December 2014, serves more than 200 million retail customers, 1.7 million corporate customers.

Lee said potential beneficiaries include the 8 percent of the unbanked adult population in Malaysia, as well as small and micro-enterprises that are unable to access traditional bank financing.

“Given the ubiquity of smartphones and spike in mobile banking transactions by more than double to MYR460 billion ($109 billion) in 2020 as triggered by the pandemic, the market potential for digital banking is bright,” she said. Lee, however, noted that the debut of digital banks may affect the unsecured retail lending such as personal loans and credit cards as well as micro-enterprises segments of traditional banks.

In an interview with DealStreetAsia, PwC Malaysia Financial Services Strategy Director Dr Paul Francis expects digital banks in Malaysia could be looking at taking up to 10 percent of the deposits in the financial system, depending on the niche these banks managed to capture. Total deposits in Malaysia stood at $527.38 billion in Jan 2022.


Lee expects digital banks’ profit performance – like most start-ups – is likely to be constrained in the early years.

“This is due to the hefty initial outlay to develop their ecosystem and the need to build up [their] scale by occasionally offering promotional rates amid the competitive business landscape,” she explained.

Digital banks will also be subject to the same regulatory framework as commercial banks, although capital adequacy and liquidity requirements will be simplified during the foundational period of between three and five years.

“All said, we do not expect digital banks to compete with unsustainable rates as they are required to prove their profitability and sustainability to Bank Negara in order to maintain their licenses. Applicants will need deep pockets to continuously serve as a source of financial strength to support their respective proposed digital banks,” she added.

“Regardless of the size of the underserved, we believe that the current market does support the existence of digital banks. Of course, for better profitability, it may have to eventually expand regionally,” Imran added.

TechNode Global has previously published interviews with some of the consortiums vying for the digital banking license.

Read more if you would like to learn more about their strategy and plans, what are the opportunities and challenges they see in building a digital bank in Malaysia:

Does Axiata-RHB consortium have what it takes to win a digital bank license in Malaysia? [Q&A]

SGX-listed iFAST Corp to continue digital bank ambition in Malaysia [Q&A]

BigPay banks on AirAsia’s ecosystem, consortium’s banking expertise to vie for digital banking license in Malaysia [Q&A]

Angkasa-Boustead consortium banks on Islamic bank positioning, existing captive members to win a digital banking license in Malaysia [Q&A]