This article first appeared in The Edge Malaysia Weekly on September 21, 2020 - September 27, 2020

AMMB Holdings Bhd is exploring the idea of applying for a digital banking licence in Malaysia, but it is likely to do so via a partnership route rather than going it alone.

AMMB CEO Datuk Sulaiman Mohd Tahir says the group is looking at “a few” potential partners for the venture and even exploring the idea of teaming up with more than one partner.

“Our approach to digital banking is that it must be something that is going to be a new business for us. If it’s going to be just taking away the business from our bank, then it doesn’t make sense.

“So, then, we need to look at all the players out there — what game do they play? If you look at most of the e-wallets, they play in a segment where it’s unbanked. If you look at Merchantrade, they focus on foreign workers. If you look at Boost, it’s probably students who don’t have a bank account or maybe use an e-wallet.

“Then the question is, if [we] want to do this, what is the least conflicted to what we have? So, because of that, we think that if we go to the digital bank option, we will [go via] partnership. And because of that, we are lining up a few [potential] partners,” he tells The Edge.

On what kind of businesses AMMB is looking to partner with, Sulaiman says it would depend on the type of customer segments that the bank is looking to penetrate.

“It could be a youth segment that we’re aiming for, it could be foreign workers, it could be the Bottom 40% (B40) [or small-sized business loans].

“But if you have a partner who has the ability to, and who has a captive base, either through an e-wallet or through small [sized lending] that they do, we should be in a position to work with them because, for them, what they need is capital and reach. To drive a successful digital bank would require a combination of both client onboarding and reach.

“For example, if you just build a website, it won’t work, but if you combine that with our branch footprint — either through setting up a kiosk or a set-up that sits within our branches — then we can work very well.

“We have the know-how in terms of lending to businesses that our [potential] partners may not have. For potential partners, [we need to assess whether they] can bring us the customer base, or the systems and processes required. Must they be a local player? ... So, these are the combinations that we are looking at,” he says.

Once a suitable partner is found and a licence acquired, Sulaiman says, the group hopes to kick off its digital banking operations by the end of next year.

Digital banks, according to Bank Negara Malaysia, will offer banking products and services to underserved or unserved markets primarily or wholly through digital or electronic means.

Owing to the Covid-19 outbreak, the central bank had to extend its April 30 deadline for the industry to provide feedback on the Exposure Draft for the Proposed Licensing Framework for Digital Banks to June 30. The central bank had initially expected to finalise its policy document by the first half of this year, after which it was to open applications for the licences.

According to Bank Negara’s exposure draft, a licensed digital bank shall operate with an asset limit for a period of up to five years from the commencement of operations, known as the “foundational phase”.

During the foundational phase, the licensed digital bank will need to ensure that its total size of assets never exceed the limit of RM2 billion.

The Edge reported in June that Bank Negara planned to issue up to five digital bank licences. Apart from AMMB, at least four others — CIMB Group Holdings Bhd, Affin Bank Bhd, Hong Leong Bank Bhd and Standard Chartered Bank Malaysia Bhd — have signalled their interest in pursuing a licence.

Apart from banks, technology firm Grab, telco Axiata Group Bhd (which owns e-wallet Boost) , Sunway Bhd, Green Packet Bhd, gaming firm Razer Inc and Hong Kong-based investment banking firm AMTD Group have also expressed their interest. Property firm Paramount Corp Bhd and US financial start-up MoneyLion Inc were also reported to be keen.

In June, Green Packet Bhd said it would buy Singapore-based e-KYC (electronic know your customer) specialist firm Xendity Pte Ltd for US$10 million (RM41.4 million) in a bid to offer complete end-to-end solutions to banks and financial institutions, whereas Sunway bought a 51% stake in Credit Bureau Malaysia to advance its ambition of building a financial technology ecosystem and securing a digital banking licence.

In March, Hong Kong-based investment banking firm AMTD, backed by tycoon Li Ka-shing, said it was seeking a digital bank licence in Malaysia. In May last year, AMTD, together with Xiaomi Corp, announced that their jointly established entity, Insight Fintech, successfully secured a virtual banking licence granted by the Hong Kong Monetary Authority. In Singapore, AMTD has submitted a bid for a digital wholesale banking licence, in partnership with Xiaomi Finance, SP Group and Funding Societies.

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