‘Digital banking penetration to exceed 60% by 2018’

This article first appeared in The Edge Financial Daily, on October 9, 2017.
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KUALA LUMPUR: Digital banking penetration in Malaysia is expected to exceed 60% by the end of 2018, signifying a rapid increase in the number of people relying on digital platforms to perform transactions, says management consulting firm McKinsey & Company.

A regional survey by the firm in 2014 showed that the digital banking penetration (defined as the number of users of Internet or smartphone banking divided by the country’s total banking consumers) in Malaysia stood at 41%.

This was well below the more than 90% penetration seen in South Korea, Australia, Singapore, Hong Kong and Taiwan, but above the rates of Indonesia, Thailand and the Philippines.

“[Digital banking adoption] has significantly expanded over the last three years in Malaysia and we expect this number to continue growing,” said Sonia Barquin, digital banking expert and partner at McKinsey.

“The penetration of smartphone usage among the population is expected to grow, and the pricing of data plans is coming down, [thereby] encouraging users to use smartphones [more and more],” Barquin told The Edge Financial Daily.

She noted that most Malaysian consumers engage digital platforms primarily for social media use, but said there will be a rapid expansion in the platforms’ use for more daily financial transactions and e-commerce activities.

“One of the main drivers that will increase the adoption of digital banking is the component of trust,” she said. “Consumers must be able to trust that companies and start-ups are able to provide them a safe platform to perform their transactions and lending activities, the same kind of confidence that they have in banks.”

Barquin said there is a lot of focus on payment solutions in the Malaysian fintech market, with companies looking for ways to facilitate online and offline merchant payments, as well as loans and lending facilities.

She said the dawn of the fourth industrial revolution has seen fintech services radically change the way financial services are carried out. One particular aspect which has seen massive changes is the banking industry, both globally and in Malaysia.

However, the landscape of fintech in digital banking has changed from being one of disruption to one of collaboration for banks and fintech players, she said.

“Phase one of fintech disruption involved fintech start-ups disrupting the banking industry by offering their services directly to consumers, completely independent of banking industry players.

“However, now fintechs have realised how costly it is to acquire customers on their own, so there is a shift seen in these start-ups to providing business-to-business solutions, so they are looking for partnerships with bigger and more established banking players to offer customers a joint value proposition,” she added.

The second phase of fintech, said Barquin, has seen start-ups shift to a collaborative business model as it decreases costs and time spent to acquire new customers and offer more comprehensive financial solutions.

This shift has already occurred in Malaysia, she said, adding however that it is slower compared with more developed nations like Singapore, as Malaysian banking players are still finding ways to best collaborate with fintech players and to synergise their operations to offer a joint proposition to their customers.

Barquin also noted that banks are now looking at new ways to digitise more of their offerings, moving from paper-based and branch-based operations to digitising customers’ experience, and collaborating with fintech start-ups.