MALAYSIA looks to be a fertile market for virtual or ‘challenger’ banks, says PwC Malaysia, even as the central bank prepares to release its virtual banking licensing framework for industry consultation by the year-end.
“There’s a very good opportunity here for the challengers. But it’s not all doom and gloom for the incumbent banks as they can also take advantage of the opportunities that lie ahead,” Ong Ching Chuan, PwC’s financial services leader and assurance partner, tells The Edge in an interview.
According to PwC, the arrival of virtual banks, also known as digital banks, promises to be the biggest single disruption that the banking industry has seen in decades. These banks do not have a physical presence, but deliver products and services online or through mobile platforms.
A recent survey by PwC on banking customers in Malaysia, Singapore and Hong Kong — of just over 1,500 respondents in each of the markets — found that Malaysians were the most receptive to virtual banks. Seventy-four per cent of respondents in Malaysia said they would be interested in becoming a customer of a virtual bank compared with 61% in Singapore and 56% in Hong Kong.
Additionally, Malaysians were the most open to sharing their data, with 64% saying they would share their personal data with a virtual bank as long as they feel confident that the data is secure, compared with 55% in Singapore and 47% in Hong Kong.
Malaysia also had the highest number of respondents interested in a better banking experience. Forty-five per cent are looking for a virtual bank to offer a better mobile and digital experience, compared with 40% in Singapore and 30% in Hong Kong.
In all three markets, interest in virtual banking is particularly strong among the 18-to-39-year-olds and the affluent.
“The surprising bit from the survey is, the tendency to switch from a conventional bank to a digital bank was highest from those aged 55 years and above,” says Kelvin Lee, financial services assurance partner at PwC Malaysia.
The survey found that those aged 55 and above are almost twice as likely than those between 18 and 24 to be interested in a virtual bank due to a bad experience with their current bank. This was also the case with those earning RM10,000 and above a month, compared with those earning between RM2,000 and RM3,500 a month.
These findings don’t necessarily have to spell bad news for incumbent banks that have no plans to pursue a virtual banking licence, says Ong.
“For the incumbents, it has to then be about how do you defend your position and offer a good experience to customers. At the end of the day, it is about customer experience ... and customer experience is more than just on the front-end; it’s also about efficiency and so on.
“Digitising your bank is one thing, but it also goes back to your customer value proposition. You need to think about what your customer actually wants rather than just pushing products. You need to study customer behaviour and know what they need ... it’s about lifestyle banking.
“For instance, if I don’t play golf, what’s the point of you offering me free golf membership and green fees as rewards? Some insurance companies are studying whether they can offer customers road tax depending on the driving pattern — like, if you seldom drive, you may not need to be offered insurance for the whole year, but only at the right time. These are powerful things [that banks can tap],”says Ong.
In the PwC survey, Malaysians (77%) seemed the most interested in their bank providing more than just financial services, compared with 66% in Singapore and 55% in Hong Kong.
They were also the most open to banks offering them lifestyle services. These include foreign exchange wallet accounts that can be used directly for transactions in foreign countries, healthcare and illness consultation, direct booking of hotel and flights through a banking app and online shopping platforms.
Lee notes, however, that in Malaysia, such distinctive digital and lifestyle services are not always easily available.
On a brighter note for incumbent banks, one in two respondents in Malaysia said they would choose the same bank that their employer uses for payroll while one in three would choose their bank based on brand reputation.
In Malaysia, most banks currently have a wait-and-see stance on whether they might want to pursue a virtual banking licence, says Lee. Non-banks that have indicated interest in the licences include regional technology giant Grab and telecommunications provider Axiata Group Bhd.
It is anticipated that Bank Negara Malaysia will open applications for the licences by the first half of 2020.
Hong Kong issued eight such licences this year, and the first virtual bank — by a consortium comprising Standard Chartered Bank and its non-bank partners — is expected to kick off operations early next year. Singapore announced in June that it plans to issue up to five digital bank licences and is accepting applications until the end of this year.
In Hong Kong, not long after the eight virtual banking licences were issued, HSBC — which did not pursue the licence — made a move to do away with minimum deposit-balance requirements and fees for personal accounts. Three million customers are expected to benefit from that move.
“You might see a similar impact in Malaysia when the same happens here,” Lee says.
Nevertheless, incumbent banks are expected to remain relatively protected in Malaysia.
“If a challenger were to come in and apply for the licence, let’s say a foreign player, Bank Negara will likely [assess them] based on what they can bring to the Malaysian market that the incumbent banks can’t. If a party can come in and offer products to the underserved market such as the bottom 40% income group ... those are the kind of things that Bank Negara will likely look at,” says Lee.
Meanwhile, all eyes are on the imminent guidelines to be issued by the central bank.