This article first appeared in The Edge Malaysia Weekly on March 28, 2022 - April 3, 2022

BANK Negara Malaysia is understood to be on track to announce this week the five winners of digital banking licences in the country. In the first half of 2021, some 29 applicants submitted their bids.

Front runners in the bid are said to include the 60:40 joint venture (JV) between RHB Bank Bhd and Axiata Group Bhd via its fintech arm Boost; a JV between Grab Holdings Inc and Singapore’s telco group Singapore Telecommunications, or Singtel, with a consortium of investors that includes the Kuok Group; and a consortium led by Sunway Bhd.

Also tipped as a front runner is YTL Corp Bhd, which has reportedly submitted a bid with Singapore’s Sea Group.

It is understood that the central bank is also seeking one consortium that could meet the criteria for the provision of Islamic financial services in the country, in order to cater to this segment while also incorporating Islamic finance as one of its key vehicles to advance sustainability-related efforts.

According to Bank Negara’s licensing framework for digital banks issued in December 2020, a licensed digital bank shall maintain a minimum amount of capital funds of RM100 million in the foundational phase and further raised to RM300 million by its third year of operations.

On the front runners, Boost's e-wallet platform has grown its user base to over 9.6 million as at end-2021, with its overall fintech business’ gross transaction value up 25.7% to RM5 billion.

RHB’s rationale for partnering with Boost is to fast-track new technology stacks and understand the business model for small-ticket items, where Boost has exposure across payment, lending, merchant solutions and cross-border remittance.

Grab’s presence is seen through its market-leading super-app spanning e-wallet and a multitude of services — including insurance and billing — from its early days of ride-sharing and food deliveries.

A JV between Grab and Singtel in Singapore is already one of four digital banking licence holders in the island state, where all digital banking players are expected to turn operational this year. The JV focuses on serving young employees, gig workers and micro, small and medium enterprises (MSMEs) with limited access to financing.

Similarly, US-listed Sea Group also has a digital banking licence in Singapore. Its e-commerce arm, Shopee, which also has e-wallet service ShopeePay among its offerings, last year acquired an Indonesian lender to expand its digital banking ambition in Indonesia. YTL, meanwhile, has exposure in the telecommunications business through YTL Communications Sdn Bhd, a unit of YTL Power International Bhd.

For Sunway, Reuters reported that its bid comes together with Tencent-backed Chinese fintech firm Linklogis Inc, as well as Bangkok Bank PCL.

It is worth noting that Sunway ventured into the fintech space in 2020 with its acquisition of a 51% stake in Credit Bureau Malaysia (CBM) as part of its efforts to secure the digital banking licence and offer financial services to SMEs.

Its president Datuk Chew Chee Kin said during the acquisition that the strength and expertise of CBM in credit reporting and trade referencing would complement the existing finance-related services offered by Sunway, which include money lending, hire purchase, factoring and cross-border remittance.

Also said to be a strong contender is the 40:60 JV between AEON Credit Service (M) Bhd and 61.5% parent AEON Financial Service Co Ltd. It is known that AEON Credit has a vast presence in the underserved market, providing financing solutions for products ranging from retail items to bigger-ticket items like motorcycles and even personal financing.

Other interesting bidders that are listed on Bursa Malaysia include ManagePay Systems Bhd; PUC Bhd, in which Genting Plantations Bhd has a 9.99% stake; Capital A Bhd via e-wallet BigPay with MIDF, private equity fund Ikhlas Capital and and South Korean conglomerate SK Group; and a consortium that includes Boustead Holdings Bhd, which owns a 20.38% stake in Affin Bank Bhd.

The Edge (Issue 1405, Jan 24, 2022) reported Bank Negara assistant governor Adnan Zaylani Mohamad Zahid as saying that the central bank was looking for “tech-heavy and tech-savvy” players to hold the digital banking licences. The central bank also expects them to deliver services digitally, without needing physical branches to service their customers, Adnan was reported as saying.

A June 2021 report by news and media website Fintech News Malaysia quoted Bank Negara director of financial development and innovation Suhaimi Ali as describing three types of digital banks that the central bank is hopeful to see enter the market.

The first is “specialists”, which targets a specific customer segment with certain product offerings, such as serving SMEs through alternative credit scoring, the report said.

Second is “ecosystem players”, which leverages their brand, channel footprint and existing customer base from their non-banking businesses.

And third, is “innovative basic banking providers”, which offers simple products for everyday banking but uses technology to gain in-depth customer insights and offer hyper-­personalisation.

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