Bank Negara Malaysia, the central bank, did not immediately reveal the number of applications but last month said about 40 parties had expressed interest.
The institution is expected to issue five licences by the first quarter of 2022 with an asset threshold of no more than RM3 billion for the first three to five years of operations. After that initial phase, the limit will be removed, and the digital banks will be subject to similar regulations as conventional banks.
“There are many players who have indicated they want to bid, but ultimately we believe licences will go to players who fulfil the central bank’s requirement on serving the underserved and unserved segments and bring new innovations to the table,” Tushar Mohata, an analyst at Nomura, told Nikkei Asia.
Seen as disruptors to traditional banks, e-wallet operators are among the parties that are expected to have applied for digital bank licences; most traditional banks have stayed away from the race.
“This does not come as a surprise,” said UOB Kay Hian analyst Keith Wee, “as traditional banks are already embarking on their respective digital initiatives, coupled with the fact that their existing licences allow them to compete in the same space as the digital banks”.
Among companies that announced a desire to apply include telecommunications giant Axiata through a tie-up with local bank RHB Group; real estate developer Sunway, budget airline AirAsia via its financial app BigPay and tech company Green Packet.
Some big names said to have interest in a licence include state energy company Petronas, casino operator Genting and Singaporean digital platform operator Sea, which won one of the four digital bank permits recently issued in Singapore.
Petronas, however, has denied interest.
“Petronas is pursuing an ongoing aggressive digital transformation agenda to create and unlock new value across its entire business chain with the ultimate aim of becoming a data-driven organisation,” the company said in an email. “Petronas’ current digital transformation ambitions do not include digital banking.”
The central bank is pushing digital bank operators to encourage Malaysians to make more digital transactions. Going cashless has gained a certain imperative amid the pandemic.
Its focus is on unserved and underserved customers, such as those facing challenges accessing conventional banks due to a lack of information or because they have higher risk profiles, low levels of financial literacy or limited understanding of how to access financial services.
Also included in this group are customers who live in areas not served by physical banks.
The Covid-19 pandemic, social distancing and other new habits have also forced banks to enhance their digital presence.
Nomura’s Tushar said digital banks could pose a price threat to conventional lenders.
“While by definition having digital banks focus on the underserved and unserved markets should mean limited competition for the incumbents,” Tushar said, “we are cognizant that competition will intensify in select segments such as deposit pricing, fees, and later, loan pricing where there might be some overlap with conventional banks”.
According to Wee of UOB Kay Hian, the initial asset cap may help limit the potential medium-term threat to traditional banks.
“Based on the combined RM15 billion asset size cap, this equates to less than 1% of total system loans and deposit bases,” he said. “As such, we opine that the disruption from the five new digital banking players is likely to be muted, and these banks should be able to exist together with the traditional banks to help enhance the range of financial products and financial inclusion of the underserved market.”
Tushar also said the initial asset cap would minimise the danger of financial instability.
“This will allow new entrants to demonstrate viability,” he said, “and the central bank can observe associated risks and build necessary supervisory capability, to effectively monitor them going forward”.
Tushar added that digital banks are also required to have an exit plan to ensure that unsuccessful business models can exit the system without regulatory intervention or having to utilise public funds.