Sophia Lee, the company’s co-head of financial institution ratings, said the ubiquity of smartphones and high digital adoption in Malaysia, and market readiness, ensured a bright market potential for digital banking.
However, traditional banks would face only a limited threat in the near to medium term because of licence restrictions on digital banks, the ratings agency said.
Bank Negara Malaysia announced that digital banking licences had been granted to five consortia, among them the owners of the Grab mobile delivery company, Shopee online market, and fintech company, Boost.
Three consortia were granted general licences: Boost Holdings Bhd-RHB Bank Bhd (Boost); GXS Bank Pte Ltd-Kuok Brothers Sdn Bhd (Grab); and Sea Ltd-YTL Digital Capital Sdn Bhd (Shopee).
Two consortia were granted Islamic banking licences: AEON-MoneyLion Inc; and KAF Investment Bank Sdn Bhd.
Lee said people who are unable to access financing products from traditional banks due to lack of standard documentation or credit history could stand to gain from the new banks.
She said the digital banks may carry out alternative forms of credit risk assessment, using technologies based on artificial intelligence or other forms of predictive algorithms along with big data analytics.
Lee said it may also fuel competition for traditional banks in the unsecured retail lending business for personal loans and credit cards, and the micro-enterprise segments. The two segments represent about 7% and 4% of the banking system’s loans, respectively.
RAM Ratings said it expected the entry of digital banks to spur financial innovation and accelerate the digitalisation of financial services.
“Unlike traditional banks, digital banks offer financial products and services through digital and electronic platforms (online and mobile applications). Their value proposition is delivering simpler, faster and more convenient solutions to consumers,” it said.
The rating agency said existing banks would face a limited threat in the near to medium term because of requirements such as a temporary asset threshold of RM3 billion for the first three to five years of operations and a need to focus on meeting the needs of underserved and unserved customer segments.
“With an estimated combined market share of less than 0.5 per cent of the banking system’s asset base, digital banks are likely to target niche segments untapped by traditional banks,” it said.
Boost owner Axiata Group and the RHB banking group said they would build a comprehensive suite of affordable and accessible digital banking and financial solutions. Boost owns 60% and RHB 40% in the digital bank.
Axiata chief executive Izzadin Idris said the consortium would now be able to meet demand from an “expanding digital-first consumer base” which was “seeking convenient, improved, and secure user experiences for banking and credit access”.