Digital Banking: Malaysian banks at a crossroads

The release of Bank Negara Malaysia (BNM)’s Exposure Draft on Licensing Framework for Digital Banks will set the scene for one of the biggest disruptions to the financial services market in decades. In a move to boost sustainable economic growth, BNM’s call to action for digital banks to focus on financial inclusion and the underserved will play an important part in achieving Malaysia’s Shared Prosperity Vision (SPV) 2030.

Malaysia’s decision to open doors to digital (or virtual) banks comes close on the heels of other countries in the Asia Pacific region. This includes Hong Kong and Taiwan, and closer to home, Singapore, with its recent announcement to issue five new digital banking licences.

And clearly, Malaysian consumers have highlighted opportunities that virtual banking services are well placed to address, according to a recent study by PwC.

What would success look like for organisations looking to establish themselves in digital banking? We looked at digital banks around the globe and tapped into the experience of our experts across the PwC global network who have assisted on digital banking licence applications to highlight some shared characteristics among digital banks.

Key observations

Creating value for customers

Successful digital banks are able to identify a gap in the crowded banking space beyond the deposits/payments space. This gap needs to be of sufficient size and growth potential to build a business model that addresses customers’ needs or pain points.

Building your organisational DNA

Digital banking goes beyond digitising legacy banking approaches. Successful digital banks share a common organisational DNA that lets them achieve their winning proposition.

They are able to leverage technology to innovate and build fundamentally different approaches in delivering their services. They also do this with agility to remain ahead of their competitors, while keeping operations costs lean in acquiring and servicing customers.

Acquiring the right capabilities to differentiate your offerings

Digital banks have shown that they are able to differentiate their approach to banking and deliver services that are targeted, personalised and unique.

These differentiators include focused features for each customer, propositions that integrate with how customers live, partnerships that allow access to a wider range of products and offerings, and technology that enhances the banking experience.

Reinventing the ‘box’

Legacy issues mean that incumbents experience more challenges than opportunities in virtual banking, including slow governance, concerns around cannibalisation, and margin compression. However, this is an opportunity to develop business models that work around these issues. Driving digital transformation, creating a sandbox for new products and operating on a standalone basis are among the ways to gain a foothold in the market.