Driving the Digital Wave: Five Firms Secure Digital Banking Licenses

The National Bank of Malaysia unveiled the recipients of five coveted digital banking licenses on April 29, 2022. The companies greenlit by both the National Bank and the Ministry of Finance to venture into the realm of digital banking include:

1. Consortium of Boost Holdings Sdn. Bhd. and RHB Bank Berhad

2. Consortium led by GXS Bank Pte. Ltd. and Kuok Brothers Sdn. Bhd

3. Consortium led by Sea Limited and YTL Digital Capital Sdn Bhd

4. Consortium of AEON Financial Service Co., Ltd., AEON Credit Service (M) Berhad and MoneyLion Inc

5. Consortium led by KAF Investment Bank Sdn. Bhd

GX Bank, spearheaded by Grab, emerged as the trailblazer among these license recipients, becoming the first to roll out its operations by the year-end. Boost Bank, an alliance of Boost Holdings and RHB Bank,  joined the fray, officially going live on January 15 this year. Aeon Bank, part of the Aeon Credit Service and Money Lion Consortium, recently disclosed plans for a phased launch in the first half of this year. Anticipation surrounds the imminent unveiling of the remaining two licensed digital banks, expected to play pivotal roles in shaping the evolutionary trajectory of Malaysia's financial and banking sectors.

Digital Banks vs. Traditional Banks: Bridging the Gap

In a nutshell, digital banks represent a paradigm shift, digitizing banking activities comprehensively and eschewing the need for physical branches. While conventional banks offer online services through apps, certain processes still mandate physical visits. Digital banks eliminate this necessity, enabling users to conduct all traditional banking operations seamlessly through digital channels.

Traditional banks often entail cumbersome procedures for account opening, involving waiting for number queues, extensive form-filling, and document verification. Contrarily, digital banks offer swift account setup processes, with GX Bank, for instance, requiring less than 10 minutes from registration to electronic customer verification.

Doctor Paul Chan Tuck Hoong, Founder of HELP University and an Economics Professor, applauds the innovative application of digitalization, deeming it one of the most exhilarating developments in the financial realm. Digital banks, with their emphasis on inclusivity, extend banking services to those previously excluded from traditional systems. The streamlined process of account setup at digital banks fosters financial inclusion, benefiting a wider demographic.

 Doctor Paul Chan Tuck Hoong, Founder of HELP University and Economics Professor

Addressing Marginalized Groups for Economic Growth?

Global disparities persist, with many in economically challenged societies lacking access to banking services. In Malaysia, small and medium-sized enterprises, along with the B40 and M40 groups, have long faced marginalization by traditional banks due to perceived credit risks. Digital banks are poised to change this narrative.

Acknowledging this, the National Bank of Malaysia specified that digital banks should serve marginalized groups and permit non-traditional methods for credit scoring. Doctor Paul Chan Tuck Hoong asserts that this visionary approach aligns with the MADANI vision, facilitating financial services for overlooked individuals and potentially accelerating GDP growth.

Urging Traditional Banks to Reform

While digital banks won't entirely supplant traditional counterparts, their emergence signals a shift in user preferences. GX Bank's rapid adoption, attracting over 100,000 users in its second week, underscores this trend. This shift is deemed beneficial as it compels traditional banks to enhance efficiency and diversify beyond conventional banking and financing. Doctor Paul Chan Tuck Hoong emphasizes that traditional banks must focus on the low-income and underserved groups. As digitalization becomes inevitable, failure to innovate may subject traditional banks to intensified competition.

Navigating Cybersecurity Challenges in the Digital Era

Despite the manifold benefits digital banks bring, Doctor Paul Chan Tuck Hoong underscores the omnipresent threat of financial cyber attacks. The advent of digital banking introduces cybersecurity risks, necessitating robust security checks to prevent fraud and cyber threats.

In response to potential cybersecurity risks, cybersecurity expert Jeffrey Low emphasizes the need for stringent measures. Whether digital or traditional, both banking models must adhere to national regulations, conduct regular security system checks, and collaborate with reputable cybersecurity consultants. Users, in turn, must remain vigilant and stay abreast of evolving cyber threats to safeguard their assets effectively.

As Malaysia embraces the digital banking revolution, the fusion of innovation, financial inclusion, and enhanced security measures is poised to reshape the nation's financial landscape, offering unprecedented opportunities and challenges alike.

Jeffrey Low, Cybersecurity Expert

Vigilance Required from Both Banks and Users

Jeffrey Low emphasizes the necessity for caution on the part of both banks and users in the face of cybersecurity threats. He outlines two primary methods employed by hackers in targeting digital banks:

1. Attack on Bank Websites and Software: Cybercriminals target the servers supporting the online applications and services of banks, exploiting vulnerabilities in their security systems to siphon assets from users' accounts.

2. Fraudulent Tactics via Social Media and News: Commonly observed on social media and news platforms, hackers employ deceptive methods such as installing malicious software on users' phones or providing malicious links. When users lacking cybersecurity awareness click on these unfamiliar mobile applications or links, hackers can hijack their accounts and transfer funds.

In response to these threats, Jeffrey Low urges both digital and traditional banks to adhere to regulations set by national banking authorities, including regular checks on cybersecurity systems. He also recommends that banks engage reputable cybersecurity consulting firms to ensure the integrity of their cybersecurity systems. Additionally, users themselves must remain vigilant, continuously enhancing their awareness of the latest and diverse techniques employed in cybersecurity threats to safeguard their assets effectively.