This article first appeared in The Edge Malaysia Weekly on July 17, 2023 - July 23, 2023

THE first of the country’s five upcoming digital banks are expected to launch in November or December this year, industry sources say, pointing to Grab and Boost-RHB Bank as being the most likely to lead the pack.

They expect the five banks to have a so-called “friends and family” launch first — basically, an internal launch for a small group as a pilot run — by the end of the year, before officially launching it for the public upon getting the green light from Bank Negara Malaysia.

“We see Grab and Boost as being the frontrunners to go live first. If all goes well with their pilot run, then they could officially launch their digital bank at the end of this year; if not, then it could spill over to early next year,” one source tells The Edge.

Bank Negara had on April 29 last year announced that it would issue digital bank licences — three conventional and two Islamic — to five consortiums out of 29 applicants.

The five are currently undergoing a period of operational readiness that has to be validated by Bank Negara through an audit before they can start operations. The central bank has said that the whole process may take between 12 and 24 months, which means that the banks should be able to commence operations, at the latest, by end-April 2024.

Those that will be launching conventional digital banks are a consortium of Boost Holdings Sdn Bhd (a subsidiary of Axiata Group Bhd) and RHB Bank Bhd; a consortium led by GXS Bank Pte Ltd (made up of Grab Holdings Inc and Singapore Telecommunications Ltd) and Kuok Brothers Sdn Bhd; and a consortium led by Sea Ltd (owner of the Shopee e-commerce platform) and YTL Digital Capital Sdn Bhd.

Those launching Islamic digital banks are a consortium of Aeon Financial Service Co Ltd and Aeon Credit Service (M) Bhd; and a consortium led by KAF Investment Bank Sdn Bhd, MoneyMatch (a remittance player), Carsome (an integrated car e-commerce platform) and Jirnexu (owner of the RinggitPlus website).

“We see Grab being the first to launch their digital bank, followed by Boost and then Aeon Credit a close third,” says another industry source.

It is worth noting that standalone Islamic banks Al Rajhi Banking & Investment Corp (M) Bhd and Bank Islam Malaysia Bhd launched their own digital banks last year on the back of their existing Islamic banking licences, to compete in the new and more competitive landscape. Al Rajhi launched Rize in December while Bank Islam launched Be U in July.

According to industry sources, another Islamic lender — Bank Muamalat Malaysia Bhd — is planning to launch a digital bank too with its existing licence. When contacted, its president and CEO Khairul Kamarudin confirmed this.

“We are pursuing this,” he tells The Edge. Asked if it would go it alone or rope in a partner, he says: “Alone, no partners for now.”

Meanwhile, the five digital banks are understood to have formed their board of directors (BOD), but some candidates’ appointments are still pending Bank Negara’s approval. Sources say some of the directors will include senior ex-bankers — one nominee is said to be Renzo Viegas, the former head of consumer banking at CIMB Group — and ex-Bank Negara staff.

Experts whom The Edge spoke to do not expect digital banks to pose a major threat to incumbent banks, especially in the first few years while they are still building up the business. However, their presence will shake up the industry.

“The immediate impact is more on the smaller non-anchor banks — the likes of Bank Muamalat and Bank Islam — that have limited reach in terms of branches,” says Kelvin Lee, a financial services assurance partner at PwC Malaysia.

Digital banks are meant to focus on the unserved and underserved segments that traditional banks typically do not focus on.

Shankar Kanabiran, a financial services advisory partner at EY Malaysia, expects the new digital banks to kick off with just a few basic deposit and lending products to get things going, before them launching new products in quick succession.

“The launch is definitely a key milestone for the banks, but I think the real action would probably be in the second half of next year,” he says.

Meanwhile, here are the updates on the upcoming digital banks.

In May, one of Aeon Credit’s initial partners for its Islamic digital bank, US-based fintech firm MoneyLion Inc, which held a 10% stake in the venture, pulled out to prioritise its business in its home country. MoneyLion had been its technology partner.

On July 14, in a new development, Aeon Credit announced that it had entered into a shareholders’ agreement with Aeon Financial Service Co to undertake the digital banking business through ACS Digital Bhd. ACS Digital, in which each party will hold a 50% stake, will become an associate company of Aeon Credit.

However, it said that in order to comply with an equity condition imposed by the Minister of Finance, the eventual equity shareholding is envisaged to be Aeon Credit holding 35%, Aeon Financial Service (35%) and Malaysian shareholder/s (30%). This will only be finalised at the point of time in which it needs to be in compliance with that equity condition, which is by April 7, 2029.

Meanwhile, the total investment outlay and eventual share capital for ACS Digital is estimated to be RM550 million during the foundational phase.

“Work is in progress [for the digital bank]. We’re putting things together,” Raja Teh Maimunah Raja Aziz, CEO of the digital bank, tells The Edge. “We have a BOD; formal approval from Bank Negara for their appointments shall be sought. Until then, we will not be able to reveal their names.”

It is targeting to launch the bank in 1Q2024, subject to Bank Negara’s approval.

Group CEO of Boost, Sheyantha Abeykoon, says the Boost-RHB Bank consortium “remains on track,”, with the launch timelines within the timeframes set by the central bank. “We are currently in steady progress for the necessary operational readiness validation process with the regulator,” he tells The Edge. Boost has a 60% stake in the venture, with RHB Bank holding the remainder 40%.

He notes that over the past few years, Boost has been laying the foundation for the digital bank, such as through its AI-based micro-financing business, which is already serving the financially underserved market segment at scale. As of this year, Boost has disbursed over RM3 billion worth of loans  in Malaysia and Indonesia ever since inception.

“Through our holistic fintech ecosystem, which also includes the all-in-one fintech app, merchant solutions and cross-border payment platform, we have a head start in this space,” he says.

Sheyantha says it has “close to 95%” of the required skilled and experienced talent required to launch the bank, with the balance expected to be filled in within the next few weeks.

“The nominees for the BOD have been identified, and necessary governance structures are being established. We are currently in the process of finalising the regulatory clearances required to formalise and operationalise these structures,” he adds.

During Grab Holdings Ltd’s first-quarter earnings call with analysts on May 18, its chief operating officer Alexander Hungate confirmed that it remains on track to launch digital banks in both Malaysia and Indonesia “later this year”.

Grab has previously said that it is working very closely with Bank Negara to address the requirements needed and is leveraging its “tech stack”, not just as a financial service provider in the region but also from its learnings of GXS Bank, its digital bank in Singapore that was launched on Aug 31 last year.

Deposits at GXS Bank are right below the initial deposit cap allowed by the Singapore central bank, and it is working closely with them to increase this cap.

There are not many updates in the press on the upcoming digital banks by the YTL-Sea and KAF consortiums. Both declined to comment, when contacted.

Nevertheless, in May, YTL Power International Bhd, which wholly-owns YTL Digital Capital Sdn Bhd, told investors it had a target operational date “by 2024” for its digital bank with Sea.

It is understood that Melvin Ooi, the former CEO of BonusLink, was recently made the CEO of the bank.

Meanwhile, it was reported in May that the KAF-led digital bank, helmed by Rafiza Ghazali, plans to launch the bank as early as year-end or early 2024. 

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