This article first appeared in The Edge Malaysia Weekly on September 11, 2023 - September 17, 2023

IN the early years of scan-to-pay, before Covid-19 struck, Boost Holdings Sdn Bhd was the trailblazer in the e-wallet space but it was outshone by other players when the pandemic’s social-distancing requirement accelerated the adoption of contactless payment throughout the country.

Group CEO Sheyantha Abeykoon, however, says it has always been Boost’s strategy to diversify into digital lending to form the foundation of a digital bank ahead of its industry peers, instead of betting everything in cash-burning ventures like the e-wallet.

“We are not starting from zero. We already have a loan book [and] deposit customers. So, we already have parts of the bank in play. Because of that, we feel that our path to profitability is a bit more secure,” he tells The Edge in an interview.

As Boost has developed a loan book of over RM2 billion today, Sheyantha says its digital bank venture will start off as a brownfield project, as customers are given a choice to migrate to the banking platform.

“Currently, [for a] pure wallet, there won’t be any interest. But in the future, [with] the banking services, there will be interest [deposit account]. And the lending amount currently is capped at a certain amount; with a digital bank, we can do a lot more lending.

“But that is only consumer, so on the lending side, our big play is the micro-SME. Aside from our consumers, we have 600,000 merchant touch points. The majority of those are small businesses,” he adds.

Sheyantha says that although the current interest rate environment remains elevated, Boost’s loan books in both Malaysia and Indonesia have a low single-digit delinquency rate. “We haven’t seen much stress [on loan book] yet. We are confident that we won’t, because we also don’t do very long-cycle loans. Beyond 12 months, we don’t do. On average, in Malaysia, it must be under six months.

“Our net interest margin (NIM) in Malaysia [is] close to about 10%. But we operate in a very different sector from conventional banks, so you can’t compare.”

This comes as conventional banks face NIM compression amid stiff competition for deposits, with Malayan Banking Bhd, the country’s largest bank, reporting a 23-basis point drop in NIM, declining to 2.16% in the first half of this year (1HFY2023).

Even with the lucrative NIM, Boost remained in the red last year, logging net losses of RM168.21 million, widening slightly from RM162.57 million in 2021, despite revenue growing 82.7% to RM156.22 million from RM83.31 million previously, according to Companies Commission Malaysia data.

The trend continued this year. Axiata Group Bhd’s latest financial statements show that Boost’s losses before interest and tax for the six months ended June 30, 2023 (1HFY2023) widened 3.5% to RM111 million from RM107 million a year ago, despite revenue growing 92% year on year to RM60 million from RM31 million.

Sheyantha says management is aiming for Boost to turn profitable next year, after setting up its digital bank via a 60:40 joint venture with RHB Bank Bhd towards the end of this year. “We don’t just chase vanity numbers and vanity metrics. A lot of companies did that maybe four, five years ago in the digital space, trying to amass a huge number of active users and registered users, and give discounts.

“But those are vanity relationships, transactional relationships. When the discounts go, the customers go. We focused on developing real customers. Because for us, it was about the depth of the relationship with the customer.”

Boost, which is 78% owned by Axiata Digital Services Sdn Bhd and 22% owned by Great Eastern Digital Pvt Ltd, currently has about 10.5 million registered users. It has about 600,000 merchant touch points.

It is widely regarded as the third largest e-wallet player in Malaysia in terms of registered users, after TNG Digital Sdn Bhd and Grab Holdings Ltd.

Last year, TNG Digital registered a 10.7% increase in registered users to 18.6 million, from 16.8 million in 2021, and increased its number of merchants to 727,000 from 557,000 as at end-2021.

CIMB Group, which owns 45% of TNG Digital, disclosed that annual transacting users grew 23% to 9.2 million last year, from 7.5 million in 2021.

Meanwhile, Grab, which did not disclose the breakdown of its user numbers by geography, registered 32.7 million total monthly transacting users last year, up from 28.1 million in 2021 and 27.7 million in 2020. The Nasdaq-listed group has operations across Southeast Asia, with Malaysia, Singapore, Indonesia, the Philippines and Thailand as its key markets.

To Sheyantha, the e-wallet was never the endgame for Boost, and management’s pivot into early development of digital lending business was to pave the way for the eventual establishment of a digital bank, for which it won a licence last year through a partnership with RHB Bank.

“Because we wanted to take our customers on a journey where we wanted to bank [with] them. So to bank with a customer, you need to have trust. You need to have data. You need to have a deep relationship,” he explains.

Boost-RHB Bank is among the five consortiums — three conventional and two Islamic — that secured digital banking licences from Bank Negara Malaysia, out of 29 applications in April last year. These digital bank licence holders will undergo a 12- to 24-month operational readiness process that will be validated by Bank Negara through an audit before they can commence operations.

Boost-RHB Bank is one of two digital bank licensees expected to get the green light to launch their operations this year. In fact, the other digital bank — Grab-led GX Bank Bhd (GXBank) — said last Tuesday that it has received approval to start its digital bank operations on Sept 1, making it the first of the five companies to get approval to start, ahead of the April 2024 deadline.

For Boost, should the digital bank venture pay off, it will be a relief not just for the company, but also indirectly take some pressure off Axiata, which is in the midst of fixing its stretched balance sheet. 

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