Digital banks are a new trend in the financial industry that offer banking services without physical branches. They use technology to provide customers with convenient, low-cost and innovative products.
AEON Credit Service (M) Berhad this week announced AEON Bank (M) Berhad has obtained approval from the Bank Negara Malaysia (“BNM”) and the Minister of Finance to commence its digital banking operations in Malaysia.
The digital bank was formerly known as ACS Digital Berhad and secured the bid for a digital banking license alongside MoneyLion, which has since pulled out from the consortium.
This announcement marks AEON Bank as the first Islamic digital bank in Malaysia to receive approval from BNM to launch under the new digital banking framework.
Axiata Group Bhd’s fintech arm Boost, together with its consortium partner RHB Banking Group, has received the approval from Bank Negara Malaysia and the Finance Ministry to commence operations as a digital bank, with effect from Jan 15.
In 2022, Bank Negara Malaysia awarded digital banking licences to Boost-RHB, GXS Bank-Kuok Brothers, YTL-SEA, AEON-MoneyLion, and KAF Consortium.
Digital banks have several advantages over traditional banks, such as:
– They can reach more customers, especially the underserved and unserved segments, such as the B40 and the MSMEs in Malaysia. Digital banks can offer financial inclusion and access to credit for these groups by using machine learning and non-traditional data for credit scoring.
– They can reduce operational costs and pass on the savings to customers. Digital banks do not have to maintain expensive branch networks and staff, and they can leverage flexible technology platforms that allow innovation. This enables them to offer lower fees, higher interest rates and better customer experience.
– They can adapt faster to changing customer needs and preferences. Digital banks can use data analytics and artificial intelligence to understand customer behavior and preferences, and offer personalized products and services. They can also experiment with new customer value propositions, such as gamification, rewards and social features .
However, digital banks also face some challenges, such as:
– They have to comply with the regulatory framework issued by Bank Negara Malaysia (BNM), which requires them to focus on financial inclusion, maintain a minimum paid-up capital of RM100 million, and be subject to an aggregate deposit cap of RM2 billion during their foundational phase.
– They have to compete with incumbent banks, which have an established customer base, trust and brand recognition. Incumbent banks are also aware of the digital disruption and are investing in digital channels, capabilities and partnerships to enhance their offerings.
– They have to manage new risks, such as cyberattacks, data breaches and fraud. Digital banks rely heavily on technology and data, which expose them to potential vulnerabilities and threats. They have to ensure that they have robust security measures and governance in place to protect their customers and operations.
Digital banking is expected to rise and transform the financial service industry in Malaysia, especially in the wake of the COVID-19 pandemic, which has accelerated digital adoption among customers.
How do Digital Banks impact the man on the street?
If you are looking for a convenient, low-cost and innovative way to manage your money, you might want to consider using digital banks. Digital banks are banks that operate without physical branches, and offer banking services through online and mobile platforms.
Here are some benefits of using digital banks:
– You can access your bank account anytime and anywhere, as long as you have an internet connection. You can check your balance, make payments, transfer money, apply for loans, invest and more, without having to visit a bank branch or ATM .
– You can save money on fees and charges, as digital banks have lower operational costs than traditional banks. You can enjoy lower or no account maintenance fees, higher interest rates on savings and deposits, and lower interest rates on loans .
– You can get personalized products and services that suit your needs and preferences. Digital banks use data analytics and artificial intelligence to understand your behavior and preferences, and offer you tailored solutions. You can also choose from a variety of customer value propositions, such as gamification, rewards and social features .
However, before you start using digital banks, you need to be aware of some requirements and challenges, such as:
– You need to comply with the verification process of the digital bank, which may involve providing your identity documents, biometric data, or other information. This is to ensure that the digital bank meets the regulatory standards set by Bank Negara Malaysia (BNM), which aims to protect customers and promote financial inclusion.
– You need to be comfortable with using technology and trusting digital platforms for your banking needs. You may face some technical issues or glitches when using digital banks, or encounter cyberattacks, data breaches or fraud. You need to ensure that you use secure devices and networks, and follow the security measures and guidelines provided by the digital bank.
– You need to be prepared for the competition and disruption in the banking industry, as digital banks may challenge the incumbent banks that have an established customer base, trust and brand recognition. You may have to compare and evaluate different digital banks and their offerings, and switch between them if necessary.
Digital banking is a new trend in the banking industry that offers customers convenience, cost savings and innovation. However, digital banking also has some requirements and challenges that customers need to be aware of. Digital banking is expected to grow and transform the financial service industry in Malaysia in the near future.
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