Are Malaysian banks afraid of digital banks?

Digital banks are the future of banking in most parts of the world. In Malaysia, it has been almost two weeks since Bank Negara, the central bank of Malaysia was scheduled to announce the five recipients of digital banking licenses in the country. The announcement has been delayed indefinitely as speculations on political interference continue to cloud the issue.

A total of 29 applications were made for digital banking licenses in Malaysia. Some applicants have been confident about securing the licenses and have been making some hype about the services they could bring to both consumers and enterprises in the future.

As the country awaits the announcement, traditional banks in Malaysia may not be sharing the same sentiments. Digital banks are supposed to be a game-changer in the financial industry. Compared to the physical presence brought about by traditional banks, digital banks offer services virtually.

For example, in the past, a business or individual wishing to secure a loan would need to physically go to a bank to apply with supporting documents. With digital banking, the entire process can be done virtually, be it on a laptop or even a mobile phone.

Some traditional banks realize the potential competition and threat they will face from digital banks and have begun implementing new technologies to cater to customer demands. Customers themselves have been inclined towards services from digital banks, particularly drawn to the seamless experience they provide, as compared to some traditional banks in Malaysia.

To understand more about the impact of digital banks on traditional banks in Malaysia, Tech Wire Asia speaks to Andrew Tan, Group Managing Director of Silverlake Axis. Silverlake Axis is a market leader for core banking software in Southeast Asia. The fintech solutions provider is also working with several of the applicants for the digital banking license in Malaysia.

Could you comment on how the recipients of the digital banking licenses will impact conventional Malaysian banks? 

We have acknowledged the fact that banking has modernized even before the pandemic and even more so afterward from products to onboarding. Digital technology has increased competitiveness and contestability in banking industries and traditional payment and banking processes have been disrupted.

Especially now, with the impact of moving into the endemic stage for most countries, the banking industry needs to innovate further as conventional banking products and lifestyles have definitely shifted.

Will the conventional banks that have transformed, play in the same market as digital banks? Highly unlikely but they would definitely have upped their game not just to be more competitive in the industry.

Banks have a huge role in the digital ecosystem provided that they transform themselves. The future of digital requires conventional banks to innovate and expand their business model. With a robust and stable core system, banks are future-ready. Being future-ready means they could potentially develop a new business model at speed, extending their digital platform to connect to the broader financial ecosystem while running their current business.

This includes the ability to integrate enterprise resource planning (ERP) solutions directly into their banking platforms. This dual-purpose serves to signify that they understand multiple businesses’ needs hence innovating their platform into a one-stop-center to accommodate new businesses while running the current business. This creates the opportunity to become not just the primary relationship for the population’s banking needs, but “the” only platform everyone needs.

What do banks need to do to maximize the benefits of digital transformation in the coming years? 

From an IT spending perspective, cloud spending represents a very robust area of growth as they are motivated by the growth of transactions as well the scale of the transaction and the ability of the organization to support the new ways of banking will be facilitated by cloud. There are also analytics and core system mission-critical applications that are primed for the cloud.

Some 65% of Asia Pacific banks surveyed either plan to move or have already moved their workloads to private and/or public cloud environments. Cloud-based platforms are the cornerstone to building new capabilities and deploying cost-effective transformative solutions. Being lean and agile is essential for banks to pivot into new products and business models to meet market demands.

With the rise of digital lending, transforming banking into digital is no longer an option. Spurred toward lending excellence across the loan lifecycle, from account origination and underwriting processes to intelligent collection systems, the first step is to phase out paper-based bottlenecks, adopting robotic process automation (RPA) to optimize operational efficiencies.

As expectations in the era of customer-centricity reach new heights, the trend is also about creating a customer experience (CX) that transcends visual aesthetics and seamless user interfaces. Banks are focused on adopting more sensitive and humanistic approaches, starting with customer journey mapping.

Capabilities around liquidity stress testing as well as forecasting and scenario-based overlays are a growing imperative. With looming economic uncertainties, banks are required to balance thinning margins and conduct real-time risk assessments as an effective countermeasure to the volatile financial circumstances of their borrowers.

Interoperability is crucial as bank-fintech collaborations continue to grow. About 65% of banks in the Asia Pacific surveyed expect to utilize platform-based application programming interfaces (APIs) by 2024 in order to build shared functionalities with trusted third parties.

The exponential growth of digital channels has led to large volumes of customer data flowing through systems. AI and big data analytics (BDA) play a central role in ensuring data integration, building a single customer view, and delivering real-time insights to accelerate data-driven decisions.

Modern software development principles enable banks to be more efficient and agile throughout the complete lifecycle of digital transformation (DX) projects. There are more than 30 different measurements that can be used as KPIs of success but of the many, agile core banking transformation should focus on quality, productivity, as well as on-time improvements.

Staying competitive in the Asia/Pacific financial services market requires banks to leverage modern, digital-first, and component-driven transformation technology to scale their digital capabilities. Core banking platforms should not only meet current needs but also cater to future growth strategies.

Silverlake Axis has partnered with banks through various transformation journeys over the years and we understand that the rate and extent of successful digital transformation vary. Each journey has its own set of challenges and difficulties, making it imperative that banks choose the right partner when embarking on a digital transformation journey.

 In the second part of the article, Tan explains how disruptive technology can actually benefit the banking industry as well as the influence of endemic covid on digital banking.

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