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Malaysia to get first neo-bank by 2020

According to a recent report, experts in FinTech state that Malaysia will likely be able to initiate its virtual banking revolution and set up its first neo/virtual bank in the third quarter of 2020 at the earliest.

This followed Bank Negara Malaysia’s (BNM) recent announcement on the release of virtual banking licence requirements by year-end.

FinTech Association of Malaysia (FAOM) said the optimism was based on the experiences from other jurisdictions, lessons gathered from more than 50 existing virtual banks, as well as the interest from various parties that the industry players had come across.

The bank aims to be at the forefront of helping the banking industry become more modern, innovative and technology-driven.

It was noted that the bank’s superior understanding of banking technology, as well as Malaysia’s FinTech talent capabilities which serve as the much-needed catalyst for the nation’s digital economy agenda.

FAOM believed that in order to survive, banks must first shift their corporate mindset towards being more open for collaboration to facilitate mutual and viable partnership with fintech firms.

Second, traditional banks need to re-calibrate their existing technology in order to manage the legacy issues, as this is one of the biggest areas in which they struggle to adopt better technology.

Thirdly, they need to change their business model to be agile, mobile-centric and modular to accommodate the fast-changing technology advancement and innovation.

The two virtual banks that were recently approved in Hong Kong are evidence that collaboration between traditional banks and FinTech players could occur.

It was noted that there is still a portion of traditional Malaysians that would want every transaction to be conducted face-to-face and at the counter.

Experts argue that traditional banks that adopt virtual banking technology would have an advantage compared to 100 per-cent virtual banks.

Multinational corporations (MNCs), and small and medium enterprises (SMEs) would also be the target of neo banks due to the cost efficiency, flexibility and speed offered.

Hence, experts are certain that virtual banks will inevitably add competition to the traditional retail banking space, as the banking players would opt to spend less on their physical infrastructure, such as branches and manpower.

FAOM said banks in Malaysia have been reducing their office space and the number of branches over the last five years, as banking services had improved significantly with the rise of the Internet and mobile banking resulting in a reduced need for face-to-face services.

Many banks are adding new branches; they are focusing on optimising their current branches with the view of reducing either the existing space or number of branches.

With regards to concerns about cybersecurity, data privacy and the readiness of the banking industry for all-digital banks, FAOM said the announcement on allowing virtual banking would spur industry players to greater efforts to meet the requirements of this new segment.

The move will be a catalyst for better Internet speed and improving capabilities on managing risks related to cyber-security and data-privacy for key stakeholders such as customers, regulators, service providers and investors to embrace digital banking.

The process of launching digital banking has been taken years of preparation and planning. It will be a structured transition from what is currently present in the region to the desired hybrid service system, and then eventually, to a fully-digital offering which will happen within three to five years.

However, an expert opined that security concerns, including data breaches, identity fraud and confidentiality of personal information, would remain the top priority for users of virtual banks.

According to the recently released BNM Financial Stability and Payment Systems Report 2018, the monetary value of mobile banking financial transactions doubled to RM100.1 billion last year from RM50.7 billion in 2017, as the number of transactions jumped to 257.4 million from 107.7 million.

The report said the growth in transactions was supported by a 2.2 million increase in mobile banking service subscribers to 6.6 million in 2018, from 4.4 million in the preceding year.

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