KUALA LUMPUR (May 9): Fitch Solutions Country Risk and Industry Research said that digital banking will see high demand in Malaysia, given the numerous advantages that it offers to consumers and enterprises and the rising digital literacy of the country.
In a report last Friday (May 6), the firm said that the five consortia awarded the country’s first digital banking licences are well-positioned to capture the market opportunity, given their individual strengths and capabilities.
“Nevertheless, we do not expect digital banks to pose strong competition to traditional banks in the short-run due to regulatory limits placed on their activities.
Fitch Solutions said the move to digital banking is a positive development for Malaysia, benefitting both consumers and enterprises alike.
It said that firstly, digital banks offer banking and financial services completely online, without the need for traditional physical branches.
It said this increases convenience for consumers, who are increasingly looking for a faster and easy method of payments and banking.
Secondly, it said digital banks will benefit businesses, especially small and medium enterprises (SMEs), as they can enjoy easier access to loans, more competitive borrowing rates, and quicker fund approvals and disbursements.
“Margins will be more attractive for digital banks as they will not be investing as much in physical infrastructure and people.
“Additionally, as digital banks utilise data analytics to generate insights regarding consumer behaviour, businesses can gain better access to more personalised solutions for consumers,” it said.
Thirdly, the firm said digital banking is better placed than traditional channels serve financially underserved segments such as gig economy workers or rural residents, who may lack the credit history to receive loans, to gain access to a wider variety of financial services.
It said this can help to improve financial inclusivity, and is in fact one of the objectives of the digital banks being established in Malaysia.
Finally, the move increases competition and consumer choice in a market dominated by large financial services players that have had little incentive to develop more sophisticated services and lower costs to consumers.
“We expect to see considerable innovation in the breadth and complexity of financial services over the next 5-10 years.
“The downside risk is that not all of these new businesses will survive to maturity as a poor choice of business model, lack of capitalisation and the dominance of just one or two players could see some investments fail to pan out,”it said.