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The COVID-19 pandemic has accelerated the shifting trends of customer behavior in support of digital banking services, so it’s an opportune time for Malaysia to have its own digital banks to serve a wider population in need of financial support in the current economic landscape.

Insync with this wave, Bank Negara Malaysia (BNM) has set 30 June 2021 as the application submission deadline for the country’s first five digital bank licenses. This followed months of consultation with various stakeholders, keeping anticipation in the market high. There’s not much time between now and end June, which is likely an attempt by BNM to separate the serious applicants from the crowd.

With banks and non-bank institutions vying for the license, the focus to fulfil BNM’s mandate for financial inclusion will be a common starting point for applicants. However, applicants should also keep trust and innovation at the core of their ideation process and business model.

A successful digital bank is one that customers can fully trust with their money and data. Building trust with Malaysian households and businesses is crucial, especially for companies not known for providing financial services and are looking to enter the digital banking space. We only need to look at Singapore’s digital bank license applicants to see the wide variety of companies who applied. We expect to see a similar diversity of applicants here in Malaysia.

Applicants for the digital banking license must first understand that trust goes beyond technology performance. Customers’ expectations and perception matters, just as much as the actual performance of the technology and risks associated with it.

Customer security should be placed front and center, not only in their digital products and services but also in the delivery through trustworthy channels and platforms as it will be the bank’s sole point of engagement with the customer.

According to KPMG’s Consumer Loss Barometer –The economics of trust report, 49% of consumers from Malaysia have had their financial information compromised, higher than the global average of 37%. A deeper study into the economics of trust within the Financial Services sector found that 40% of consumers in Malaysia believe their financial institutions should have full or joint responsibility for ensuring that mobile devices used for mobile banking are secured. These public sentiments emphasize how fostering trust and gaining confidence from customers is becoming a differentiator for sustainable business.  

The challenge for applicants to demonstrate how their digital bank model will address BNM’s financial inclusion mandate also needs to be highlighted. From a purely commercial sense, there is a delicate balancing act between improving financial inclusion and business sustainability.

Perhaps the key lies in unraveling the underlying reasons traditional financial institutions are prevented from serving certain customer segments. With customers often turned away from existing financial institutions due to higher credit risk, this constitutes that customers are unable to repay their loans. Consequently, if the digital bank’s loan book solely comprises ‘underserved’ customers, we can expect that a larger proportion of their loans would encounter defaults which means the digital bank will struggle to be self-sustaining.

Hence, efforts should be channeled towards building a digital bank that leverages on digitally enabled technology architecture and experience centricity model, imposing insight-driven strategies and actions to minimize potential risks. Successfully optimizing in these aspects can provide new tractions for digital banking applicants. Not only can they meet each customer’s unique set of preferences – especially those that fall into the unserved and underserved segments – but it can also enable digital banks to provide the best services and outcomes beyond their customers’ financial needs.

In essence, once a digital bank has decided which business operating model to adopt, the bank can start designing its business, technology and operational structure that will ensure end-to-end processes that are practical and trust-enabled for each customer segments they serve.

In this digital age, the value of trust cannot be overstated. Trust will be a key driver of the applicant’s brand reputation, technology transformation, customers satisfaction and loyalty, and will surely be the enabler of a sustainable digital bank.