IT is important to ensure that digital bank customers, especially those from the low-income group, do not fall into a huge debt trap, an economist said.

Meanwhile, another expert said consumers are unlikely to jump to digital banks immediately, preferring to wait and see what is on offer.

However, they agreed that this new banking model would be beneficial in serving those who are not being served by the traditional banks for whatever reasons.

“This digital banking platform is for the underserved and the unserved, those who do not have a bank account and find it hard to get a loan from high street banks.

“This platform is to offer financial assistance to this segment of people and I hope that they can achieve their objective,” Universiti Putra Malaysia Putra Business School academic Ahmed Razman Abdul Latiff said.

According to Razman, research showed that 89% of Malaysians were still using cash for their daily expenses and only 11% used an e-wallet or online banking.

However, the usage of mobile internet is very high, he added.

“Technology should make our lives easier therefore, I hope there will be a payment alternative for future consumers because at the moment, the digital banking licence is still based on usury or high interest rate.

“We do not want the underserved, or those without a bank account to get trapped in debts, a mechanism to ensure that the payment is not based on high interest rates must be explored,” he explained.

Last week, Bank Negara revealed the five consortia that had been granted digital bank licences, of which three were led by Malaysian companies.

Three were licensed under the Financial Services Act 2013: Boost Holdings Sdn Bhd and RHB Bank Berhad, a consortium led by GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd, and a consortium led by Sea Limited and YTL Digital Capital Sdn Bhd.

Another two were licenced under the Islamic Financial Services Act 2013: a consortium of Aeon Financial Service Co Ltd, Aeon Credit Service (M) Berhad and MoneyLion Inc, as well as a consortium led by KAF Investment Bank Sdn Bhd.

Razman added that more Malaysian majority owned companies should be given the opportunity to pitch for digital licences in the future.

“Hopefully, many more Malaysian companies will be given the licence to provide financial assistance to the underserved, who are those with no permanent income or with low income,” he said.

Some 29 banks had applied for the licence, while Bank Negara had previously stated that only five “tech-heavy and tech-savvy” companies would be granted permission to set up shop.

The central bank was to have named the licensees on March 30 but put it off to complete “the legal process”.

Among the requirements is a minimum RM100 million in capital funds in the foundation phase, which must have reached RM300 million by the third year of operation.

Wait and see approach likely

Meanwhile, Yeah Kim Ling, a senior fellow at Sunway University, said it may take the public a year or two to fully trust the digital banking system.

The director of the Economic Studies Programme at the Jeffrey Cheah Institute on Southeast Asia added that Malaysians may adopt a wait and see approach, including evaluating the benefits or offers from the digital banks.

“There will be a competition between digital and traditional banks on what they can offer. Will there be higher returns in terms of savings or what incentive can a consumer receive?

“We will see a vast competition in the near future and I believe these two entities will want to give their best offers to consumers,” he said.

Yeah also said that it would take the digital banks a year or two to set up their infrastructure.

“They need to do a run test of their system and foreign partners will also come in.

“People will expect more services from digital banks as well as the width of their accessibility,” said Yeah.

Previously, PKR secretary general Saifuddin Nasution Ismail had asked if these digital banks would serve everyone with no access to conventional banking systems, including low-income earners such as hawkers, night-market traders and people living in rural areas.

“I do not think the big consortiums who received the licences will help the common people who do businesses at night markets, sell fried food or open stalls by the roadside in Baling, Padang Terap, Bachok or Hulu Terengganu.

“There is also a consortium with an office in Singapore, while it is listed in the US,” he said.

Saifuddin said digital banks should emulate Gramin Bank and Amanah Ikhtiar’s model in assisting people left out of the conventional banking system. – May 3, 2022.