Digital banks disrupting Malaysian finance markets but banks do not see it as a massive threat, yet!


The banking industry underwent several disruptions in the last decade. One such mover involves the growth of digital banks. This is not any different for the banking sector of Malaysia. There have been rapid advancements in technology and changes in regulations that have disrupted the banking sector tremendously. The situation is made more challenging especially with the entry of new players like digital banks and cryptocurrency exchanges.

Are traditional banks threatened by digital exchanges?

Definitely. Because of these models, Malaysian banks have to start adopting new and cutting-edge technologies in order to stay competitive. Cryptocurrency is not very new but it definitely has influenced economies globally. If traditional banks do not start considering building strategic ties with the new players, they would lose out.

How is technology helping Malaysian banks to meet these challenges?

The BFSI (Banking, Financial Services and Insurance) sector is a highly volatile market. With technology, the players could provide better and more efficient delivery of services to their customers. Security issues continue to be a prevalent area that needs to be constantly monitored and updated. Hong Leong Bank was among the early adopters of new technologies.

Has the BFIS sector in Malaysia joined the cryptocurrency market?

Yes. In the last few years, the Securities Commission has approved the licenses for Digital Asset Exchanges which allows the trading of digital currencies like Bitcoin and Ethereum. However, they are yet to be used as legal tender in the country. This is seen as a positive step forward with more firms adopting digital technologies in offering their services.

How are digital banks a threat to traditional banks?

While digital banks are highly disruptive in the BFSI sector, they have yet to create major movements in the Malaysian market. Most firms perceive digital banks as threats but they are not as massive as once thought. This is because:

  • Conventional banks can do what digital banks are capable of. This is because conventional banks have the infrastructure and bandwidth having been established for many years in the market.
  • Conventional banks have the resources to do what digital banks do. They have already been involved in data science, customer relationship management and digital services.
  • Digital banks have pushed conventional banks to explore new opportunities in the market and hence, they are more open to new platforms. Because of the new fintech platforms and digital banks, the incumbents have become more active and are now more ready than before.
  • Instead of perceiving digital banks as threats, there are now new opportunities for collaboration and integration. Conventional banks can reinvent themselves through this cooperation which can gain better customer confidence.

So, is digital banks a massive threat to the Malaysian banking sector?

Not exactly. Traditional banks are more than equipped to face the challenges and competition that digital banks and new fintech firms bring. However, they need to start looking at new and more revolutionary ways in extending their services through modern technologies like data science and analytics. These adoptions will give them more and better leverage moving forward. There is no urgent need to implement new business models but to enhance the current ones.

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Six Capital Pte Ltd. Singapore

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