Malaysia is bracing for the arrival of digital banks, with up to five licenses to be issued by the country’s central bank once the regulation for the industry is in place.
Bank Negara Malaysia (BNM) is now working towards releasing regulation guidelines for virtual-bank operation in Malaysia, dubbed ‘the Exposure Draft on Licensing Framework for Digital Banks.’
The regulator invites written feedback on the bill draft, which should be submitted to the central bank by February 2020, with more details on the eligibility and admission criteria to be provided at that time.
Applicants will be allowed to offer either traditional or Islamic banking products, and thus will be required to comply with the Financial Services Act 2013 or Islamic Financial Services Act 2013, the central bank said. This means that their business models can be similar to what existing banks already have.
The digital banks will commence their operations in a restricted form with a minimum paid-up capital of RM 100 million and will be subject to an aggregate deposit cap of RM 2 billion. Deposits per individual will be also capped at certain limits to be determined by the central bank at a later stage.
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With innovative business models and strong digital capabilities, these players can cater to under-served segments of the market. They will also provide an impetus for existing banks to improve their digital offerings.
With no need to set up branches, web-only banks can deliver different services, including e-wallets, as well as traditional products such as issuing cards and offering payment services through an app or a website.
Malaysia’s push comes on the heels of its Asian peers
The rollout of the digital bank licenses indicates a measured approach on the regulator’s part, taking into account that such players have not operated in “a full financial and economic cycle,” says the BNM.
The central bank added that this pace of progress is not pre-determined and depends on the applicants and their ability to meet different criteria.
As such, the full digital bank licenses will be implemented in stages and come with restrictions on product offerings and deposit-taking. These will slowly be relaxed only when the approved applicant proves it can manage the risks involved.
Malaysia’s virtual banking push comes in a bid to keep pace with its regional peers, with Korea, Taiwan, and Hong Kong have also embraced the idea of introducing purely digital banking experiences.