KUALA LUMPUR, 21 April 2021 – The announcement of Bank Negara Malaysia (BNM)’s impending issuance of digital banking licenses possibly leads to precursor of a disruptive wave of new and innovative digital financial services in the wake of the Covid-19 pandemic, said SAP Malaysia.
Its managing director Hong Kok Cheong (pic above) noted that the time was ripe for banks, governments, and technology experts to come together and capitalise on these opportunities to increase financial inclusion and digitise the economies to benefit the customers and society in general.
“While the Covid-19 pandemic is accelerating the migration to digital, the regulation across the region is also becoming more open. The governments are more supportive and increasing the licence allocations for digital bank operators,” said Hong.
Digital banking is part of the wider digital financial services (DFS) sector and is seen by many governments across the world as a way to achieve greater financial inclusion.
In 2019, the World Bank in association with the ASEAN Working Committee on Financial Inclusion (WC-FINC) published a study, Advancing Digital Financial Inclusion in ASEAN: Policy and Regulatory Enablers.
The study recommended that regulators level the playing field between banks and nonbanks to increase access to DFS for under-served or excluded segments of the population.
Almost 70% of adults within the 668 million population in SEA are unbanked (do not have access to a banking account), and only 33% of SEA SMEs have access to loans and lines of credit, based on a study by Bain & Company, Google, and Temasek (2020): The Future of Southeast Asia’s Digital Financial Services.
Reaching out to the unbanked market
In Malaysia, the financially underserved could also include self-employed individuals, first-time borrowers, retirees and those who recently joined the workforce; people with low financial literacy, in rural locations, or have disabilities.
According to global consulting firm Bain & Company, around 55% of Malaysia’s adult population is still underbanked and unbanked.
At the turn of the year, BNM had announced that it would be issuing five new digital banking licences, with applications open until 30 June 2021.
Noting that the capital requirements for digital banks in Malaysia are set to be lower than in other countries within the region, as well as in contrast to traditional banks, impending establishments of new digital banking entities may mean that traditional ones stand to lose out if they do not transform their existing operations within the next three years.
The issuance of digital banking licences may increase the pressure on traditional banks to improve financial inclusivity, especially to the underserved and unserved segments.
Existing bank licences in Malaysia already allow incumbents to provide digital banking services; however, the opportunity is now there for smaller, more agile challengers to break into the DFS sector.
“The secret to success when it comes to digital banking is to have the right business model to grow, to scale, and to turn profitable fairly quickly,” Hong stated, noting that SAP can help both incumbents and new challengers with these business models.
This includes advisory specialists with open banking, product innovators with customer analytics, transactional leaders with economies of scale, and service & solution providers with end-to-end solution architectures.
Hong explained that independent of business model, successful digital banking players offer a superior or unique customer value proposition, stable revenue generation and profitability, high levels of efficiency from their technology stacks, and great platform scalability.
He further highlighted that scalability is particularly important in Asia given the size of the population in the region.
SAP’s value proposition for digital banks
At its end, SAP has thus far been digitising financial institutions, including digital banks as mentioned earlier, to become ‘intelligent enterprises’. This premise is based on unifying and integrating end-to-end business processes real-time, to manage spend, run efficiently, make data-driven decisions, and innovate at scale.
SAP’s specialised solution for digital banks, SAP Cloud for Banking, is a package that includes SAP S/4HANA Finance, SAP Banking, and the SAP Payments Engine running on SAP Cloud via SAP Cloud Application Services.
Powered by SAP’s open technology platform as the foundation, smart operational data distribution capabilities, data-driven intelligence, an open integration framework, and an omnichannel-based digital customer engagement experience, SAP helps banks and other financial institutions to strive and lead in the digital economy.
The core of SAP’s solution, Transactional Banking for SAP S/4HANA, empowers financial institutions to provide next-generation banking services and extraordinary customer experiences. The package includes an open-core banking platform that helps intelligent transactional banking and facilitates cost savings through intelligent technologies and processes.
The integration with SAP’s payment processing and omnichannel banking platform provides superior end-to-end core banking capabilities for retail and commercial banks – from incumbent challengers and neobanks (digital banks with no real branches) up to large, multinational financial corporations, independently of their underlying business models.
All products provide content-rich, smart data sets along with augmented metadata information for use within a bank’s broader ecosystem, empowering stakeholders to maximise their understanding and use of information for their daily activities.
Hong emphasised that banks must have the courage to ‘reinvent’ themselves for the digital economy.
“In today’s digital economy, Malaysian banks – including upcoming digital banks – have the potential to exceed customer expectations.
“With the intelligent enterprise framework, SAP provides integrated applications, intelligent technologies, and a digital platform to enable banks, including digital ones, to better serve current customers and reach the underbanked population to support financial inclusion,” he concluded.
Source: SAP Malaysia
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