Grab-Singtel among favourites to bag Malaysia's first digital banking licences

Kuala Lumpur

THE Grab-Singtel consortium, which secured one of Singapore's first digital bank licences in 2020, is seen as a frontrunner to win a similar licence in Malaysia, according to analysts from Affin Hwang Investment Bank and RAM Ratings.

They also foresee the RHB Bank- Axiata Group and Aeon Credit-Aeon Financial Group consortiums as among the likely awardees.

A total of 29 consortiums submitted applications to Bank Negara in June 2020 to compete for 5 digital banking licences, which are expected to be awarded as soon as this week.

There is talk that the announcement could be made in conjunction with the publication of the central bank's annual report by Mar 31.

Malaysia will join fellow South-east Asia countries Singapore and the Philippines to issue digital banking licenses.

Sophia Lee, co-head of financial institution ratings of RAM Ratings, said the Grab-Singtel consortium has a strong background which makes them a top contender.

Grab, which started as a ride-hailing provider, has expanded its range of services to include food and grocery delivery, as well as e-wallets and credit service. The Nasdaq-listed tech firm currently has over 20 million registered users in Malaysia.

"Grab-Singtel secured the digital banking licence in Singapore in 2020, they already have the experience, a strong financial position and infrastructure to operate a digital bank."

"In Malaysia, Grab has offered financing service to their drivers, they are well-poised to extend the service to their merchants or shops in the future," she added.

She also noted that the winners will need to have deep pockets to support their operations as digital banks' profitability is likely to be constrained in the first few years.

Other than Grab-Singtel, she also predicts at least 1 licence will be given to an Islamic finance-centric consortium.

Kelvin Lee, financial services assurance partner at PwC Malaysia, cited some of the qualities future winners need to have.

These are a large existing customer base, strong innovative technological capabilities, a solid understanding of what it takes to run a bank, and a considerable capital investment from its shareholders to ensure financial sustainability in the next 5 to 10 years.

"Bank Negara Malaysia's minimum capital requirements for a digital bank may seem small - RM100 million (S$32.3 million) during the foundational phase," he said.

"Future digital banks should not underestimate the challenges of running a bank successfully, and how expensive banking can be. So having shareholders who are willing to invest into the digital bank for the long term is absolutely essential," he told The Business Times.

Affin Hwang Investment Bank analyst Tan Ei Leen observed that a consortium backed by financial groups and with an established connection with the underserved market, especially in the more remote states in East Malaysia, have a higher chance of success.

On the prospects of digital banking, Lee said around 55 per cent of the country's population is estimated to be underbanked and unbanked.

"Given the ubiquity of smartphones and high digital adoption and market readiness, the market potential for digital banking is bright," she said.

She added that Internet banking and mobile banking transactions jumped by 40 per cent and 390 per cent respectively to RM1.2 trillion and RM800 billion over the last 2 years due to the pandemic.

Tan noted that a digital bank licence would enable the winners to have a share of the domestic lending market, and serve as an alternative channel to earn fee income through e-wallet transactions.

They could also benefit from the sale of insurance plans and investment products, which would be an entirely new source of revenue altogether.

Apart from Grab-Singtel, here are some of the other groups that analysts deem to have a strong chance of securing a digital banking licence from Malaysia's central bank.

RHB Bank-Axiata Group

A joint venture by Malaysia's largest telco Axiata Group and RHB, Malaysia's fourth-largest fully integrated financial services group.

With 157 million customers, Axiata has also ventured into the e-wallet industry through its fintech holding arm Boost Holdings, which has evolved from a cashless payment app to offer micro-financing and micro-insurance services to consumers.

Aeon Credit Service-Aeon Financial Service

Aeon Credit Service, a household name in Malaysia, is partnering with its parent company, Japan-based Aeon Financial Service. Aeon Credit Service has operated in Malaysia for 25 years and currently has around 65 retail outlets with over 4 million customers.

BigPay-MIDF-Ikhlas Capital

BigPay is AirAsia Group's digital and financial technology arm. It has secured up to US$100 million in financing from South Korean conglomerate SK Group to further its mission to become the leading challenger bank in South-east Asia.

The company has partnered financial service provider Malaysian Industrial Development Finance and Singapore-based Ikhlas Capital to apply for a digital banking licence.

The latter is a private equity firm co-founded by Nazir Razak, the youngest brother of Malaysia's former prime minister Najib Razak.

Sea Group-YTL Corp

Sea Group is the parent company of Shopee. the New York Exchange listed e-commerce platform also secured a digital banking licence in Singapore. Sea Group has partnered Malaysian conglomerate YTL Group to compete for Malaysia's digital banking licence.

In the second quarter of 2021, Shopee led the Malaysian e-commerce market as the most clicked e-commerce site with 54 million visitors a month.

Star Media-Paramount Corporation-RCE Capital- Prosper Palm Oil Mill

After acquiring a stake in peer-to-peer lending platform Fundtaztic, property developer Paramount Corporation continued its foray into the digital finance space by collaborating with media firm Star Media, consumer finance company RCE Capital and plantation company Prosper Palm Oil Mill.

A major shareholder of Prosper Palm Oil Mill is Far East Holdings, whose largest shareholder is Perbadanan Kemajuan Pertanian Negeri Pahang - a statutory body that promotes Pahang state's agricultural development.

Angkasa-Boustead Holdings- Hyperion Insurance

The National Co-operative Movement of Malaysia, also known as Angkasa, and Malaysia-listed conglomerate Boustead Holdings have partnered Hyperion Insurance to bid for a digital banking licence.

Their proposal to build an Islamic digital bank has caught the market's attention as Malaysia is one of the leading global hubs for Islamic finance. Analysts believe its positioning as an Islamic digital bank could give them the edge in winning a licence.