KUALA LUMPUR, Nov 6 -- Digital Banking holds a promising future in Malaysia and the journey towards establishing digital banks will become a reality with the digital transformation in the Malaysian financial landscape.

The Ministry of Finance (MoF), in its Economic Outlook 2021 report released today, said a digital bank is essentially a virtual bank which operates in a digital environment and is devoid of brick-and-mortar presence of a traditional bank.

However, it said digital banks would offer similar services to that of traditional banks, such as savings and current accounts, withdrawals and transfers, and as such, is expected to revolutionise the financial landscape by offering financial services through digital and automated platforms.

It said currently, Australia, Brazil, Canada, China, Germany, Hong Kong, South Korea, South Africa, Taiwan, the Philippines, the UK, and the US have established their own digital banks while Singapore is expected to issue its digital bank licences in 2020.

“Meanwhile, Bank Negara Malaysia (BNM) is at the stage of finalising the updated Exposure Draft on Licensing Framework for Digital Banks issued on March 3, 2020.

“With this development, Malaysia looks forward to establish several digital banks in the near future, the way for a more vibrant financial services landscape,” it said.

The MoF said the establishment of an effective regulatory ecosystem for digital banks in Malaysia is still in progress with the updated draft by BNM on March 3, 2020 having proposed a balanced approach to enable the admission of digital banks, with strong value propositions while safeguarding the integrity and stability of the financial system.

It said through the framework, up to five licences might be issued subjected to the applicants' ability to meet the requirements of the Financial Services Act 2013 and the Islamic Financial Services Act 2013.

The ministry said the journey towards the establishment of digital banks is an expected progression in the Malaysian financial market as the country evolves into a digital economy.

It said for the transformation to materialise, a whole new wave of digital products and solutions must be in place, supported by a robust regulatory ecosystem, innovative technology and cultural adaptation to accelerate economic growth and financial inclusion in Malaysia.

Furthermore, it said the COVID-19 pandemic, which has accelerated remote and contactless transactions, also provides the impetus for the establishment of digital banks.

On the other hand, it said the road towards digital banks also requires digital transformation, mastering new skills, adopting new processes, and changing the way business is being done.

Thus, it said all interested parties need to reform their business models and culture and emphasise innovation as well as greater adoption of big data analytics to create a customer-centric orientation.

The ministry said the transition to digital banks may not be straightforward and could disrupt financial services.

Traditional banks, it said, may also form new ventures and apply for a digital bank licence as part of efforts to reform their business model of which the model must also cater to the underserved and unserved segments of society such as low-income individuals, early income millennials, start-ups, as well as small and medium enterprises.

-- BERNAMA