What they are, who they help and how they differ

KUALA LUMPUR, June 7 — The rapid rise of internet connectivity has led to a new paradigm in money management, in the form of digital banks that exist entirely online.

Since the Covid-19 pandemic, more and more Malaysians have adopted the habit of going cashless, but until recently, banking transactions still required a physical visit to a local branch.

However, digital banks are set to change this by offering seamless access to financial services anywhere there is an internet connection.

online only

Unlike traditional banks, which require physical branches and lengthy application processes, digital banks are completely virtual: all processes from A to Z take place entirely on the customer’s smart device.

This aspect has made them especially popular among tech-savvy consumers, who can already appreciate the convenience of all their banking needs without ever having to visit a physical branch or wait in line.

From opening an account to applying for loans, everything is meant to be done online at digital banks, all of which tout instant response and fast approvals as a differentiator from traditional banks.

Bank everywhere

Traditional banking customers will be familiar with the concept of a local branch, but digital banks are scrapping the idea entirely.

A key benefit is the ability to bank anywhere, at home or on the go, removing geographic barriers that prevent some from accessing banking services.

This is especially beneficial for people in remote areas, where access to a physical bank can be hours away. Digital banks would allow them to save the time and money they previously had to spend to reach the nearest bank branch.

In 2022, Bank Negara Malaysia (BNM) reportedly said that digital banks would help unbanked and underbanked sections of society to participate more in the increasingly digital economy.

Prime Minister Datuk Seri Anwar Ibrahim speaks at the launch of digital bank Boost Bank in Kuala Lumpur, June 6, 2024. — Bernama pic Prime Minister Datuk Seri Anwar Ibrahim speaks at the launch of digital bank Boost Bank in Kuala Lumpur, June 6, 2024. — Bernama pic

Prime Minister Datuk Seri Anwar Ibrahim speaks at the launch of digital bank Boost Bank in Kuala Lumpur, June 6, 2024. — Bernama pic

Prime Minister Datuk Seri Anwar Ibrahim speaks at the launch of digital bank Boost Bank in Kuala Lumpur, June 6, 2024. — Bernama pic

Five approved banks

In April 2022, BNM announced five successful applicants for the digital banking licenses as approved by the Ministry of Finance.

They are Boost Holdings Sdn Bhd and RHB Bank Berhad; GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd; Sea Limited and YTL Digital Capital Sdn Bhd; AEON Financial Service Co., Ltd., AEON Credit Service (M) Berhad and MoneyLion Inc; and KAF Investment Bank Sdn Bhd.

Three of the five consortia are majority-owned by Malaysians, namely Boost Holdings and RHB Bank, Sea Limited and YTL Digital Capital and KAF Investment Bank.

Of the five, GX Bank Bhd (GXBank) was the first to be officially launched last November, while AEON Bank became the second on May 26 as Malaysia’s first Islamic digital bank. Yesterday Boost Bank was the third when it launched to the public.

With the approval of the five digital banks, Malaysia joins other Asian countries such as Singapore, Indonesia, China and Japan that already have digital banks.

In the world, the Bank of Scotland was the first to offer electronic home banking services to its users since 1985, while the Stanford Federal Credit Union in California launched the first Internet banking website in 1994.

Stiff competition

The rapid succession of digital bank launches has seen them all try to stand out from the crowd.

GX Bank initially set the bar by offering a 3 percent interest rate on all savings, along with an unlimited 1 percent cashback on all expenses and a waiver of all fees associated with the issuance and use of the debit card /ATM. .

For users of the Grab mobile application, GXBank offers 1.5x GrabRewards points for purchases at Jaya Grocery stores.

AEON Bank, an Islamic digital bank, promotes both the Sharia-compliant system and a rewards system that allows customers to earn AEON points at AEON supermarkets, which can be exchanged for cash and automatically credited to their AEON Bank Savings Account-i .

Boost Bank, the newest, has not yet announced its promotions. CEO and Managing Director of Axiata Group, Vivek Sood, said at the launch that existing Premium Wallet users on the Boost eWallet application would have a seamless process to open and link a Boost Bank account.

A major hurdle that the digital banks will face is gaining the trust of Malaysians regarding the safety and security of conducting all their banking transactions online, at a time when the country is already experiencing unprecedented financial fraud and fraud.  — Geber86/ETX Studio imageA major hurdle that the digital banks will face is gaining the trust of Malaysians regarding the safety and security of conducting all their banking transactions online, at a time when the country is already experiencing unprecedented financial fraud and fraud.  — Geber86/ETX Studio image

A major hurdle that the digital banks will face is gaining the trust of Malaysians regarding the safety and security of conducting all their banking transactions online, at a time when the country is already grappling with unprecedented financial fraud and fraud. — Geber86/ETX Studio image

A major hurdle that the digital banks will face is gaining the trust of Malaysians regarding the safety and security of conducting all their banking transactions online, at a time when the country is already experiencing unprecedented financial fraud and fraud. — Geber86/ETX Studio image

FD like interest rates, no lock-in

In the initial battle for market share, the digital banks are all offering higher interest rates that match or even better than the interest rates paid on fixed deposits at traditional banks.

GXBank offers 3 percent interest on any amount saved in any of its accounts, with daily payments.

Boost Bank users can enjoy daily interest rates of up to 3.6 percent per year, although this is only available for a limited period to users with the “Platinum President” rank.

The highest at the moment is AEON Bank, which offers an annual profit rate of 3.88 percent for a limited time.

All three offer compartmentalized ‘piggy banks’ that allow customers to set aside their savings for specific goals, along with direct deposits and target dates to ensure their savings plans are on track.

Possible pitfalls

A major hurdle that the digital banks will face is gaining the trust of Malaysians regarding the safety and security of conducting all their banking transactions online, at a time when the country is already experiencing unprecedented financial fraud and fraud.

According to police, Malaysians lost a total of RM1.3 billion to online scams in 2023, almost doubling since 2021.

The fully virtual experience could also make it more difficult to get customer service when problems arise, compared to a traditional bank customer who can go to the nearest branch for help.