FOR more than a year now, the Malaysian digital banking scene has been busy, with lots of action and aspirations for securing digital banking licences. With over 29 applications for the licences from the central bank, this indicates clear interest from the participants and market opportunity. Although the final licence application count is less than the anticipated range of 40-50 applicants, we have seen good participation from both local and international entities.
The competition in banking and financial services in Malaysia is going to be intense with up to five new players – the acceleration of digitisation agenda of incumbent banks will be interesting to watch. Cloud, data, technology, and analytics competencies are the real-game changers here.
Many players have publicly announced their interest and application submission for the digital bank licence. Overall, these applicants bring a decent diversification of profiles, from local conglomerates to incumbent banks, state governments, retail, big tech, fintech, telecom companies, and more.
After submitting the licence application, all applicants together with their consortium members can review the following next steps or winning attributes that are relevant and of priority:
1. Query response strategy: Prepare for any anticipated queries/additional information required by the central bank that might give strength to the license application pack. These additional aspects could be around shareholding structure, business case and sustainability, value proposition, product proposition, risk procedures/policies, and independent review.
2. Consortium synergies: To further evaluate the synergies each consortium member can bring to the table and analyse the details to firm the term-sheets between the consortium members. Individual consortium members can stock-take their assets and determine the true value that can be unlocked.
3. Review business strategy and learn from the factors that lead to the failure of digital banks globally: Strengthen the digital bank’s business strategy and assess the winning game plan. To also review the success/failure stories of global digital banks and derive insights from it. In the past, there has been a few digital banks closure, for example:
→ Finn by JPMorgan Chase that aimed to serve the younger and digital native users closed after a few years of operation.
→ Bo by Royal Bank of Scotland (RBS) which targeted customers on tight budgets wanting to take greater control of their spending, closed just five months after its public launch.
→ Simple from BBVA, a digital bank that focused on high-interest savings accounts, closed in early 2021.
There would have been multifold reasons for the closure of digital banks. Some of the significant issues includes:
→ Mobile channel – Unable to excite customers with rich UI/UX, stability of the mobile app, unfavourable customer feedbacks, and technological flaws in the app.
→ Customer demand – Decreasing or lack of demand from customers for digital banking services and unappealing incentives to bank with digital players.
→ Customer personas – Targeting the wrong customer segments and having no clear value proposition to support the personas.
→ Vision and strategy – No clear consensus on the roadmap and strategy of the digital bank between with stakeholders, including c-suite, partners, parent companies, and more.
→ Product differentiation – Little or not much product differentiation from the market.
4. Enable technology conversations: Review the technology stack proposed for the digital bank and start identifying the potential technology players that matches the business requirements. Digital banks should also explore mergers and acquisition (M&A) activities with the right technology players or develop commercial partnerships.
5. Develop marketing strategy: Define a marketing strategy for branding and send strong messages to the industry on the consortium’s strength, while building the digital bank brand.
6. Explore digital bank licence in other jurisdictions: With a strong MOU between the consortium members, the digital bank can then start exploring similar digital bank license opportunities in the region and beyond Asia.
7. Fundraising activities: Engage or firm-up fundraising activities if required with the relevant parties to meet the capital requirements or fulfill the commitment given to the consortium members for source of funds.
8. Talent fulfilment: Appoint head-hunters or look-out for special talents with skills to build the digital bank – talent with the fit and proper criteria set by the central bank. It is better to start strategising early, in anticipation of the the huge demand for talent that might arise in near future.
A successful digital bank requires attributes such as comprehensive business strategy, right partners and talent, light-weight technology stack, strong risk management fundamentals, fresh marketing techniques, and portfolio management. Aspirants should never let go of a chance to attain any of these attributes early, in effort to beat the competition.
We believe many digital bank aspirants would have realised the importance of these attributes and made the necessary strategic plans to succeed.
This article was contributed by Deloitte Malaysia executive director Shahariz Aziz and director of financial services Gopal Kiran.
Source: The Sun Daily
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