This article first appeared in Digital Edge, The Edge Malaysia Weekly on August 8, 2022 - August 14, 2022

Over the past decade, digital banking has accelerated largely due to the advancements and penetration of the mobile phone. As such, there are almost 400 digital banks globally serving nearly one billion client accounts. The market size, which stood at US$47 billion (RM209 billion) in 2021, is predicted to grow to a whopping US$2.05 trillion in 2030. 

But for digital banks to be successful, they need stable investors and financial backing to sustain operations, unique customer value propositions, scalability and a tech-savvy population, not to mention unique revenue-generating products, says Rohan Krishnalingam, group chief technology officer of RHB Banking Group Malaysia. 

With the rapid ascent of digital banks, a series of different risks such as extensive use of cloud services, third party service providers and the usage of artificial intelligence (AI) and machine learning needs to be properly supervised and managed, he told participants at the “Digital Banks and the Banking Sector” panel session held during the recent 12th International Conference on Financial Crime and Terrorism Financing.

During his presentation, Rohan highlighted that although digital banks provide a seamless customer experience, significant gaps have been identified in the effectiveness of financial crime control. These challenges include money mules, fraudulent accounts and identity theft, and account takeovers. 

With digital banks growing on a global scale, there is a notable difference between the regulations in the various operating environments. Digital banks in the west are more start-up driven, while those in Asia are backed by consortiums or Big Tech. 

“The advantage of being modelled this way is that a lot of these consortiums and Big Tech already have an existing customer base. The affinity for customers who will adopt their services is much higher, and the cost of customer acquisition is lower,” adds Vincent Fong, chief editor of Fintech News Malaysia. 

One of the biggest trends observed globally is the adoption of and transition towards cloud services. Many banks choose public cloud infrastructure as their primary core due to the high degree of security, redundancy and efficiency provided. 

Furthermore, smartphone growth and penetration has exceeded 90% in Malaysia, spurring banks, both traditional and digital, to move towards a mobile-first approach, says Thariq Usman, deputy CEO of KAF Investment Bank Malaysia. He continues: “Mobile first banking provides superior features compared to traditional desktop banking, including 24/7 access, and on-the-field banking, which means you can have access to banking facilities without having to go to a desktop.”

Despite the leaps and bounds made by the digital banking industry, the gap in technology literacy continues to be a hurdle to achieving high penetration of modern and complete financial services among the underserved, with language being a barrier to financial literacy. 

“There is a lot of financial content out there, but not enough in the right languages for this country. As a result, the unserved market will be dependent on word of mouth, leaving this group open to vulnerability, frauds and scams,” says Thariq.

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