Regulatory changes, advances in technology, and the entry of new players in the Malaysian banking sector are forcing incumbents to embrace cutting edge technologies and build strategic ties to remain competitive, experts said during Huawei and Fintech News Malaysia’s Digital Banking Symposium.

C-levels from Hong Leong Bank, Bank Islam Malaysia Berhad, TNG Digital and Huawei Cloud, gathered for a live panel discussion organised to discuss key trends shaping the banking sector and the implications of the country’s forthcoming digital banks.

Top trends happening in Malaysia’s BFSI space

Domenic Fuda, Group Managing Director and CEO of Hong Leong Bank, said the bank had invested early on in new technologies and digitalisation efforts, allowing it to be agile and reactive to market changes today.

“The last couple of years we’ve been using Huawei’s technologies to mix traditional data with unstructured data like social media, to make contextual marketing and make decision on the go,” Domenic said.

“Because of the infrastructure we’ve built over the past couple of years, we are able to be quite agile … We were able to adapt [rapidly] to the changes [brought about by the pandemic, for example].”

Commenting on the trends of cryptocurrencies and digital assets, Domenic views the technology as disruptive and that banks need to take steps in remaining relevant to the market but without necessarily jumping onto the bandwagon. Instead, he emphasised that banks need to focus on business outcomes.

When asked about whether he sees the new digital banks as a threat to incumbents, he is of the view that whatever they can do, incumbents can do the same as well.

“For the incumbents, I really don’t see it as a massive threat, we have the resources, we have been investing in digital capabilities, customer journey, and data science”.

Mohd Muazzam Mohamed, CEO of Bank Islam Malaysia Berhad, said that challenger banks and fintech companies have significantly shaken up the sector, forcing incumbents to explore new market opportunities and go beyond their comfort zone. He said the bank has been working on a “separate digital banking proposition” which should be ready soon.

The bank had announced in March this year that it is in the midst of setting up a fully digital bank through a new division named the Centre of Digital Experience (CDX) by forming partnerships with Mambu, Experian and Pod. CDX will be rolling out an alternative credit scoring solution by the second quarter of 2021.

“I look at it positively because [new competition] forces the whole industry to react more actively and we wouldn’t have made these kinds of progress today if not due to these digital banks and fintechs. The banking industry is not known for being innovative and coming up with new solutions and business models. It forces us to be a lot more agile.”

Muazzam said Bank Islam has formed a team solely focused on forging collaborations with fintechs and exploring new opportunities. He said that in the medium to long-term “working together will be the key to moving forward.”

“We are able to offer more services because some of them complement certain market access that we already have and we can come up with new propositions going [forward] together. We always look at ‘how can this new player work with us to expand our market?’ That’s the focus of our digital innovation team to a certain extent.”

he added.

COVID-19 fuels digital adoption

Muazzam also anticipates that the pandemic will further shift the future of work, he said currently there’s nearly a quarter of Malaysians in the gig economy and he foresees that more of them will turn to the gig economy. With that, he said that banks need to reevaluate their data model when assessing credit to cater to a new generation of workers.

Anson Shen, Chief Strategy Officer of Huawei Cloud’s Asia Pacific (APAC) operations, said that financial institutions were increasingly adopting cloud computing prior to COVID-19, but the global pandemic further accelerated the pace.

“We’ve seen an accelerated adoption of the cloud infrastructure in the last couple of years, especially since the start of the pandemic. Digitalisation has become the essential element for many companies’ survival.”

said Anson.

Anson added that his company has witnessed strong adoption of big data analytics, as well as “ML and AI-as-a-service.” These advanced technologies focus heavily on the use of data, transforming financial institutions’ traditional business model to a data-driven business model to create better customer experiences.

Other key trends observed, he said, are embedded fintech where financial companies are now increasingly relying on ecosystem partners to introduce a financial product at the right place within the customer journey, as well as banking-as-a-service where banks lease their infrastructure to fintechs and other third parties to build banking offerings on top of their regulated infrastructure.

Echoing Anson, Ignatius Ong, CEO of TNG Digital, an e-wallet operator and online payment platform, said that the pandemic has pushed both consumers and merchants to adopt digital channels. TNG Digital has witnessed strong growth, especially over the past 18 months. Now the trend is rapidly spreading to the older generations, including the Baby Boomers and Gen X.

Shankar Kanabiran, an EY partner and Malaysia financial services consulting leader, said during the second half of the Digital Banking Symposium that while the majority of banks in APAC have started their digital journey, benefits have been patchy.

He shared findings from a 2020 study conducted by EY, which found that 45% of banks in APAC reported that the quantifiable benefits resulting from their digital transformation efforts were below the business case.

The problem might be because banks have been mainly focused on digitalising distribution rather than creating new digital business models.

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