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Digital bank launches in Malaysia picks up steam.

image via Freepik by starline

Malaysia's digital banking landscape is picking up steam with the approval of two new players, Boost-RHB Digital Bank and AEON Bank Bhd. They join Grab-led GXBank, which commenced operations last year, with two more set to enter soon. However, industry insiders express caution, highlighting the challenges digital banks face in other regions.

Drawing insights from Hong Kong and Singapore's experiences, where digital banks struggled to turn a profit within four years, experts emphasize the difficulties in building customer loyalty and trust. Subsidies and promotions contribute to high costs and slim margins, often compounded by parent companies focusing on diverse business areas.

While Malaysia is well-banked, the emergence of digital banks is expected to exert pressure on traditional counterparts. Local firm Kenanga Research anticipates limited immediate impact, emphasising that online-only lenders must offer attractive deposit structures to entice customers. For instance, GXBank offers a 3% annual interest on savings accounts, surpassing rates offered by major traditional banks.

Early successes in the digital banking realm, seen in Chinese and South Korean startups like Kakao Bank, highlight the potential for rapid growth. Kakao Bank, founded in 2017, achieved profitability within two years, capitalising on market demand for fresh alternatives in a predominantly brick-and-mortar banking landscape.

This scenario unfolds against global and local banking transformations, intensified competition and traditional banks entering the digital domain. While digital banks aim to serve the underserved, initial observations suggest their primary customer base may include those already banking with traditional institutions.

The focus now shifts to the strategies these digital players adopt in navigating the competitive landscape and establishing their niche in Malaysia's dynamic banking industry.


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