Digital banking in Malaysia slowly advances

Written by Kapronasia || January 16 2024

Malaysia has been one of the least hurried Asian countries when it comes to digital banking, owing to its middle-income status and high percentage of banked people – above 90%. The Malaysian central bank first mooted the idea of digital banks in December 2020 but nothing happened with regards to commencing operations for almost three years. That is finally changing, first with the low-key launch of Grab, Singtel and Kuok Group’s GXBank in the fall of 2023 and now with the respective soft launches of Boost Bank – a joint venture between fintech company Boost and RHB Banking Group – and AEON Bank, which is a subsidiary of AEON Financial Service in mid-January.

Like most other digital banking markets in Asia, Malaysia has a negligible start-up presence. Instead, online lenders in the Southeast Asian country are represented by powerful conglomerates, Big Tech and in one case an incumbent bank. They will be unlikely to do anything too unconventional to win market share. At the same time, Malaysian incumbent banks generally have a strong position and are unlikely to lose a lot of sleep over what amounts to little more than the addition of some digital banking services to the portfolios of large listed Malaysian and/or Singaporean companies. For these reasons, significant market disruption is unlikely.

Case in point: Boost Bank is part of the Boost fintech group that is a subsidiary of Axiata and RHB Bank. Boost holds a 60% stake in the entity while RHB has the remaining 40%. Boost has more than 10 million users of its e-wallet, to which it can now offer digital banking services, while the new digital lender can also leverage Axiata’s huge telecoms network.

The digital bank’s leadership is bullish on the bank’s prospects. In a May 2023 interview with Malaysia’s Star Axiata chief executive Vivek Sood noted that Boost Credit had already extended 1.5 billion ringgit (US$323 million) in loans to MSMEs, adding that he estimated there are a half million active monthly active customers that could “potentially be the customers of the digital bank from day one.”

As for AEON Bank, it is notable for being Malaysia’s first digital Islamic bank. This means the bank will offer its customers financial services that are compliant with the principles of Islamic finance. These include not charging interest, no ambiguous terms or uncertainty, ensuring money generated is Sharia compliant and separate from noncompliant income, ethical and socially responsible transactions and investments, and asset backed systems: not seeing money as a tradable commodity but linking it to real economic activity and assets.

As a first mover in this space, it is possible AEON will roll out some innovative products and services, which if successful, could pave the way for additional expansion in the Muslim world.

Its main competitor for now is the digital banking app of Bank Islam, Malaysia’s oldest Islam bank. In July 2022, Bank Islam launched the Be U app that caters to Malaysia’s digital-native generations.