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PETALING JAYA: Coexistence among e-wallet players, digital banks and existing financial institutions is possible, according to panellists at CGS-CIMB’s 13th Malaysia Corporate Day.

In a panel session, GHL Systems Bhd’s former group CEO, Danny Leong, and GrabPay Malaysia’s head, Priyanka Madan, said they believed that e-wallet players can coexist with existing financial institutions as the former are still targeting the unbanked population and smaller merchants which are not typically targeted by banks.

The discussions revealed a need for a quick shift in strategy for GrabPay during the first movement control order (MCO) period last year, by diverting its ride-hailing partners to the delivery business as well assisting small entrepreneurs to digitise by accepting e-wallet payments.

The March-May 2020 period saw GHL introducing its eGHL SWIFT to assist SMEs to go online and become e-commerce ready during the MCO.

“Although the Covid-19 pandemic relegated a lot of new project rollouts to the backburner, one silver lining from the pandemic is that it expedited consumer awareness for cashless payments, especially e-wallets,” CGS-CIMB said in a report.

This is supported by data from Bank Negara Malaysia (BNM) which found e-wallet as the only digital payment instrument that registered a higher transaction value in 2020, compared to the alternatives.

It reported that total e-wallet transactions in first 10 months of 2020 (10M20) reached RM23.5 billion – which exceeded the total 2019 transaction value processed by 30%.

BNM’s data also showed that e-wallet’s market share of digital transactions rose by 5 percentage points to 13% in 10M20 from 8% in 2019.

“Both GrabPay and GHL expect e-wallet adoption in Malaysia to continue even after the pandemic, given that consumers are becoming more comfortable with this payment instrument, and as e-wallet providers continue to improve to provide seamless user experience.” it said.

With regard to digital banks, the panel session, which saw the participation of PwC Malaysia’s directors, foresees them starting operations in 2022, following the licensing framework issued by the central bank on Dec 31, 2020. Applications for such licences are open until June 30, 2021 and BNM expects to issue five digital banking licences with at least one Islamic digital bank by the end of this year.

Currently, more than 50 parties have expressed interest in digital banking licences, including six incumbent lenders.

PwC calculated that the digital banking business is expected to grow at four times the pace of the financial services system in Malaysia over the next five years, in line with the expected swift expansion of digital banks in the Southeast Asia region.

“In our view, high growth rates for digital banks would not be a surprise given the low base in 2019 as the regulators in SEA countries have only started to issue digital banking licences in recent years,” they said .

The PwC directors pointed out that Malaysians are open to digital banks as its survey found 74% are willing to be their customers.

CGS-CIMB said it concurred with the panellists’ views that digital banks will not pose any significant threats to the business of incumbent banks in the next three to five years, given the focus on providing products and services to the unserved and/or underserved segments, which are not the key target markets for the incumbent banks as outlined in BNM’s licensing framework.

Moreover, the framework stipulates that the new banks have to maintain total assets of not more than RM3 billion each within five years after the inception of their operations.

In this case, the total assets of the five digital banks would be at a maximum of RM15 billion over the next five years, which is only 0.5% of the total assets of RM2.79 trillion for the nine major local banks in Malaysia, as at end-September 2020.

The research house stated that the expected emergence of digital banking players in 2022F would not alter its overweight call on banks, which is predicated on the expected recovery in 2021F net profit growth to 19%.

“The potential downside risks for our call are higher-than-expected loan loss provisioning and weaker loan growth in 2021F.”


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