Sunday, May 19, 2024

THE BUILDING BLOCKS OF A PROFITABLE DIGITAL BANKING MODEL

KUALA LUMPUR, Malaysia, Aug. 14, 2023 /PRNewswire/ — With around 250 digital banks across the globe, 20% are within the Asia Pacific region[1]. A positive number as digital banks are expected to forge the future of the fintech industry.

Malaysia is not excluded from this global phenomenon as the country’s central bank, Bank Negara Malaysia (BNM), recently announced its first five digital bank licenses to some of the leading technology and finance industry players, such as the Boost-RHB Consortium, led by the regional full-spectrum fintech arm of Axiata, Boost.

One key observation in the Malaysian market is the focus on players with a profitable digital banking model. This can be seen with BNM’s assessment criteria. It emphasised the character and integrity of applicants, nature and sufficiency of financial resources, soundness and feasibility of business and technology plans, as well as the ability to meaningfully address financial inclusion gaps[2].

Through Boost-RHB Consortium, let’s dissect why it is regarded as a frontrunner in the digital bank sector in Malaysia.

1.  Proven track record and an engaged audience.
Over the past few years, Boost has been laying the foundation for a digital bank, such as through its AI-based micro-financing business, that is already operating at scale sustainably. As of early 2023, it accumulated an excellent track record of disbursing over RM3 billion worth of financing in Malaysia and Indonesia since inception.

2.  Established ecosystem and infrastructure. 
Successful digital banks will leverage their respective ecosystems, as those that properly execute this model have a lower customer acquisition cost. Boost is equipped with a holistic fintech ecosystem that spans across its AI-based micro-financing business, all-in-one fintech app with over 10 million users, merchant solutions platform with over 600,000 merchant touchpoints, and cross-border payment platform with over 100 global digital partners in Southeast Asia.

3.  Shorter tenure and unit-economics-positive products.
Although recent studies showcased volatilities due to rising rates[3], it will likely not have material impact on the digital banks in their nascent stages. Upcoming digital banks, like Boost, which already specialises in offering simplified products with shorter tenures, would not be susceptible to very large asset-liability mismatches on its balance sheet.

What the future holds.
All eyes are on this sector as research indicates that widespread adoption of digital finance could increase the GDPs of emerging economies by 6%, or a total of $3.7 trillion, by 2025.

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