Digital bank landscape in Malaysia, 2021

1. 1
in Malaysia
Landscape and prospects - for international investors and decision makers
Digital Banks
September 2021

2. 3
This report is part of Momentum Works’ Digital banks series
Get in touch:
hello@mworks.asia
Burning questions, report enquiries
Decoding digital bank
best practices
Case study
Who is Nubank
Digital banks
in Southeast Asia
Click cover to download
Coming soon

3. 1. Introduction
2. Background & opportunity
3. Digital bank development
4. Policies & regulations
5. Malaysia digital bank contenders
6. Conclusion & perspectives
List of contents
3

4. Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.
1. Introduction
4

5. © Momentum Works
Why this report?
5
How are the banking and financial
landscape like in Malaysia?
What are the prospects of digital
banks - at the back of existing banks
and fintech players?
Which are the potential areas for
digital bank disruptions in Malaysia?
… and how do they differ from
neighbouring countries in Southeast
Asia?
What do regulators look for and
who are the key contenders?
We have been writing about digital bank and fintech -
based on insights on the ground across emerging markets
Digital bank - the new darling in Malaysia:
29 applicants vying for up to 5 licences, to be announced in 2022

6. © Momentum Works
Introduction
Highlights
• The Central Bank of Malaysia (Bank Negara Malaysia - BNM) has closed the digital bank application process in July 2021.
29 contenders (mostly in consortia) applied for up to 5 licences. The results will be announced in Q1 2022.
• Banks, industry conglomerates, big tech players, ecommerce operator, fintech players, cooperatives and state governments are
among the applicants. Few are named, and not all contenders like to make big announcements.
• Malaysia has higher banked population (45.5%) than Southeast Asia average (26%). However, 40.9% Malaysians have limited use
of banking services (i.e.: only for savings).
• Malaysians are picking up on digital payment and mobile-as-a-payment-channel habit: E-money transaction value in 2020 grew
3.8x of 2016 to US$ 7.1B (though still dwarfed under credit card’s US$ 30.8B); Mobile banking transaction value overtook ATM1
for
the first time in 2020, reaching US$ 110B, as Malaysians moved to contactless transactions during pandemic.
• High internet penetration (84.2%) and population in digital economy (40.2% has used online commerce) serve as good
foundation for digital bank growth and conversion.
• On policy, we see clear focus of BNM in pushing for financial inclusion among underserved segments and micro, small and
medium-sized enterprises (MSMEs).
• On successful contenders, potentially we will see large ecosystem players, together with more specialised players focusing on
specific segments (e.g.: SMEs, as well as Islamic banking).
6
1. ATM cash withdrawal & fund transfer Source: Momentum Works insights

7. Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.
7
2. Background and opportunity
Financial system in Malaysia

8. © Momentum Works
Bank Digital bank Fintech
Operates through branches, complemented
by digital presence:
Provides banking services through
electronic means
Complements banks’ offerings in
specialised areas:
Internet banking (via computer) /
mobile banking (via mobile phone)
Provides trust as regulated institutions
For high value transactions
Mobile: Fully / mostly digitised process,
no physical branches
Provides more accessible banking solutions
Under more regulated banking environment
Mobile (e.g.: Payment, distribution of
financial services)
Provides more accessible solutions
Digital onboarding, easier access
8
Malaysians have been banking online
But banking online ≠ digital banking
Source: Bank Negara Malaysia, Momentum Works insights
1 2 3
Focus of this report
Digital bank / Islamic digital bank:
29 applications, for up to 5 licences
(To be announced in Q1 2022)
Key
channel
i-Muamalat
Islamic Bank
Background and opportunity

9. © Momentum Works
Banks provide full suite services beyond deposits
Since 2018, non-finance, regional big tech players enter the fray
9
by Maybank2u
E-wallet
Transfer / card Credit card
Bank
Digital investment manager
Fintech
Paylater
Ecosystem tech
Large use case
owner
Credit card Digital broker
Non-bank
service providers
Pay Get credit Invest
Fund management1
E-wallet
Other-Pay
Pump petrol and Go
Paylater
E-wallet
E-wallet
*Non-exhaustive
2021, pilot
1. Non-bank financial institution (NBFI); Retirement funds (e.g.: KWSP, KWAP) and fund management (Amanah Saham Nasional Berhad - ASBN) accounts for ~83% of NBFI’s total assets as of H2 2019; Most NBFIs in Malaysia are
subjected to formal regulatory oversight as statutory bodies / institutions licensed and prudentially supervised by SC and Malaysia Co-operative Societies Commission 2. Refer duitnow.my for latest participating banks and
e-wallet Source: Bank Negara Malaysia, Momentum Works insights
How Malaysians...
Background and opportunity
by Details in pg. 16
Shared payment
infrastructure2
SME financing & investing
JV
Own

10. © Momentum Works
Background and opportunity
Malaysia: Dual banking system
Commercial bank & Islamic bank
10
Islamic bank
Commercial bank Islamic bank (complies with Sharia law)
Profit returned to depositors
Taxation cost
Payment of Zakat (charity)
Profit from borrowers
Key differences in
income statement
Interest is forbidden
Based on profit-loss sharing
arrangements
between depositor and
borrowers
Profit from interest
rate difference
Lend from depositor at
a rate, borrow to lender
(at higher rate)
Source: Bank Negara Malaysia, annual reports; Momentum Works insights

11. © Momentum Works
Started locally, expanded regional
200
150
100 250 300 350
50
Banks: Led by homegrown commercial players which have expanded regional
Backed with large branch network and asset base
11
Op.
income
in M’sia
(US$ B)
Branches in M’sia (#)
2.0
4.0
Malaysia’s banking system is made up of
26 commercial banks, 16 islamic banks,
1 international islamic banks and 11 investment
banks
On commercial banks there are:
1. Notable homegrown regional players
2. Local players
3. Regional players from outside with
smaller local presence
Median
Operating income vs branches
Large branch network,
total asset base and
income
6.0
Largest islamic bank
in MY
Source: Annual reports, Momentum Works analysis
Regional Local Relative size of total net asset
Background and opportunity
Median

12. © Momentum Works
Malaysia total number of bank branches reduced from
2055 in 2011 to 1,826 in 2020
Branches are the most expensive, the most difficult to
manage, and the most risk-intensive service channels
for the banks.
If the distribution of outlets is not reasonable enough,
it is huge burden to the bank.
- Senior bank executive
For banks, branches are expensive to operate
12
Large bank has been cutting on physical branches
whilst maintaining operating income growth
Prime area: High rental cost
Remote area: Higher servicing cost, lower revenue potential
2014 2017 2020
402 356 354
Total no. of
branches2
1. Constant exchange rate: 0.24 2. Retail branches + Investment bank branches
Source: Annual report; Bank Negara Malaysia; Association of Banks in Malaysia; Momentum Works analysis; Photo credit: The Edge Markets
3.6
4.3
5.2 Net operating income
(US$ B)1
Background and opportunity

13. © Momentum Works
13
45.5% population are banked
higher than SEA average’s 26%
Next priority: Tap into the next 40.9% underbanked or
existing banked but underserved segment:
45.5%
40.9%
13.6%
Unbanked
Do not use bank
Underbanked
Savings only
Banked
Savings, loan,
investment
Adult population
Bank inclusion (%)
Lack sufficient credit
history / income
Limited physical
access to bank branch
Lack education /
financial literacy
26%
24.5%
49.5%
Southeast Asia
average1
By 2015, all districts and 99% of sub-districts (mukim)
are served by bank branches and agent banks2
For consumers, banks are hard to access
Constrained by financial requirements and physical access
1. Based on 6 largest countries: Indonesia Thailand, Malaysia, Singapore, Vietnam, Philippines 2. Financial access point which provides minimum financial services of accepting deposit and facilitating withdrawal of funds,
include bank branches, mobile units of financial institutions, deposit and withdrawal electronic terminals and bank agents
Source: Bank Negara Malaysia; Google, Temasek, Bain & Company E-Conomy SEA; Momentum Works insights
Background and opportunity
Problem of access
Bank Negara Malaysia has been pushing for financial
inclusion:
Problem of physical access and is a lesser issue
77% population live in urban areas
Lack of income requirements and credit history is
86% of no income & low income
(< RM 1,000 / $240 monthly) are unbanked

14. © Momentum Works
Mobile banking grew ~ 13x of 2016,
reaching 20.2M subscribers in 2020.
Cash withdrawal from ATM, a proxy for
cash usage, which hovers around single
digit growth every year, recorded -11.8%
degrowth in 2020, as users switch to
contactless / digital payment options
under the covid-19 pandemic.
Recent years, banking activities moved mobile
Planting habit of mobile-as-a-payment-channel
14
2017 2018 2019 2020
ATM
Cash withdrawal3
Internet banking
Individual2
Mobile banking
Year-over-year growth of payment channels
by transaction value (%)
110.1
150%
100%
50%
0%
-50%
0.34
90.6
Mobile banking has been picking up since 2017
125% yoy growth recorded in 2020
1. MYR to USD exchange rate: 0.24 2. Exclude corporate 3. Exclude ATM payment transactions 4. Total internet banking transaction value (Individual + Corporate): $2.1B 5. Under Interbank GIRO (IBG)
Source: Bank Negara Malaysia; Momentum Works analysis
Generally free, to up
to RM 0.10 per
transaction5
Free, or up to RM 0.30
per transaction5
Background and opportunity
Transaction value
(2020, US$ B)1

15. © Momentum Works
7.1
Charge Card
2.5
In payment, E-money usage surged in 2019
Accompanied by increasing role of non-banks
15
Year-over-year growth of payment instruments
by transaction value (%)
2017 2018 2019 2020
Banks
Products from non-bank
e-money issuers
6
47
E-money issuers (#)
1. Payment instrument that contains monetary value that is paid in advance by user to e-money issuer; can be issued as card-based (e.g.: Prepaid card) and network-based which can be accessible via internet, mobile
phone, other devices (Bank Negara Malaysia) 2. MYR to USD exchange rate: 0.24
Credit Card
Debit Card
E-money1
30.8
14.28
E-money: Exponential growth in 2019
Transaction value
(2020, US$ B2
)
Growing role of non-banks
-25%
0%
50%
75%
Source: Bank Negara Malaysia; Momentum Works analysis
Background and opportunity

16. © Momentum Works
Background and opportunity
In 2019, strengthened interoperability between banks and non-banks
Game changer for users, players, merchants and industry
16
Bank
e-wallet
Non-bank
e-wallet
Bank account
Shared payment infrastructure
Real-time Retail Payments Platform (RPP)
Interoperable Credit Transfer Framework
(ICTF)
@TheMalaysianReserves
BNM’s ICTF framework (2019) enables seamless
transfer between bank and non-bank accounts
All customer accounts (bank and e-money) are
reachable via shared, interoperable network
Lay the ground for more seamless services1
1. Currently: DuitNow, DuitNowQR, more services like DuitNow Request, DuitNow AutoDebit, DuitNow Online banking have been progressively added in 2021 2. From bank’ internet / mobile banking accounts
3. Merchant Discount Rate / transaction fees depends on acquirer, most banks waive the fees (RM 0.00) 4. Single, unified QR code where merchant display for all e-wallet reduces large investment into merchant acquisition
5. Players can shift focus from trying to onboard more merchants to refining product services and experience Source: Bank Negara Malaysia, Paynet; Momentum Works analysis
Interoperable payment system serves multiple
purposes:
For users: Seamless experience drives
adoption of mobile payment;
Cheaper - FOC transfer through DuitNow2
For merchants: Consolidated statements for
easy consolidation, display only one QR code3
For e-wallet players: Expand network reach4
,
avoid duplication of resources
For industry: More levelled playing field;
Promote innovations at product level5
.
@RinggitPlus
Then:
Independent QR
Now: DuitNow QR
Single standardised QR
DuitNow
Instant transfer using
mobile number, NRIC,
business registration
number
SG TH
SG TH
ID
Counterparts in
neighbouring
countries:

17. Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.
17
3. Digital bank development

18. © Momentum Works
18
2021 2022
2020
2019
2018
2017
Pre-2017
Digital banking
policy Issues licensing
framework
Up to 5 licence
to be granted by 2022 Q1
BNM BNM
Issued policy document
on E-KYC
BNM
e-wallet Singapore
robo-advisor enters
Securities
Commission
introduced regulations on
Equity crowdfunding, P2P
E-wallet E-wallet
American
robo-advisor enters
Issued Interoperable Credit
Transfer Framework (ICTF)
BNM
1. Users can set up account without going to branches. 2. Founding year 3. Shared payment infrastructure that facilitates instant and seamless payments between bank accounts and e-money accounts. Two services are
currently offered: DuitNow (transfer fund using mobile phone, National Registration Identity Card, or business registration number) & DuitNow QR (national unified QR code) ; more services like DuitNow Request, DuitNow
AutoDebit, DuitNow Online banking have been progressively added in 2021 Source: Bank Negara Malaysia; Securities Commission; Fintech News; Momentum Works research
Supported by
Fintech policy and
infrastructure
Fintech
entry2
Bank
innovation
BNM
Progressive offering of
Real-time Retail Payments
Platform (RPP)3
Digital bank in Malaysia is a natural transition
Fintech development paved the way for regulatory, infrastructure and adoption readiness
E-KYC initiatives1
Lifestyle app
/ E-wallet
Banyak lagi akan datang...
Mortgage app
Digital platform for
auto financing
Digital bank development

19. © Momentum Works
Digital bank development
Digital banks bridge the gap between banks and fintech
Provide trusted, innovative solutions for underserved segments
19
Fintech Bank
Easier and faster access
Create account / log in through social media;
generally no / minimum income requirement
or commitment1
More personalised / agile services
Smaller ticket size e.g.: buy cosmetic,
sneakers
Less hassle / paperwork and processes
e.g.: credit scoring based on online activity
data, recent transactions
Credibility, stability and safety
Foolproof, trusted financial institutions
incl. to handle savings and deposits
Full range, integrated products and
services, i.e.: deposit, payment, loan,
installment, investment
Can account for larger ticket size items3
with access to CCRIS to view users’ credit
history4
- at times can provide lower
interest rates for loans
Digital bank combines stability and
governance of banks2
with fintech’s
speed, agility and easy access:
1. Cater for underserved customers who
lack credit history for traditional credit
underwriting or physical access to banks
2. Easier to justify for unit economics
Taps into massive online volume and rich
consumer data; lower operational and
labour cost structure of physical
branches
Digital bank: Banking services done wholly / almost wholly through electronic means
1. e.g.: credit card requires minimum annual income of RM 24,000, proof of income, employer letter of income and other documents. 2. Access to banking system and facilities: RENTAS, IBG, RPP- Duitnow, QR, CCRIS
database; Central bank liquidity facility. 3. Larger value loan / higher credit limit e.g.: credit limit up to 2x of salary, for users of monthly income RM3,000 or less 4. Central system storing info of credit history, can be
referenced by all banks to access credit risk Source: Bank Negara Malaysia; Momentum Works insights
Digital bank
From customer
perspective:

20. © Momentum Works
Digital bank development
“Trusted, respected
institution”
Lower cost
structure /
baggage
Can offer better
interest rate /
lower fees
Simple,
intuitive3
Flexible
offerings
e.g.:
micro-lending
Traditional bank vs Digital bank: More differences than just “digital”
Digital DNA & lack of legacy baggages provide more leeway for innovation
20
Online + offline support
Online: Internet & mobile banking
Offline: ATM, branch network
More selective with
customers - Generally higher
credit score, higher income
Access to
capital at
lower cost
Stability /
prudent risk
management1
Battle-tested
product
range
Larger value
e.g.: vehicle,
housing loans
Existing financial infrastructure, customer data
Less data monetisation
Conventional bank
Build personal
relationship,
customer service
“Banking the new way”
Online/mobile
More data points
Offline: Shared ATM network
Mass segment customers
Less selective (by income level),
can access those banks can’t serve
Speed
For customer
experience
& internal
operation
Integrated tech infrastructure eliminates silo, provide full visibility
Data monetisation using user activity data3
Digital bank
Marketing
through
digital
touchpoints
, agents etc.
Marketing
through
branches,
agents
Faster feedback
loop for
iterations
Lower customer
acquisition cost
Infrastructure
1. Customer trust: Do not need high interest rate to attract deposits 2. e.g.: Money management with different pockets for meal, saving for goals
3. Access customer digital data (e.g.: ecommerce activities) for alternative credit scoring and risk profiling Source: Momentum Works Insights
Financials, operations
Segment focus
Digital bank: Banks that run on different cost structure OR Internet companies that operate with banking licence?

21. © Momentum Works
Malaysia banking system: narrow interest rate margin
Smaller headroom for digital bank to disrupt through interest rate
21
30
20
10
0
In Brazil: High lending rate , large spread between
deposit and lending rates
… provide headroom for digital banks to provide
alternative solutions
(e.g.: offering higher deposit rate / lower lending rate
than conventional banks).
Malaysia has low spread between lending and
deposit rates, experienced further margin
compression in recent years
… as central bank adjusts policy rate / Overnight
Policy Rates to all-time low (1.75%) to drive economic
growth, coupled with intensifying competition for
deposits
Malaysia Indonesia Singapore Brazil
1. Overnight interest rate that applies to money lent between financial institutions, serves as the base for deposit and lending rate
Interest rate p.a. (%), as of Q1 2021
Deposit rate Central bank policy rate1
Lending rate Spread (lending minus dep. rate)
1.9%
5.13%
26.34%
5%
1.57 1.75 3.47 4.15 3.5 9.15 0.12 0.82 5.25 1.99 2.75 28.33
Malaysia: Lowest lending-deposit rate spread
Digital bank development
Digital bank to disrupt
Source: International Monetary Fund; Momentum Works insights & analysis

22. © Momentum Works
Potential areas digital banks can disrupt: interest income & fees, operating costs
22
2H 2017 2H 2020
Other income
Fee income
Trading and investment income
Net interest income
Credit cost
Operating cost
Malaysia banking system - Income and cost
10
5
0
5
Bank revenue areas:
1. Net interest income: Constitutes ⅔ of banks’ gross
income
2. Trading and investment income: e.g.: from the sale of
debt securities and fair value changes
3. Fees income, service charges, which consists of:
a. Commission on distribution of financial products
(e.g.: investment, insurance)
b. Service charges and fees (e.g.: account
management, insufficient funds transactions)
c. Underwriting fees: Income earned for placement
of customer debt / equity securities
d. Brokerage income: From transaction of equity
brokerage
US$ (B)1
66%
~13%
~16%
5%
~7%
~13%
~8%2
-14%
~102%3
~4%
1. MYR to USD exchange rate: 0.24 2. Increase in 2020 from equity brokerage and credit-related fees 3. Credit cost elevated since H1 2020 (+970.6% yoy growth from 2019) as banks build up provisions in anticipation of
higher credit losses and weaker economic fundamentals, expected to begin normalising in H2 2021 Source: Bank Negara Malaysia; Annual reports; Momentum Works analysis
Digital bank development

23. © Momentum Works
110 banks:
7 biggest banks
(BUKU IV) takes up
50% of market share
1st digital bank: 2016
Malaysia: Good fundamentals to support digital bank adoption
23
20-39
80+
Median age
29.4
29.5
Age distribution
43.9
77.2%
56.6%
100%
City pop.
33M
268M
6M
45%
23%
60%
14%
51%
Unbanked Banked
Underbanked
Bank inclusion
40.2%
84.2%
52.3%
90.0%
50.2%
73.7%
Internet
penetration
Banking
landscape
120 banks1
:
3 leading - DBS, UOB,
OCBC
:
4 digital bank licences
issued: 2020
Total
population
Decent population size, large young and city population, internet penetration and bank inclusion
54 banks incl.:
26 commercial banks
16 Islamic banks
1 International islamic
banks
11 investment banks
Internet
users
Have
purchased
consumer
goods online
1. Local + Wholesale + Full bank Source: World Bank; Hootsuite Digital 2021 reports; Momentum Works Industry Enablers in Southeast Asia report
26%
41%
40%
GDP per capita ≈ China
4th most populous country
in the world
GDP per capita ≈ US
MY
ID
SG
Digital bank development

24. Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.
24
4. Policies & regulations

25. © Momentum Works
Regional peers ahead in digital bank development
Offer learnings
25
Singapore
Indonesia
Malaysia
No specific digital bank licence, only a
guide for digital bank operation under
POJK No. 12; First digital bank has been
operating since 2016
9 have commenced operation1
;
5 in the pipeline
Focus:”Building and transforming digital
economy ecosystem & improving financial
inclusion”
Pending for announcement of successful
digital bank applicants
29 applicants , for up to 5 licences
To be announced in Q1 2022
Focus: “Financial inclusion, serving
underserved and hard-to-reach in a
sustainable manner”
Dec 2020 Q1 2022 TBD
July 2021
June 2019 Dec 2020 Early 2022
Dec 2019
- - Since 2016
-
Announced 4 successful applicants from
21 applicants, to commence operation
early 2022
2 Digital Full Banks
2 Digital Wholesale Banks
Focus: “Contribution to Singapore’s
financial centre (jobs, skills of local
workforce, capabilities (tech) ”
Announce
framework
Announce
successful
applicants
Commence
operations
Close
submission
Key digital bank milestones
1. As of Aug 2021 Source: Bank Negara Malaysia; Otoritas Jasa Keuangan; Monetary Authority of Singapore; Momentum Works insights
Policies and regulations
Population density
Low High

26. © Momentum Works
Three key elements underpinning Bank Negara
Malaysia (BNM)’s Licensing Framework where
applicants have to demonstrate:
1. Best interest of Malaysia: Proposed
commitment in underserved and
underserved segments
2. Shareholders collective contribution
(financial resources / business
experience);
Preference for controlling equity interest
held by Malaysians
3. Projected path to profitability &
sustainable business model
Similar to other countries, foundational phase
(with minimum capital requirements and asset
limit) is introduced to allow innovative players
to join the fray whilst ensuring financial
stability.
Foundational phase2
Operations with asset limit of RM3
Billion
Operations without asset
limit
Bank Negara Malaysia (BNM) is key regulatory body
Existing licensed banks can operate digital banking without additional digital bank licence
26
Application flow
Operational Readiness
Review
Independent external
assurance1
Potential
candidate
Applies
to
Recommends
to
Submitted to
Approval to commence
operation
After 3 to 5 years
1. Demonstrate viability
and sound operations;
2. Achieve committed
value proposition in
underserved segment
Obtain Independent external
review of feasibility of
business plan
Regulation requirements of
existing licensed banks /
licensed islamic banks apply3
Simplified regulation
requirements applied
1. Internal control and IT system are in place to support operations in sounds and prudence manner 2. Maintain at all time min. amount of capital funds of RM 100 M unimpaired by losses; Total size of assets do not at all
times exceed limit of Rm 3 Billion 3. Min amount of capital funds of Rm 300M unimpaired by losses Source: Bank Negara Malaysia
Licensed players undergo
pre-operation review
Policies and regulations

27. © Momentum Works
Malaysia Singapore
Licence Digital banking licencefor licensed digital banks
/ licensed Islamic digital bank
Digital Full Bank licence serve retail + non-retail
Digital Wholesale Bank licence serve SMEs and
non-retail
Value prop. “...uplift individual well-being and foster
sustainable growth… expand meaningful access
and responsible usage to underserved and
unserved segments, include retail and micro,
small and medium enterprises (MSMEs)”
“...serve customer needs, manage prudent and
sustainable digital banking business and
contribute to Singapore’s financial centre2
”
Eligibility Must: Commitment to drive financial inclusion Must: At least 1 entity has ≥ 3 years in tech /
ecommerce; Key person fit and proper
Local
commitment
Preferred: Controlling stake with Malaysians Must: Controlled by Singaporeans,
anchored and headquartered in Singapore
Roadmap &
Min. capital req.
Operations
Foundational phase (3-5 yrs) -> Full
Foundational phase: $24 M (RM 100 M)
Full: $72 M (RM 300 M)
Physical branches not allowed1
Access to shared ATM network
Can use agents for product distribution
Restricted function -> Progression -> Full
Restricted function: $11.1 M (SGD 15 M)
Full: $1,110 M (SGD 1500 M)
One branch allowed
Access to shared ATM / CDM network not
allowed3
Singapore makes experience in Tech /
ecommerce a requirement
… while Malaysia has strong focus on
commitment to underserved, applicants
need to demonstrate:
● Description of specific target
underserved segment
● Proposed financial products and
services tailored for the segment
● Meaningful share of business from
underserved / unserved segment
(even after foundational stage)
Malaysia: Lower capital requirement overall
( ~9% of Singapore’s)
27
BNM placed strong focus on commitment for underserved segments
Provide hints for successful contenders
96M
1,121M
72M
24M
1,110M
11.1M
1. Permitted to establish physical offices for administrative purpose / facilitate face-to-face customer complaints; but not allowed to establish branch (i.e.: a fixed place to facilitate customer transactions 2. Demonstrate
contribution to jobs, skills of local workforce, capabilities (tech) 3. Allow to offer cashback services through electronic fund transfer at point of sales (EFTPOS) terminal at retail merchant
Source: Bank Negara Malaysia; Monetary Authority of Singapore; Momentum Works Insights
Policies and regulations

28. © Momentum Works
Remote areas / older generation
Lower income household (e.g.: B40 -
bottom 40% of population by income)
Middle-age
(16% pop. between 50-69 y/o)
Familiarity with conventional (basic)
banking products2
Gig economy, informal sector
Startups / MSMEs in high growth
sectors with insufficient collateral
Younger generation, new spending
power (36% pop. between 20-39 y/o)
Frequent online users - use
ecommerce, food delivery
Need education (cost and time) to
convert
Provide physical, trilingual support
Sense of security & trust
“... that I will not send all my money away
by one wrong click”
Prefer / used to human interactions
Provide super simple interface to cater
for key functions
Ease of access: No collateral, minimum
documentation, simple procedure and
fast turnaround
Provide flexible solutions
(e.g.: micro-financing), build ecosystem
around core business needs
(e.g.: micro-saving, cash / fund
management)
All-digital: Used to interacting with
gadgets
Also hard to retain, easy to switch3
Have strong ties to use cases
(e.g.: ecommerce incentives)
Provide easy access: Minimum deposit
requirement; basic saving /
investment products
1. Based on Bank Negara Malaysia 2. e.g.: credit cards, debit cards, retirement funds, internet banking 3. Less sensitive about “fees” but more about rewards; likely switch or have multiple accounts for best timely deals
Source: Bank Negara Malaysia; Momentum Works insights
28
Global players focus area:
*Details in next report
Needs
/
opportunities
Profile Underserved segment consists of diverse groups
Different space for digital bank contenders to differentiate and disrupt
Policies and regulations

29. Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.
5. Malaysia digital bank contenders
29

30. © Momentum Works
User base with expenditure information
Access to deep and robust customer analytics
that can improve and expand access to financial services
Experience in digitalization
Application of transformative technology in the
development and delivery of financial services
Banking / finance sector expertise
Sharia expertise for Islamic digital banks
29 applications for up to 5 licences
30
Consortium: Bank Negara Malaysia looks for combination of financial resources and business experience
Applicants value proposition must be directed towards serving the underserved
17 consortia are publicly known
Many prefer not making big public
announcement...
Digital
Sea Group,
YTL Corp
Bank / finance
BigPay, MIDF,
Ikhlas Capital
Axiata Group,
RHB Banking Group
Financial / balance sheet strengths | Controlling equity - Malaysians
Robust risk management and compliance capabilities
Track record of operating in regulated environment
Source: Bank Negara Malaysia; Momentum Works insights
Selected players;
Illustrative
Digital bank contenders
Initially tech
now with digital bank licence
from Singapore
Grab, Singtel,
Malaysian investor
Aeon Credit,
Aeon Financial

31. © Momentum Works
Grab, Singtel
iFast,
Koperasi Angkatan Tentera
Malaysia, Yillion Fintech,
Key
expertise
(industry)
Infra. conglomerate1
,
Diversified tech2
Diversified tech4
,
Telecommunications
Banking,
Telecommunications /
payment
Finance, Payment,
Private equity fund
Diversified
conglomerate5
,
Lending, Banking
Wealth management,
Credit cooperative,
Investment, Fintech,
Speedmart chain
HQ + Singapore + Singapore Malaysia Malaysia +
Digital Bank
licence
Singapore - Full
(Sea)
Singapore - Full
(Grab & Singtel)
- - Singapore - Wholesale
(Linklogis6
)
China - Provides digital
banking tech for Yillion
Bank8
(Yillion Fintech)
Other
leverage /
Competitive
advantage
Large regional user base
from customer and
business and use case
owner - allow quick
monetisation
Strong partnership story
(Sea’s regional + YTL’s
local knowhow)
Financial strength - both
are public companies
Large regional user base
and use case owner
Digital expertise
Existing partnership in
securing Singapore’s
digital full bank licence
Strong story
User base from payment
(Boost), banking
Banking + Fintech
partnership
Backing from Airasia,
with recent active
digitalisation strategy
(Bigpay)
Local government
relationship
(Ikhlas Capital)
Potential to form local,
homegrown story
Local strength (Sunway -
diversified
conglomerate5
+ majority
shareholder of Credit
Bureau Malaysia)
Specialty in supply chain
finance, Tencent as
biggest shareholder
(Linklogis)
High brokerage exposure
(iFast)
Solid local connection
(99 Speedmart and
Koperasi Angkatan
Tentera Malaysia)
Tech and capabilities
(Yillion Tech)
Digital bank contenders
High potential contenders (amongst those who came out)
31
Note: Other potential contenders: Aeon Credit, Aeon Financial, Tech partner; Sarawak State Government, Kenanga IB, Revenue Group; Potential Islamic digital bank: Boustead Holding, ANGKASA, Independent insurance
brokerage company 1. e.g.: Utilities, O&M activities, cement manufacturing, construction, property development, hotels and resorts 2. Digital entertainment (Garena), ecommerce (Shopee), digital finance (SeaMoney)
3. The Edge Media Group Chairman; also owns 60% of Grabfin (with SME online moneylender licence in Malaysia), Grab Financial owns another 40% 4 Superapp (Delivery - food and express, mobility - ride hailing, financial
services) 5. e.g.: Real estate, construction, education, healthcare, malls, hospitality, leisure 6. Part of a consortium that was granted Singapore digital wholesale bank licence 7. Founder and major shareholder of 99
Speedmart chain 8. Digital bank by Zonfar Financial and Meituan Source: Fintech News; TheEdgeMarkets; company website, Industry practitioners’ interview; Momentum Works research & insights
Datuk Tong Kooi Ong3
SG
MY MY MY MY CN TH
SG
MY MY CN
SG
THZ Alliance,
Lee Thiam Wah7

32. Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.
6. Conclusion & perspectives
32

33. © Momentum Works
Perspectives
Conclusion / Perspectives
33
• Malaysia has one of the more advanced financial/banking systems in Southeast Asia, with higher banked population (45.5%) ,
lower interest spread and a dual conventional/Islamic setup. Yet there are still significant underserved communities in the
country.
• The 40.9% Malaysians have limited use of banking service represent very diverse groups. Serving these groups is the key
objective/requirement by Bank Negara Malaysia when granting the digital bank licences in Q1 2022.
• The advanced internet (84.2% penetration), mobile and digital economy (40.2% ecommerce penetration) infrastructure in
Malaysia make digital bank penetration possible. The shift to mobile is further accelerated by the covid-19 pandemic. The current
revenue / cost structure of banks offers room for disruption.
• However, success is not given. To start with, low deposit/lending interest spread is a challenge, not to mention Malaysian banks
ability to dominate traditional banking scene against strong foreign players.
• Amongst the 29 contenders (mostly in consortia) vying for up to 5 licences, there are tech players with large use cases,
successful bidders for Singapore’s digital bank licences, and strong local providers of non bank financial services.
• On successful contenders, potentially we will see large ecosystem players, together with more specialised players focusing on
specific segments (e.g.: SMEs, as well as Islamic banking).
• Compared to developed Singapore, Malaysia offers a better test ground for providing digital banking services across the region.
The lower (capital and other) requirements/restrictions will allow players to be innovative.

34. © Momentum Works
2016
34
2013
Licensed digital full bank
2014
2015
2015
2016
Operational
Early 2022
2015
2014
2016
20201
20201
2021
2021
2020
2017
Up next: Learnings from international players who came before us

35. © Momentum Works
About Momentum Works
A Singapore-headquartered venture outfit, Momentum Works builds, scales and manages tech ventures across the emerging world.
We also leverage our knowledge, community and experience to inform, connect and enable the tech/new economy ecosystem.
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Knowledge
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