Will 2023 be the year when the establishment of Islamic digital banks proliferates? The launch in Malaysia of two high profile Islamic digital banks over the last few weeks backed by major financial groups would seem to suggest so.
In reality digital banks, both in the conventional and Islamic banking sectors, remain a work in progress, albeit the former is much more advanced in terms of the number of banks, assets under management (AUM) and market depth. As such, claims of “reimaging 21st century banking” and the ‘uniqueness’ of each digital bank must be taken with a pinch of salt.
There is no doubt that the launch of Rize, “a first-of-its-kind digital bank with a profit rate”, by Al Rajhi Bank Malaysia (ARBM), the wholly-owned subsidiary of Al Rajhi Bank of Saudi Arabia, the largest Islamic bank in the world in terms of AUM, is poised to be the prime mover in a sector that is growing incrementally.
According to Arsalaan Ahmed, CEO of ARBM, “a year ago, we shared ARBM’s vision to build a customer-focused digital bank and our aspiration to become the #1 Islamic innovation bank in Malaysia. Today (1st December 2022), we are pleased to announce the launch of Al Rajhi Bank Malaysia’s digital bank—Rize.”
Instantly, a wide range of Rize services went live with more rolled out progressively, including deposits, withdrawals, and transfers; account and personal finance management; debit card application, purchase, and maintenance; ATM services and eStatements; and personal financing-I, a paper-less, hassle-free digital financing product that requires minimal documentation and no processing fee.
Ahmed also claims that Rize has introduced an exclusive feature in Malaysia that no other financial institution or fintech player offers: the Rize Savings Pot, which “is Malaysia’s only savings pot with a profit rate, allowing customers to earn while saving for their goals. The more they save the more they will earn.”
In contrast, another Islamic digital bank, ACS Digital Berhad (AEON Digital Bank), a subsidiary of AEON Credit Service (M) Berhad (the leading non-bank financial service in Malaysia) and part of the AEON Group Malaysia, appointed Raja Teh Maimunah in December as CEO to lead the group’s foray into digital banks.
“Our target customers are not only from AEON but also new ones, the unserved and underserved segments. I am excited to build and realise this Islamic digital bank in Malaysia, not just that we are providing a platform to serve the unbanked, providing business opportunities to vendor/suppliers, business partners but also creating job opportunities for local talents. I look forward to having a complete team soon and together we will serve the market by end of this year,” revealed Maimunah in a social media post.
AEON Digital Bank is launched following Bank Negara Malaysia’s (BNM) granting in April 2022 of five digital bank licences to qualified promoters as approved by the Malaysian Minister of Finance, of which two are for Islamic digital banks licensed under the Islamic Financial Services Act 2013 awarded to a consortium comprising AEON Financial Service Co, AEON Credit Service (M) Berhad and MoneyLion Inc; and another led by KAF Investment Bank.
At least two standalone Islamic banks — Bank Islam Malaysia and ARBM – were also in the process of setting up their own digital banks under their existing Islamic banking licences, to compete in the new and more competitive landscape. ARBM’s Rize is now operational and Bank Islam’s digital entity is expected to launch later this year.
According to Bank Negara Malaysia Governor Tan Sri Nor Shamsiah “digital banks are expected to further advance financial inclusion. By adopting digital technology more widely for everyday transactions, we can significantly increase opportunities for our society to participate in the economy – by overcoming geographical barriers, reducing transaction costs and promoting better financial management. Digital banks can help individuals and businesses gain better access to more personalised solutions backed by data analytics. As businesses move online, digital banking also provides a safer and a more convenient way to transact.”
In Pakistan, the State Bank of Pakistan (SBP) similarly issued no objection certificates in December to five applicants for establishing digital banks – Easy Paisa DB, Hugo Bank, KT Bank, Mashreq Bank UAE, and Raqami, sponsored by the Kuwait Investment Authority.
Last year, SBP introduced a Licensing and Regulatory Framework for Digital Banks in line with international best practices and decided to issue up to five digital bank licenses. The Framework was the first step towards introducing full-fledged digital banks in Pakistan, which are expected to provide all the banking services through digital means without any need for customers to visit bank branches physically.
“Going forward,” stressed the SBP, “each of these five applicants will incorporate a public limited company with the Securities and Exchange Commission of Pakistan. They will then approach SBP for In-Principle Approval for demonstrating operational readiness and for commencement of operations under the pilot phase. Subsequently, they will commercially launch their operations after obtaining SBP’s final approval.”
The SBP expects that after commencement of their operations, the digital banks will promote financial inclusion by providing affordable/cost effective digital financial services including credit access to unserved and underserved segments of the society.
Digital bank licences have also been awarded in Saudi Arabia, and there are Islamic digital bank platforms operating out of Kazakhstan, Germany and Indonesia.