Bank Negara Malaysia (BNM), the financial regulator of the country just released it's first framework for digital banks on 27th December. Digital banks are new to this region but not to the world. They have been established in the US, Europe, parts of Africa, and Hong Kong. In South East Asia, Singapore is probably the only one to issue the framework this June.

It's worth mentioning that the modus operandi of regulators is to release frameworks before enforcing something - in this case the digital license. This is to allow businesses, usually banks, to feedback short-comings to the regulators. BNM only aims to issue 5 digital banking licenses in the first half of 2020.

@unsplash - KL's skyline

No one has time to read through the 19 page framework. So here's the breakdown.

1. Digital banks cannot have physical branches. They must however, maintain a registered office for communications with BNM.
2. Digital banks can have access to ATMs and PayNet services. PayNet is a subsidiary of BNM that facilitate transactions like DirectDebit, JomPay, FPX and interbank GIRO. These terms may sound the same because they all transfer money from one person to another, but the names differ in how the transfer is done.
3. Digital banks need to submit a five year business plan to BNM. Their approved total asset size should not exceed RM 2 bil in the early stages. By comparison, Maybank and CIMB's total asset sizes are RM 765 bil and RM 514 bil respectively.
4. Digital banks need to submit an exit plan in case of a business closure. This is by far the most liberal framework in that BNM allows for experimental business models with the condition that digital banks are prepared to fail while guaranteeing customers get their money back.

Digital banks are a good move. While big banks are shrinking their branch headcounts and trying to move their customers online - it may not happen as fast as digital banks can enable them. Digital banks however, need to provide the whole suite of services from managing physical cheques, signing loans, and accept cash transactions before they can convince people to fully go digital.