Key takeaways from “Diving into the new financial landscape” by See Wai Hun, CEO of JurisTech
Partnering with Taylor’s University in bringing the industry to classrooms, our visionary CEO, See Wai Hun was invited to speak virtually to more than 100 students on 21 March 2021. She showed the audience a glimpse of the new financial landscape we are moving into, especially the increasing emergence of digital banks.
Awaiting Bank Negara’s announcement to issue licences to digital banks, it was exciting to hear the ins and outs of digital banks from Wai Hun. From this informative session, there were 3 vivid key takeaways – the purpose, mindset, and sustainability of a digital bank.
1. Purpose of a Digital Bank
The purpose of a digital bank is to speed up and enhance the process of customer interaction with the banks. It’s a moving banking service beyond just online banking! You see, online banking only deals with the “core” aspects of banking. For example, being able to virtually monitor your account or manage your essential transactions and finances seamlessly 24/7. Yet, it is still somewhat limited. On the other hand, digital banks can offer banking activities online that were historically only available at a bank branch. In fact, they go much deeper, digitising every program and activity including re-engineering a bank’s internal systems. According to Wai Hun, digital banking is an ecosystem that it’s more than banking which of course requires new ways of thinking and doing business.
With new change comes new opportunities. The innovative approaches, products and services of a digital bank can provide Malaysians many benefits such as encouraging financial inclusion serving the unserved and underserved markets. This will be able to uplift the financial well-being of individuals and businesses and foster sustainable growth. Digital banks in Malaysia are mandated to democratise finance to make it more accessible to everyone regardless of the consumers’ standard of living, income or geographic location. You can read the digital banking framework, published by Bank Negara Malaysia (BNM) on December 31, 2020. Currently, BNM is still accepting licence applications and is working on issuing up to 5 digital banking licences in 2022. There are more than 40 parties expressing their interest to apply for a licence (refer to Figure 1).
2. Mindset of a Digital Bank
Secondly, the mindset of a digital bank. It’s the mindset digital banks have that spark this evolution of banking. Digital banking is an ecosystem that is more than banking. Wai Hun mentioned how she would tell people who are interested in operating a digital bank, – “Don’t think like a banker. Instead, think like a retailer.” She explained that banks usually carry a very product-led mindset whereas digital banks are customer-driven, and it is crucial that they are customer-centric. Why so?
According to PwC, one out of 3 customers would stop doing business with a brand they loved after one bad experience. Moreover, PwC also stated 73% of customers point to experience as an important factor in their purchasing decisions, behind the price and product quality. Lastly, Accenture also stated that 89% of banks surveyed see customer-facing ecosystems as the main driver of future value creation in the banking industry. This just shows us the rapid transformation of customer behaviour and engagements, and digital banks are very well aware of this fact! With new digital platforms and business models in the market, digital consumers are looking for more than just a superior digital-channel experience.
Furthermore, digital banks need to think and breathe “Agile”. In order to be agile, technology comes into play. Technology is there to act as the backbone for digital banks to achieve and support their goals. For instance, you cannot change a bank’s business model by renovating just the facade. The lack of technological capability to adapt to agility will hinder the creation of new innovative processes. Hence, the importance of being agile and fast. In addition, the lack of technological capability will only create missed opportunities. For example, the inability to be agile might just cost digital banks the opportunity to open new markets for products and services, create new customer journeys, monetise internal capabilities, and outsource critical processes. Just look at tech giants close to us such as Grab or Foodpanda. Riding on the pandemic, they found new ways to monetise and scale. With increasing news of lockdowns and the number of COVID-19 cases rising, you can also see the surge of new features and services from their apps in bringing convenience to their customers in such a short period of time. Their reach to such a mass audience, in providing end-to-end services, would require strong tech integration and capabilities. This is the same case for digital banks.
3. Sustainability of a Digital Bank
Lastly, the importance of sustainability of a digital bank. Wai Hun believes that most digital banks have an unclear roadmap to a profitable business. This is indeed quite alarming. Why are they not making money? One reason that Wai Hun spoke about was that most digital banks are solely focusing on the lifestyle of a customer, which would only allow them to earn a very small amount. For example, a customer spends RM20 on a cup of coffee using digital bank services. Let’s say a digital bank earns 10% from the customer’s transaction, they would only earn RM2. Traditional banks on the other hand are very still focused on their products like mortgages. A mortgage would usually amount to at least RM500,000 as compared to a cup of coffee of RM20. How much would a traditional bank make from a mortgage? Let’s say they charged the customer a small amount of 4% interest. At the end of its 20-year tenure, these traditional banks would probably earn back a 100% rate from the customer’s RM500,000 loan. Then the big question would be, how long would it take a digital bank to earn the same amount that a traditional bank would from daily transactions, travel insurance payment, etc?
Using Revolut as an example. Revolut delivers exceptional customer experience capturing a new generation of users and makes more than 100 million transactions a month. From BusinessofApps, we can see their number of users growing, as well as their revenue. However, as they grow in size, so are their losses.
Source: BusinessofApps (Revolut)
If your customer acquisition cost exceeds your revenue, it means that the more customers you acquire, the more money you lose. Likewise, Monzo is also facing the same issue.
Source: BusinessofApps (Monzo)
However, among the digital banks in the UK, only one digital bank managed to break even! Starling Bank, launching in mid-2017, after Revolut in 2015, and Monzo in early 2016, became the first UK challenger bank to make a profit.
Starling Bank founder, Anne Boden had a 30-year career as a banker and she strongly believes in achieving sustainable growth since day one. In terms of growth rate in daily transactions, they are much slower compared to Revolut and Monzo. Only at the end of December 2020 did they manage to pass an opening of 2 million accounts, with 300,000 business accounts among them. According to CityA.M., Starling has the most diversified revenue stream as compared to Monzo and Revolut with just 45% of its revenues coming from card transaction fees according to its last update. Wai Hun also highlighted how Starling Bank offers Banking-as-a-Service where it involves licencing its technology to other firms or SMEs and this definitely helps them to be more profitable. It supports everything they do – retail banking, business banking, payments services, and their marketplace.
“With nearly 1.8 million accounts, £4 billion in deposits and £1.5 billion of lending, we hit break-even in October and fully expect to be monthly profitable from here onwards on an operating profit basis.” – Anne Boden, Founder and CEO of Starling Bank (Starling Bank, Nov 2020)
If a business is sustainable, then you’re creating real value. – See Wai Hun.
These are the top 3 key takeaways from the talk Wai Hun gave to Taylor’s University. It was really interesting and insightful to hear her opinions as a digital bank enabler.
Digital banks are the game changers in the financial landscape, they are able to drive financial, social, and economic change. With digital banks, we are able to move beyond banking and make our dream of achieving financial inclusion a reality.
Interested to know how to run a digital bank seamlessly? Check out our end-to-end digital banking platform, Juris Spectrum that covers everything from digital engagement, to lending and deposits, to digital collections, and artificial intelligence.
Drop us an email at email@example.com.
JurisTech (Juris Technologies) is a leading Malaysian-based fintech company, specialising in enterprise-class software solutions for banks, financial institutions, and telecommunications companies in Malaysia, Southeast Asia, and beyond.