Digital Bank vs Traditional Bank
Introduction
Ever since Bank Negara Malaysia (BNM) licensed 5 digital banks, advertisements related to it have been everywhere from screens inside LRT/MRTs to cars wrapped with GXBank’s details. Those behind the 5 digital banks that managed to get a license after 2 years of audit are Aeon Credit, Boost Holding, Sea Limited, KAF Investment Bank and GXS Bank Pte Ltd. GXBank led the way by launching their app back in November 2023 followed by Boost Bank and Aeon Bank recently.
A total of 78% of consumers prefer digital channels for banking transactions, highlighting the increasing demand for seamless digital experiences, according to a survey by Deloitte. Digital banks have revolutionized the banking experience by prioritizing customer-centricity and technological innovation. Moreover, research by McKinsey & Company indicates that digital banks’ Net Promoter Scores (NPS) are consistently higher than those of traditional banks, reflecting greater customer satisfaction.
Furthermore, data from J.D. Power’s Retail Banking Satisfaction Study shows that digital banks outperform traditional banks in key areas such as ease of navigation, account management, and problem resolution. This superior customer experience translates into higher customer retention rates and increased brand loyalty for digital banks. With all the advertising push, the hype for digital banks is rising with the expectation that it might replace traditional banks, so will it actually become reality?
Operating Hours and Accessibility
An aspect that is being advertised a lot about digital banking is their operating hours and accessibility. While traditional banks typically adhere to standard banking hours, often closing on weekends and public holidays, digital banks operate 24/7, allowing customers to conduct banking transactions at their convenience. This alone is a very huge advantage for digital banks.
Customers won’t need to plan their visit to the nearest branch at a specific time anymore. This has been proven challenging for those who do not have any branches nearby them and also for those with busy schedules. Since digital banks promote flexibility, it eliminates all those problems. Customers can access their accounts, make transactions, and seek assistance round the clock which enhances convenience and accessibility.
Moreover, the availability of digital banking services at any time and anywhere, resonates with modern consumers who value flexibility and efficiency in managing their finances. According to a survey by Ipsos, 62% of Malaysians cite convenience as the primary reason for using digital banking channels, underscoring the importance of accessibility in shaping customer preferences.
Due to the limited operating hours, it may cause annoyance and frustration among customers especially when emergencies occur or when there are urgent financial matters. By offering uninterrupted access to banking services, digital banks empower customers with greater control over their finances, reinforcing their appeal and competitive edge in the market.
Incentive
GXBank’s interest rate of 3% per annum, compounded daily, is something that is unheard of since it is notably higher than the rates typically offered by traditional savings accounts in Malaysia. According to data from PIDM, the average interest rate for traditional savings accounts hovers around 0.3% to 0.5% per annum. This means that GXBank’s offering exceeds traditional bank rates by a significant margin, providing Malaysian savers with the opportunity to earn substantially more on their savings.
With GXBank’s high-interest rate compounded daily, customers have the potential to maximize their savings and achieve greater financial growth over time. The compounding effect allows savings to grow at an accelerated pace, amplifying the benefits of the interest earned. This aligns with Malaysians’ financial goals of building robust savings for future needs, whether it be for emergencies, education, or retirement.
GXBank’s additional incentive of 1% unlimited cashback for every transaction further distinguishes it from traditional banking offerings. Cashback rewards are typically associated with credit cards, offering users a percentage of their spending back as a reward. However, GXBank extends this benefit to debit card users, allowing Malaysians to earn rewards on their everyday transactions without the need for a credit card. This innovative feature not only incentivizes spending but also encourages financial responsibility by rewarding customers for their regular purchases.
When comparing GXBank’s offerings with traditional banks, it becomes evident that the benefits provided significantly outweigh those of traditional savings accounts. Traditional banks typically offer lower interest rates and limited or no cashback rewards on transactions. Moreover, the convenience of digital banking, coupled with GXBank’s user-friendly mobile app and streamlined account opening process, further enhances its appeal compared to the cumbersome procedures and limited accessibility of traditional banks.
Financial Inclusion
In Malaysia, the push for financial inclusion has gained momentum in recent years, with digital banks playing a pivotal role in expanding access to banking services. According to data from Bank Negara Malaysia (BNM), approximately 8% of Malaysian adults remain unbanked, facing barriers such as limited documentation and geographic isolation. Digital banks, leveraging technology and alternative data sources, are poised to address these challenges and reach underserved populations.
For instance, Boost Bank, one of the newly licensed digital banks in Malaysia, targets the financially underserved segments by offering simplified account opening processes and innovative credit assessment methods. By analyzing transactional data and mobile phone usage patterns, Boost Bank can extend credit facilities to individuals with limited credit history, thereby fostering financial inclusion.
Moreover, initiatives such as the Malaysia Digital Economy Blueprint underscore the government’s commitment to promoting financial inclusion through digital innovation. These efforts aim to bridge the gap between traditional banking services and marginalized communities, empowering Malaysians with greater access to financial resources and opportunities.
Security and Trust
In Malaysia, maintaining trust and confidence in digital banking services is paramount to ensuring the stability and integrity of the financial system. With the rise of cyber threats and data breaches, consumers are increasingly concerned about the security of their personal and financial information. Digital banks in Malaysia recognize the importance of safeguarding customer data and have implemented robust security measures to mitigate such risks.
Bank Negara Malaysia (BNM) mandates stringent cybersecurity standards for financial institutions, including digital banks, to protect against unauthorized access and cyber attacks. Digital banks are required to comply with regulations such as the Risk Management in Technology (RMiT) framework and the Personal Data Protection Act (PDPA), which govern data security and privacy practices.
Furthermore, partnerships between digital banks and cybersecurity firms bolster the defense against emerging threats, with proactive monitoring and threat intelligence sharing. By prioritizing customer trust and transparency, digital banks in Malaysia aim to instill confidence in online banking services and foster a secure digital ecosystem for financial transactions.
Conclusion
The rise of digital banks heralds a new era of competition, innovation, and enhanced customer experiences in the banking industry. But as digital banking continues to evolve and expand its reach, one question looms: will traditional banks be able to adapt and compete, or will digital banks eventually become the dominant force in Malaysia’s financial landscape?
[Written By: Daniel, Edited By: Adryna Chin]
