Tag: malaysia

  • Are Malaysia’s digital banks in trouble?

    Are Malaysia’s digital banks in trouble?

    Malaysia decided to greenlight digital banks amid a wave of investor excitement and regulatory acquiescence in early 2020. Led by Hong Kong and Singapore, many East Asian economies sought to introduce more competition to their staid banking sectors. The backers of digital banks – venture capitalists, large tech firms, telecoms giants and even incumbent lenders –  convinced themselves that there was a significant opportunity to tap underserved markets.

    That was often – and still is – the case in countries like Indonesia, the Philippines and Vietnam. Malaysia, however, is a mature banking market. It has a comprehensive regulatory framework, high levels of financial inclusion, and is a global leader in Islamic finance. The sector is characterized by strong capitalization and high-quality assets. About 97% of Malaysians have a bank account. 

    The data point often used to argue in favor of digital banks in Malaysia comes from a Bain & Company research report. That report stated that 55% of Malaysians are underbanked, a vague term that can mean anything from lacking adequate credit access to not having enough features in a savings account. 

    Even if we take that data point at face value, persuading Malaysians to switch their primary bank accounts is a difficult task. That means most digital banks in the country are serving as secondary accounts. It is no surprise to see that lending growth is trailing deposit acquisition, and deposit market share itself is nothing to get excited about: less than 1% of the overall market. Malaysia’s online lenders are thus facing a “negative carry” situation, where high-interest deposit-gathering efforts are not being matched by quick revenue generation through loans. 

    One point frequently overlooked in the conversation about the market opportunity provided by underserved segments is that it can be a risky undertaking. If digital banks want to focus on those segments, scaling up lending can be tough due to high operational and credit risks associated with customers who cannot easily get loans from traditional banks. 

    Currently, Malaysia has three operational digital banks: GXBank (Grab), Boost Bank, and AEON Bank. Ryt Bank (the erstwhile SeaBank) and KAF Digital Bank are still in the pilot phase.

    Among these five, we find AEON to be one of the most promising given its status as the first Islamic digital bank. AEON combines Shariah-compliant principles with an established retail ecosystem. By leveraging the massive AEON Group’s customer base, credit data, and loyalty programs, it creates a unique, high-trust entry point for financial inclusion. 

    Grab’s GXBank has probably attracted the most attention among Malaysia’s digital lenders. While these are early days for Grab’s Malaysian digital bank, thus far it is losing money: It reported a pre-tax loss of approximately RM189 million for the nine-month period ending December 2024. While GXBank is leading Malaysia’s online lenders in deposits and assets, it is grappling with high initial setup costs, technology investments, and pricey customer acquisition. 

    Overall, as of the end of 2025, Malaysia’s licensed digital banks had total deposits of approximately RM4.2 billion (US$1.04 billion), serving roughly 2.4 million customers. While these figures represent rapid growth in customer adoption, the combined assets and deposits of Malaysia’s online lenders remain pithy as a percentage of the overall banking sector: just 1%. Malaysia’s online lenders have a long way to go before they are competitive with incumbents.

    We expect the online lenders’ profitability to be constrained in the short and medium term. Though they are attracting deposits with high interest rates, their growth is structurally limited (asset cap of RM3 billion per bank) by the Malaysian central bank during the “foundational phase,” their first three to five years of operation. Thereafter, depending on their business strategies, the profitability picture could gradually improve. 

  • Why is GXS Bank cutting 10% of its staff?

    Why is GXS Bank cutting 10% of its staff?

    One of the brightest ideas (or not) of Southeast Asia’s early 2020s tech bubble was centralizing every digital service imaginable in a single smartphone app, a barely veiled attempt to replicate the success that China’s dominant platform companies enjoyed with this business model. Unsurprisingly, the results have been inconclusive because China is a unique market and we are willing to bet that there will not be another Alipay or WeChat anywhere. 

    That’s a key reason that GXS Bank, the digital banking venture of Singapore-based erstwhile super app Grab (it doesn’t use that term so much anymore) and Singaporean telecoms giant Singtel faces a tough slog. How many people, ultimately, prefer to bank with the same company they use to book taxis and order pizza? Or their mobile phone service provider? Pure-play fintechs just seem more focused on, well, you know, financial services.

    There are other challenges that GXS Bank faces. Here are a few of them: high operating costs, low customer engagement (many accounts are inactive), intense competition from established banks with wider offerings, and the challenge of monetizing a saturated market in which most people already have bank accounts. GXS Bank faces pressure to scale, cut costs and move beyond basic savings to more profitable lending and investment products. Ultimately, GXS Bank must prove its viability against legacy banks that quickly match digital features.

    It is against that backdrop that the company recently slashed headcount by 10%. The decision to reduce headcount is part of the group’s transition from the early growth stages of building a bank to running the operations, GXS group chief executive Lai Pei-Si said in a note to staff. “The roles that are essential as we move forward and focus on running the bank may be different from our build phase,” said Lai.

    Lai said that after conducting a strategic review, GXS tried to “reshape” itself for a year and a half. She said that the digital lender has only backfilled vacated roles that it believes are essential for the group for the years ahead. It has also “regionalized” its core capabilities, such as data, product and technology, to “improve collaboration” and scale its product innovation across multiple markets. “However, the pace of organic reshaping has been slower than expected,” she said.

    A year ago, GXS Bank was still singing a triumphant tune. The company published a press release that emphasized it had 3 million customers across Southeast Asia, including Singapore (200,000 in the city-state), Malaysia and Indonesia. That sounds pretty good – until one considers that Indonesia has a population of 286 million and Malaysia 31.5 million. 2.8 million customers is less than 1% of the combined populations of those countries. 

    “We are well-positioned to grow our business and serve even more customers in the coming year. 2025 will be the year of significant scaling up for the digital banks in the GXS Group,” then Group CEO Muthukrishnan Ramaswami said. 

    Things have turned out a bit differently than that rosy prediction. Still, with Grab-Singtel’s deep pockets and Singaporean state backing, their digital banking ventures are in no danger of failing, even if Grab’s overall performance continues to disappoint investors. After all, this is a company whose stock price has fallen almost 60% since its Dec. 2021 market debut on the Nasdaq. 

    At some point, Grab will undoubtedly move from the red into the black, but will its digital banking subsidiaries live up to the hype surrounding them? In contrast to the Wall Street analysts cheerleading for Grab, we’re not so sure, especially when native digital competitors like Standard Chartered-backed Trust Bank seem to understand the banking business better.