Financial technology (fintech) industry players are optimistic that Malaysia will be able to kick off its virtual banking revolution and set up its first neo or virtual bank in the third quarter of 2020 at the soonest. This followed Bank Negara Malaysia's (BNM) recent announcement on the release of virtual banking licence requirements by year-end.

Asked whether it is timely for BNM to roll out the requirements by year-end, the association agreed with the move as Malaysia needed to step up the pace to catch up with Europe, the United States (US), Australia, and even Hong Kong, which allowed neo banks to be established in their respective jurisdictions.

"In addition, with Malaysia's leading role in the Islamic finance industry, particularly the regulatory maturity in the sector, the country is primed to have the first virtual Islamic bank by next year, as it has the best talents, experiences and resources," the association stated.

Touching on the future of traditional banks in the face to rapid technology innovation and change, FAOM believed that in order to survive, traditional banks must firstly, shift their corporate mindset towards being more open for collaboration to facilitate mutual and viable partnership with fintech firms.

"Secondly, traditional banks need to re-calibrate their existing technology in order to manage the legacy issues, as this is one of the biggest stumbling blocks for better technology adoption.

"And thirdly, they need to change their business model to be agile, mobile-centric and modular to accommodate the fast-changing technology advancement and innovation," the association said, adding that the two virtual banks recently approved in Hong Kong were strong evidence that collaboration between traditional banks and fintech players could occur.

Meanwhile, Frost and Sullivan Malaysia managing director and Asia-Pacific senior vice-president Hazmi Yusof believed that virtual banking would not disrupt the traditional banking sector as it would be the first to adopt the digital-only banking technology due to the market confidence backed by support from the authorities.

"It won't be easy for the virtual newcomers, as they have to come in and provide better customer experience and offer more value-added services, but their main target would be the tech-savvy millennial who will use their banking services on top of social and lifestyle platforms," he said.

"Multinational corporations (MNC)s and small and medium enterprises would look at this favourably, especially if virtual banking will drive down costs, such as on foreign exchange dealings, and subsequently, will have a spillover effect on the global supply chain," he said.

Looking at concerns over cybersecurity, data privacy and the readiness of the banking industry for all-digital banks, FAOM said BNM's announcement on allowing virtual banking would spur industry players to greater efforts to meet the requirements of this new segment.

"This will be the catalyst for better Internet speed and improving capabilities on managing risks related to cyber-security and data-privacy for key stakeholders such as customers, regulators, service providers and investors to embrace digital banking.

"It will not be an overnight paradigm shift for Malaysia to launch digital banking, but more of a structured transition from what we have today to a hybrid service and eventually, a fully-digital offering which will happen within three to five years," it added.

"There will still be cases but I believe with a proper framework and enforcement, security concerns will be manageable," he said.