How Digital Banking Licences Can Boost Your Business

According to analysts, the issuing of digital banking licences by the first quarter of 2022 will significantly boost small businesses and entrepreneurs in the bottom 40 (B40).

 

Digital banking paves the way for microfinancing

According to economists Carmelo Ferlito and Geoffrey Williams, digital bank licences will allow corporations to facilitate microfinancing, which involves smaller loans with fewer constraints than regular bank loans.

Though the usual suspects such as banks, state governments, and cooperatives have bid for the licences, there are also new participants such as software businesses and, more interestingly, e-commerce operators.

According to Williams, a professor at the Malaysian University of Science and Technology, Micro SMEs, which account for 98% of all enterprises in Malaysia, will profit from easier access to financing.

He explained that access to small, low-cost finance facilities could help SMEs better manage and upscale. It could also help new startups get off the ground with funds to purchase startup stock, inventory, or equipment.

When it comes to elevating impoverished communities, Ferlito, the Center for Market Education director, believes microfinancing is superior to government help.

He said that aid promotes financial and political dependency. It does not foster an entrepreneurial mindset or encourage entrepreneurship.

 

A new beginning

According to Sonia Kumari Selvarajan of Universiti Malaya, the advent of new players into the banking market, such as e-commerce platforms, can help micro SMEs, particularly those run by youth or women, who are often cash-strapped.

She claims that the benefit of digital banks is that more individuals would be able to get loans. Unlike traditional banks, which reject many loan applicants, digital banks employ alternative credit scoring mechanisms that use valuable data.

She explains that digital banking will also make banking easy for small businesses since transactions, processes, engagements, and experiences will be simplified with user-friendly mobile apps, eliminating the need for people to spend more time visiting a branch and filling out forms.

She said that e-commerce platforms like Shopee, Lazada, and others already provide a platform for small enterprises and MSMEs to sell their products to the general public while also generating revenue.

Digital bank licences will allow corporations to facilitate microfinancing, which involves smaller loans with fewer constraints than regular bank loans.

The importance of inclusive financial initiatives

According to Sonia, when combined with digital banking, e-commerce can alter financial inclusion in Malaysia, meeting the needs of the unserved and underserved segments.

She went on to say that as millions of MSMEs are currently actively transacting on platforms like Shopee and leaving digital financial footprints, these platforms will be able to cut through traditional credit assessment red tape when assessing repayment capabilities.

She believes that having more inclusive financial initiatives is vital to reducing poverty and building greater equity and opportunity.

It allows people from disadvantaged segments to generate cash for themselves and enables their developing enterprises to create job opportunities for others in their areas.

Sonia said that digital banking licence applicants must demonstrate their potential to boost MSMEs through digitalisation and have experience in the e-commerce or technology industries.

 

It is not a novel concept for e-commerce businesses to enter the digital banking industry. Shopee's parent firm, Sea Limited, provides digital banking services in Singapore, and other companies such as Walmart, Alibaba, and Rakuten have also entered the fintech space.

 

Source: Free Malaysia Today