Al Rajhi Bank Malaysia (ARBM), a subsidiary of Saudi Arabia’s Al Rajhi Bank, has teamed up with advisors and fintech partners to launch a standalone, purely digital business with its own tech stack.
The new organization, whose brand name has yet to be announced, will operate off ARBM’s existing banking license in Malaysia. Oliver Wyman has provided strategic advice, and GFT Group has matched it with third-party fintechs and service providers.
“The trend is clear,” said Ahmed Arsalaan, CEO of ARBM, who joined in 2021 after serving as CEO of HSBC Amanah’s business in Malaysia. “Banking must move from a closed-loop business model to a customer-first architecture, just as technology companies have done. It’s not just about new digital banks: incumbents will have to do this too. It’s not about the licensing, but how you work with partners to deliver for your customer.”
Bank within a bank
ARBM is emulating other incumbent banks that have created greenfield banking businesses separate from the parent’s culture, legacy systems, and processes.
For example, Standard Chartered backed Mox Bank as a virtual business in Hong Kong, removed from StanChart operations or management. In that instance, Mox won its own license under Hong Kong’s virtual-banking regulatory regime.
In ARBM’s case, the separation is not as explicit: the greenfield organization will need to rely on ARBM’s existing license. There remain some control functions that the digital version will have to accept.
But the digital bank is otherwise being treated as a separate organization as far as technology, business and branding go. Most radically, the new bank is being built on cloud, including its core banking system, and it will rely on embedding partners’ products and capabilities to service its clients.
Arsalaan says the digital business is in early tests and expects it to launch formally later this year, pending regulatory approval. This will target retail and small business customers by providing basic products such as savings and current accounts, financing, and payments, and build from there.
Antonio Camacho Hubner, head of business development for Southeast Asia and APAC head of banking at GFT, said this will give ARBM a head-start on competitors, be they virtual banks, incumbents, or e-wallet providers.
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“In Malaysia, bank digitization has been limited to payments,” Camacho Hubner said. That includes leading wallet providers, such as Boost and BigPay (owned respectively by telco Axiata and AirAsia).
The central bank, Bank Negara, is expected to award up to five digital-banking licenses by summer. But it will then take these groups another six to 12 months to get up and running.
“We plan on launching our digital bank well in advance of any of these competitors going live,” Camacho Hubner said.
The bank is also developing a marketplace that will embed partner products and services for bank customers. Creating this ecosystem will enable the digital bank to serve products such as takaful (Islamic insurance) and wealth management, as well as potential lifestyle services, such as travel.
From Arsalaan’s comments, this appears to be an attempt to use open-banking norms to bring services to ARBM customers, rather than to embed ARBM services invisibly in third-party apps.
ARBM’s Saudi parent is the largest Islamic bank in the world in terms of net income. It has been operating in Malaysia for 15 years. Its corporate bank is active in Malaysia, but its retail business has been a flop, leaving ARBM as Malaysia’s smallest commercial bank.
The parent, therefore, sees it has little to lose and much to gain by pivoting ARBM into a digital bank, and it hired Arsalaan to drive the change. He in turn brought in Oliver Wyman for strategic advice, and GFT Group to help select ecosystem partners.
Camacho Hubner said, “Software-as-a-Service is still new for banks, and Al Rahji needed experts to help them analyze what’s the best fit.”
The new brand will focus on mass and mass-affluent retail and small businesses. The traditional retail business will be refocused on high-net worth wealth management, while the corporate business will also target larger clients. The new digital version aims to grow the current retail customer numbers from 100,000 to 500,000 within five years, via organic growth.
Embedded finance is critical to achieving this. Oliver Wyman and GFT have brought in about 15 technology partners, some of which are still negotiating contracts.
The essential ones to get started are AWS, for cloud architecture, and Thought Machine, for its cloud-based core banking system. Other partners include Feedzai, which uses artificial intelligence to detect fraud, and MoneyThor for data analytics to personalize services.
The bank is relying on local firms for marketing and customer insights.