According to the 2023 RinggitPlus Malaysian Financial Literacy Survey, 71% of the respondents said they could only save RM500 or less each month, while 67% stated their emergency savings could only last them three months or less.

Despite being cash-strapped, Malaysian households continued to allocate 60.7% of their income to consumption expenses in 2022, the Khazanah Research Institute points out in its report The Financialization of Our Lives: Values and Trade-offs, highlighting a shift towards spending rather than saving.

The report also said that more than half (55%) of Malaysians spend exactly or more than what they earn each month, effectively living paycheque to paycheque. This combination of low saving rate and insufficient emergency funds underscores the urgent need for improved financial literacy and education across the country.

With the recent launch of digital banks, which promise greater accessibility and financial inclusion, there is hope to foster better saving habits among the public, particularly the underserved.

Beyond the bottom 40% income earners (B40) and micro, small and medium enterprises (MSMEs), the digital banks should also consider other underserved communities such as the immigrants, refugees and unbanked. While these groups represent a smaller percentage of the population, they should not be overlooked.

The first step toward financial inclusion for digital banks should be reducing the requirements for proof of identification for access to their services. It should be noted that providing education and reaching out to underserved communities are key to achieving true financial inclusion in the country.

“I can see the value of not having to go to a physical bank for communities who live far away or are hard to serve outside of urban areas. But if the digital banks really want to be different from traditional banks, they need to actually do things that make sense for these communities. Fewer identification requirements and less paperwork would be an example of these,” says Melati.

In addition to promoting financial inclusion, digital banks face the challenge of balancing their social mission with the need to remain profitable. In their applications to the central bank, they are required to maintain minimum capital funds of RM100 million and be unimpaired by losses for the first three to five years, also known as the foundational phase. After this period, the required capital is increased to RM300 million.

Applicants for the digital bank licence had to provide comprehensive details on their deployment of technology as well as address cybersecurity issues and IT governance. During the foundational phase, a cap of RM3 billion is placed on the asset size of digital banks.

Ultimately, digital banks will need to generate sufficient revenue streams, such as through lending products or transaction fees, without compromising on their commitment to inclusivity, say industry players.

Boost Bank chief technology officer Steven Gan is cognisant of the challenge. He stresses that the bank is working to break down barriers to allow users who don’t even have a traditional bank account to open a digital bank savings account.

Gan says that on a recent work trip to Kuala Terengganu, he came across many potential users who were unfamiliar with digital banking and had limited financial resources.

“When we did on-the-ground interviews at Mydin Bukit Mertajam, of the 500 users who came in, 97% said they did not have RM2,000 on hand to begin with. We want to stitch together the ecosystem and get the right momentum of saving and spending behaviour for these underserved customers,” he adds.