Topic 4 - Commercial Banking Transformation PDF

Leading Future Minds PROF MADYA DR MOHD FAIZAL BASRI, 2024  TOPIC 4: COMMERCIAL BANKING TRANSFORMATION PROF MADYA DR MOHD FAIZAL BASRI, 2024  Contents Overview of commercial banking...

Leading Future Minds PROF MADYA DR MOHD FAIZAL BASRI, 2024  TOPIC 4: COMMERCIAL BANKING TRANSFORMATION PROF MADYA DR MOHD FAIZAL BASRI, 2024  Contents Overview of commercial banking The impact of FinTech on commercial banking Transformations in commercial banking Technological advancements driving change The future of commercial banking 3 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Overview of Commercial Banking 4 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Overview of Commercial Banking Definition and scope: Deposit-Taking: Commercial banks accept deposits from individuals, businesses, and institutions, providing a secure place for saving money. These deposits form the core of the bank's operational capital, enabling lending and investments. Lending / Financing: Banks extend loans to individuals (personal loans, mortgages) and businesses (working capital, project financing). Loans are a primary revenue source for banks, driven by interest income. 5 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Overview of Commercial Banking Financial Products: Includes services like credit cards, savings accounts, investment accounts, and foreign exchange facilities. Commercial banks provide tailored financial solutions to meet diverse customer needs. 6 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Overview of Commercial Banking Key features: Accessibility for businesses and individuals. Commercial banks cater to both individual consumers and businesses, ensuring universal financial inclusion. Online platforms (e.g., Maybank2U, HSBCnet) enhance accessibility with 24/7 banking services. Central role in financial intermediation. Acts as a bridge between depositors (savers) and borrowers. Facilitates efficient allocation of financial resources within the economy.. 7 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Overview of Commercial Banking Key features: Accessibility for businesses and individuals. Commercial banks cater to both individual consumers and businesses, ensuring universal financial inclusion. Online platforms (e.g., Maybank2U, HSBCnet) enhance accessibility with 24/7 banking services. Central role in financial intermediation. Acts as a bridge between depositors (savers) and borrowers. Facilitates efficient allocation of financial resources within the economy.. 8 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Overview of Commercial Banking Examples of Key Players Global Banks: JPMorgan Chase: Known for its diversified banking services, strong digital banking capabilities, and innovation in financial technology. HSBC: A leader in global banking with significant investments in digital banking initiatives. Malaysian Banks: Maybank: Dominates the Malaysian banking landscape with cutting-edge digital solutions like Maybank2U. CIMB: Offers extensive regional coverage and innovative products such as CIMB Clicks. Public Bank: Renowned for its customer service and consistent performance in traditional banking. 9 PROF MADYA DR MOHD FAIZAL BASRI, 2024  The Impact of FinTech on Commercial Banking 10 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Major Transformations in Commercial Banking Transformation Drivers: 1.Digitalisation: 1. Use of AI, blockchain, and mobile platforms to deliver efficient and secure services. 2. Shift towards online and mobile-first banking. 2.Changing Customer Expectations: 1. Rising demand for 24/7 services, cashless payments, and personalised banking. 2. Enhanced convenience for customers with mobile apps and websites. 3.Regulatory Evolution: 1. Adaptation to global and regional regulatory changes such as open banking and fintech licensing frameworks. Impact: Enhanced convenience, accessibility and efficiency. 11 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Rise of Digital-Only Banks Key features: Branchless operations Fully online presence, eliminating the need for physical branches. Accessibility via mobile apps and websites, offering 24/7 banking services. Lower fees Reduced operational costs allow competitive pricing and higher interest rates on savings. Example: GXS Bank provides micro-savings accounts with no monthly fees. Faster transactions Real-time payments, streamlined loan approvals, and instant account setup. 12 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Rise of Digital-Only Banks Impact: Shifting Customer Preferences: Convenience and user-centric services are driving customers to adopt digital-only banking platforms. Younger demographics, especially Millennials and Gen Z, prefer app-based banking experiences. Inclusion of Underserved Communities: Rural populations and small businesses gain access to financial services previously out of reach. Digital banks offer tailored products for micro-lending, savings, and payment solutions. Increased Competition: Traditional banks face pressure to innovate, improve digital services, and reduce costs. 13 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Malaysian Digital Banking In 2022, Bank Negara Malaysia (BNM) announced the five successful applicants for the digital bank licences as approved by the Minister of Finance Malaysia. Objective: Enhance financial inclusion and promote innovation in banking services. Also aims to bridge gaps in access to banking for underserved communities, including rural areas and low-income segments. The following applicants are to be licensed under the Financial Services Act 2013 (FSA): a consortium of Boost Holdings Sdn. Bhd. and RHB Bank Berhad; a consortium led by GXS Bank Pte. Ltd. and Kuok Brothers Sdn. Bhd; and a consortium led by Sea Limited and YTL Digital Capital Sdn Bhd. 14 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Malaysian Digital Banking The following applicants are to be licensed under the Islamic Financial Services Act 2013 (IFSA): a consortium of AEON Financial Service Co., Ltd., AEON Credit Service (M) Berhad and MoneyLion Inc.; and a consortium led by KAF Investment Bank Sdn. Bhd. Three out of the five consortiums are majority-owned by Malaysians namely Boost Holdings and RHB Bank Berhad, Sea Limited and YTL Digital Capital Sdn. Bhd. and KAF Investment Bank Sdn. Bhd. Of the five, GX Bank Bhd (GXBank) was the first to officially launch in November 2023, while AEON Bank became the second in May 2024 as Malaysia’s first Islamic digital bank. Boost Bank was the third when it launched to the public in June 2024. 15 PROF MADYA DR MOHD FAIZAL BASRI, 2024  16 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Open Banking and API Integration What is Open Banking? Open banking refers to the practice of allowing third-party service providers to access customer banking data through Application Programming Interfaces (APIs), with customer consent. It promotes transparency, innovation, and competition in the financial sector by enabling seamless integration between banks and fintech companies. 17 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Open Banking and API Integration Global Perspective PSD2 in Europe: The Revised Payment Services Directive (PSD2) mandates banks to open up their APIs to third-party providers. Encourages the development of innovative financial products by fintech firms. Example: Payment aggregators like Plaid and Yolt utilise open banking to offer consolidated account views for customers. Impact: Greater customer control over data and the rise of personalised financial services. 18 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Open Banking and API Integration Malaysian Context Bank Negara Malaysia’s Financial Sector Blueprint 2022-2026: Outlines a clear vision for adopting open banking frameworks to drive financial innovation. Focuses on fostering collaboration between traditional banks and fintech players. DuitNow QR Ecosystem: Developed as a standardised QR code platform for interoperability across banks and eWallets. Examples: Seamless integration of DuitNow QR into apps like Maybank2U and Touch ‘n Go eWallet. Impact: Simplifies payment processes for businesses and consumers. 19 PROF MADYA DR MOHD FAIZAL BASRI, 2024  FinTech as a Competitive Force FinTech companies offering alternative banking solutions. Scope: Includes payment systems, lending platforms, digital banking, and investment management. Focuses on accessibility, efficiency, and customer-centric services. Banks competing and collaborating to remain relevant. Global: JPMorgan collaborating with fintech firms for innovation. Malaysia: BigPay and Touch 'n Go reshaping payments and micro-financing. CIMB collaborating with FinTechs to enhance eWallet offerings. 20 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Regulatory Adjustments Overview of Regulatory Adjustments Regulatory adjustments aim to ensure financial stability, enhance consumer protection, and foster innovation in the evolving financial landscape. These changes are crucial for adapting to technological advancements, growing digital ecosystems, and increasing cyber threats. 21 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Regulatory Adjustments Global Perspective 1.General Data Protection Regulation (GDPR): Enforced in Europe to safeguard customer data and privacy. Key aspects: Transparency in data usage. Heavy penalties for non-compliance, encouraging banks to prioritise data security. Impact: Banks had to overhaul their data management systems to comply with GDPR standards. 22 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Regulatory Adjustments 2. Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT): Enforced globally to prevent financial systems from being exploited for illicit activities. Requires robust monitoring systems, transaction tracking, and customer due diligence. 3. Cross-Border Framework Challenges: Multinational banks face difficulties in aligning with varying regulatory standards across regions. Example: U.S. FATCA (Foreign Account Tax Compliance Act) impacts global banking operations. 23 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Regulatory Adjustments Malaysian Perspective 1.Payment System Act 2022: Introduced by Bank Negara Malaysia (BNM) to regulate digital payment providers. Focuses on ensuring the security and reliability of electronic payment systems. Encourages competition among service providers while maintaining strict compliance standards. 24 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Regulatory Adjustments 2. Consumer Protection and Cybersecurity: Strong focus on protecting customer data amidst the rise of digital banking. Malaysian Personal Data Protection Act (PDPA) complements these efforts by enforcing data privacy laws. 25 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Regulatory Adjustments 3. eKYC (Electronic Know-Your-Customer): Implemented in April 2024 to streamline customer onboarding digitally. Key features: Verifies customer identities using facial recognition and AI. Reduces fraud while enhancing customer experience. Example: Maybank and CIMB adopting eKYC for faster account openings. 26 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Electronic Know-Your-Customer (eKYC) Electronic Know-Your-Customer (eKYC) is an automated process that allows users to verify their identity digitally and effortlessly. Users simply upload a photo of their ID card and take a selfie for facial recognition, eliminating the hassle of paperwork or in-person visits. The system securely matches user’s ID with their photo to confirm their identity. Verified users gain enhanced protection, as eKYC adds an extra layer of security by reducing the risk of fraud and unauthorised access. eKYC also expands user eligibility, unlocking access to additional features and products. 27 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Technological Advancements Driving Change AI and Machine Learning Use in fraud detection, credit scoring, and customer service (chatbots). Enhanced operational efficiency through automation. Global: Chatbots and fraud detection (e.g., Wells Fargo AI chatbot). Malaysia: Maybank’s MAE app offering personalised spending insights. 28 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Technological Advancements Driving Change Enhanced Data analytics Big Data enables banks to analyse customer behaviour and offer personalised services. Example: Citibank uses Big Data to analyse spending habits, providing personalized financial advice. Improved Payment Solutions Real-time payment systems, such as DuitNow in Malaysia, allow faster, more convenient transactions. 29 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Blockchain and Distributed Ledger Technology What is Blockchain? Definition: Blockchain is a decentralised and distributed ledger that records transactions securely and transparently across a network of computers. It is immutable, meaning once a transaction is recorded, it cannot be altered. Applications in Banking: Enhances security and reduces fraud. Enables peer-to-peer transfers without intermediaries. 30 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Blockchain and Distributed Ledger Technology Benefits in Banking 1. Secure Cross-Border Transactions: Provides encrypted and tamper-proof systems for international payments. Reduces reliance on intermediaries like correspondent banks. Example: Using blockchain, banks can ensure real-time tracking of payment statuses. 2. Reduced Settlement Times: Speeds up transaction clearing and settlement processes. Example: Traditional cross-border payments take days, while blockchain reduces this to minutes. 3. Lower Operational Costs: Automation of processes like trade finance, compliance checks, and payment verification minimises costs. Example: Smart contracts automatically execute agreements without human intervention. 31 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Blockchain and Distributed Ledger Technology Global Perspective RippleNet: A blockchain-based payment solution enabling faster and cheaper cross-border transactions. Used by over 300 financial institutions worldwide. Benefits: Real-time payment settlements. Significant reduction in transaction fees compared to SWIFT systems. Example: Santander Bank uses RippleNet for international transfers. 32 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Blockchain and Distributed Ledger Technology Malaysian Perspective 1.CIMB Adopting RippleNet: One of the early adopters of RippleNet for cross-border payment solutions. Impact: Faster settlement times for payments within ASEAN countries. Enhanced transparency for customers and businesses. 33 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Blockchain and Distributed Ledger Technology 2. Public Bank Exploring Blockchain: Focused on trade finance and automating documentation processes. Potential Benefits: Streamlined operations for import/export businesses. Improved accuracy and efficiency in managing supply chain finances. 3. Supportive Ecosystem: Bank Negara Malaysia encourages financial institutions to explore blockchain through innovation sandbox initiatives. 34 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Internet of Things (IoT) What is IoT? Definition: The Internet of Things (IoT) refers to the network of interconnected devices that collect and exchange data to enhance user experiences. In banking, IoT enables smart, data-driven solutions to improve customer interactions and operational efficiency. Core Features in Banking: Real-time data sharing and analysis. Enhanced customer service through connected devices. Increased efficiency in banking operations. 35 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Global Applications of IoT in Banking Wearables for Seamless Payments: Smart devices like smartwatches enable cashless payments via NFC technology. Examples: Fitbit Pay and Apple Pay integrated into wearables for tap-to- pay functionality. Contactless payments increasing in popularity due to convenience and speed. 36 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Global Applications of IoT in Banking IoT-Enabled ATMs: Intelligent ATMs that offer: Cardless cash withdrawals using smartphones or biometrics. Personalised service recommendations based on customer data. Example: ATMs in the U.S. leveraging IoT to detect faults and alert technicians in real time. Smart Branches: IoT-powered branches equipped with sensors and AI for customer flow management and energy efficiency. Examples: Banks like Santander deploying IoT to track customer preferences and reduce waiting times. 37 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Malaysian Applications of IoT in Banking Touch ‘n Go NFC Cards: Integrates with smart devices for enhanced user experience. Widely adopted for public transport, retail, and highway tolls. Expanding functionality to include cashless payments in physical stores. IoT-Enabled ATMs: ATMs with IoT capabilities in Malaysia offer: QR code-based withdrawals, eliminating the need for physical cards. Improved security with biometric authentication, such as facial recognition. Example: Maybank piloting IoT-driven ATMs for cashless withdrawals. 38 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Malaysian Applications of IoT in Banking IoT in Banking Apps: Banking apps leverage IoT for geolocation-based services: Example: CIMB Clicks sends personalised offers or alerts when users are near specific stores or branches. Devices like smart home assistants integrated with banking apps for account balance queries and bill payments. 39 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Digital-Only Banks vs Traditional Banks Benefits of Digital-Only Banks Lower overhead costs due to lack of physical branches. Faster innovation cycles for introducing new services. Cost efficiency User convenience Global: Cost-efficient and agile service delivery. Examples: Revolut, Monzo. Malaysia: Digital banks like GXS Bank target underserved communities. Lower fees and faster onboarding processes. 40 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Challenges for Digital-Only Banks Regulatory compliance Digital banks must meet financial regulations without the legacy support systems of traditional banks. Lack of personal touch compared to traditional banks. Cybersecurity threats as they operate fully online. Building trust Customers may hesitate to trust digital-only banks. Strategies include partnerships with well-established financial institutions and offering competitive rates and user-friendly experiences to gain credibility. Global: Cybersecurity risks and trust deficits. Malaysia: Limited awareness in rural areas. Concerns over data privacy in fully digital operations. 41 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Benefits of Traditional Banks Trusted, established relationships with customers. Access to in-person services for complex financial needs. Global: Trusted and established networks. Malaysia: Brands like Maybank and Public Bank retain customer loyalty. Physical branches cater to complex financial needs. 42 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Challenges for Traditional Banks High operational costs due to physical branches. Slower adoption of technology compared to digital-only competitors. Global: High operational costs and slower adaptation. Malaysia: Branch-heavy networks (e.g., Maybank’s 350+ branches). Struggles with digital innovation pace. 43 PROF MADYA DR MOHD FAIZAL BASRI, 2024  The Future of Commercial Banking 44 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Emerging Customer Expectations Overview of Changing Expectations Banking customers today expect faster, seamless, and highly personalised experiences driven by technology. Millennials and Gen Z, being digital natives, have distinct preferences that challenge traditional banking models. 45 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Key Customer Demands Hyper-Personalisation: Customers expect financial products and services tailored to their individual needs. Banks leverage AI and data analytics to: Offer personalised financial advice. Provide customised loan and investment options. Example: CIMB uses AI to deliver personalised promotions and product recommendations via its Clicks platform. 46 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Key Customer Demands Seamless Experiences: Demand for frictionless, omni-channel banking services: Unified experiences across mobile apps, websites, and branches. Instant account setup, fund transfers, and payments. Example: HSBC’s integrated banking app enables customers to manage all their financial needs on a single platform. 47 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Preferences of Millennials and Gen Z Ethical and Sustainable Banking: Younger generations favour banks that align with their values, such as sustainability and social responsibility. Features they look for: Green financing options. Transparency in investments. Example: CIMB’s Green Sukuk initiative to fund eco-friendly projects aligns with these values. 48 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Preferences of Millennials and Gen Z Digital-First Services: Tech-savvy customers prefer mobile-first and digital-only banks for their convenience and user-friendly interfaces. Examples: Boost Bank and GXS Bank in Malaysia offer app-based services targeting younger demographics. 49 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Emerging Customer Expectations Global Trends Hyper-Personalised Services: Banks worldwide are adopting data-driven technologies to enhance customer engagement. Example: Revolut uses advanced analytics to offer budgeting tools and investment advice. Ethical Banking: Growing demand for banks that prioritise sustainability, transparency, and positive social impact. Example: Triodos Bank in Europe focuses exclusively on sustainable banking practices. 50 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Emerging Customer Expectations Malaysian Trends Preference for Cashless Payments: Increased adoption of platforms like DuitNow QR and Touch 'n Go eWallet for digital payments. Popular among urban Millennials and Gen Z due to their convenience and speed. Example: DuitNow QR’s interoperability across banks and eWallets has simplified cashless transactions for Malaysian users. Integration of FinTech Solutions: Banks partner with fintech firms to meet the evolving expectations of younger customers. Example: Maybank’s integration of GrabPay to offer seamless payments within its ecosystem. 51 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Advanced Digital Solutions 1. AI-Driven Financial Advice What is AI-Driven Financial Advice? Artificial Intelligence (AI) uses algorithms and data analysis to provide tailored financial recommendations. Examples include budgeting tools, investment advice, and retirement planning tailored to individual goals. Global Applications: Robo-Advisors: Platforms like Betterment and Wealthfront offer low-cost, automated investment services. 52 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Advanced Digital Solutions Chatbots for Customer Support: Banks like Bank of America’s Erica provide 24/7 AI-powered customer assistance for account queries and financial planning. Predictive Analytics: AI predicts customer needs, such as loan eligibility or investment opportunities, based on transaction history and spending patterns. 53 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Advanced Digital Solutions Malaysian Context: CIMB Wealth Management: Utilises AI to provide real-time investment insights and portfolio management. Maybank’s MAE App: Offers AI-powered spending analysis, helping customers manage budgets and save effectively. 54 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Advanced Digital Solutions 2. Quantum Computing in Banking What is Quantum Computing? Quantum computing leverages quantum mechanics to process complex computations at unprecedented speeds. Its potential lies in solving challenges beyond the capabilities of traditional computers, such as encryption and data analysis. 55 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Advanced Digital Solutions Global Applications: Enhanced Security: Quantum computing enables quantum cryptography, which is virtually unhackable. Banks can secure sensitive customer data and transactions against cyber threats. Risk Management: Processes massive datasets to assess financial risks, optimise portfolios, and detect fraud patterns in real-time. Use Case: JPMorgan Chase is exploring quantum computing for risk analysis and fraud detection. 56 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Advanced Digital Solutions Malaysian Context: CIMB’s Exploration: CIMB is testing quantum computing solutions to strengthen cybersecurity and optimise large-scale data analytics. Bank Negara Malaysia’s Fintech Sandbox: Encourages exploration of advanced technologies, including quantum computing, to enhance the financial ecosystem. 57 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Metaverse Banking What is Metaverse Banking? Definition: Metaverse banking refers to the integration of financial services into virtual worlds, allowing users to interact with banks and financial products through immersive digital environments. Powered by technologies such as virtual reality (VR), augmented reality (AR), and blockchain. 58 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Core Features of Metaverse Banking Virtual Bank Branches: Customers can visit virtual bank branches using VR headsets or 3D platforms. Services include: Real-time consultations with virtual advisors. Digital financial literacy workshops in the metaverse. Example: JPMorgan launched a virtual lounge in Decentraland to engage with customers in an immersive environment. 59 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Core Features of Metaverse Banking Digital Currencies and Virtual Assets: Banks facilitate transactions involving cryptocurrencies, NFTs (non- fungible tokens), and other virtual assets. Integration of metaverse tokens and central bank digital currencies (CBDCs) for payments and investments. 60 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Central Bank Digital Currencies (CBDCs) What are CBDCs? Definition: Central Bank Digital Currencies (CBDCs) are digital forms of a nation’s fiat currency issued and regulated by the central bank. They function as a secure, official medium of exchange and store of value, fully backed by the government. Key Features: Operate on blockchain or similar distributed ledger technologies. Serve as legal tender and coexist with physical currency and commercial bank deposits. 61 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Central Bank Digital Currencies (CBDCs) Global Developments China’s e-CNY (Digital Yuan): One of the most advanced CBDC projects globally. Use Cases: Facilitates cashless payments in urban areas. Promotes financial inclusion in rural regions with limited banking access. Impact: Offers faster, more secure transactions than traditional payment systems. Reduces reliance on third-party payment providers like Alipay and WeChat Pay. 62 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Central Bank Digital Currencies (CBDCs) European Central Bank (Digital Euro): Currently exploring a CBDC to maintain monetary sovereignty and improve cross-border payment efficiency. Focus Areas: Enhancing security and resilience in the financial system. Providing a centralised alternative to private cryptocurrencies. United States (Digital Dollar): The Federal Reserve is researching the potential role of a CBDC in improving domestic and international payment systems. Focuses on ensuring financial stability while protecting consumer privacy. 63 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Central Bank Digital Currencies (CBDCs) Malaysian Perspective Bank Negara Malaysia and the eRinggit: Exploring the potential of an eRinggit to strengthen financial inclusion and enable secure digital payments. Focus Areas: Improving cross-border remittance efficiency. Enhancing payment system security and reliability. Supporting innovation in fintech and eCommerce. 64 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Central Bank Digital Currencies (CBDCs) DuitNow Ecosystem and CBDC Integration: Malaysia’s existing digital payment platforms like DuitNow QR could integrate CBDCs to create seamless transactions for businesses and consumers. Example: Enabling instant cross-border payments for SMEs via blockchain-backed eRinggit transactions. 65 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Sustainability in Banking What is Sustainability in Banking? Sustainability in banking refers to the integration of environmental, social, and governance (ESG) principles into financial products, operations, and decision-making. Focuses on promoting sustainable economic growth, addressing environmental challenges, and fostering social well-being. 66 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Sustainability in Banking Green Banking Initiatives Definition: Green banking involves the adoption of eco-friendly practices, such as financing renewable energy projects and offering green loans. Examples of Initiatives: Financing solar and wind energy projects. Promoting paperless banking to reduce environmental impact. Offering incentives for environmentally responsible businesses and individuals. 67 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Sustainability in Banking ESG Compliance as a Competitive Advantage 1.What is ESG Compliance? ESG stands for Environmental, Social, and Governance, a framework used by investors to evaluate a company's commitment to sustainability. Banks adhering to ESG criteria attract environmentally conscious investors and customers. 2.Competitive Advantage: Enhanced reputation and brand loyalty among socially and environmentally aware customers. Access to green financing incentives and international collaborations. 68 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Sustainability in Banking Global Perspective 1.Green Finance: Refers to financial activities focused on sustainable development, including green bonds, sustainability-linked loans, and carbon trading. Examples: The European Investment Bank (EIB) has issued significant green bonds to fund renewable energy and sustainable transportation projects. Bank of America introduced a $1 trillion commitment to sustainable finance by 2030. 69 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Sustainability in Banking 2. ESG Integration: Global banks are embedding ESG principles into their strategies and operations. Examples: HSBC and Deutsche Bank are aligning lending portfolios with the Paris Climate Agreement. Banks invest in technology to monitor ESG compliance across their portfolios. 70 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Sustainability in Banking Malaysian Perspective 1.Green Sukuk Initiatives: Malaysia pioneered the issuance of Green Sukuk, Islamic bonds used to fund environmentally sustainable projects. CIMB’s Green Sukuk: Funds renewable energy and eco-friendly infrastructure projects. Example: Financing solar farms and energy-efficient buildings in Malaysia. Supported by Malaysia’s Securities Commission and Bank Negara to encourage green investments. 71 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Sustainability in Banking 2. Sustainable Banking Practices: Maybank: Committed to achieving net zero carbon emissions by 2050. Public Bank: Offers green financing schemes for energy-efficient vehicles and homes. 3. Government Support: Malaysia’s National Policy on Climate Change encourages financial institutions to support sustainability goals. Incentives for banks adopting green financing, such as tax exemptions for green bond issuers. 72 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Vision for 2030 Shared Prosperity Vision 2030 is a commitment to make Malaysia a nation that achieves sustainable growth along with fair and equitable distribution, across income groups, ethnicities, regions and supply chains. Predictions for the Banking Sector 1.Hybrid Banking Ecosystem: A seamless blend of digital and traditional banking services to cater to diverse customer needs. Focus on creating a customer-centric experience where both physical and digital channels coexist. 73 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Vision for 2030 Examples: Urban areas: Digital-first banking with advanced technologies like AI and IoT for instant, paperless transactions. Rural areas: Retaining physical branches to ensure financial inclusion and access for less tech-savvy customers. 2. Emphasis on Sustainability and Inclusivity: Banks integrating environmental, social, and governance (ESG) principles into their strategies. Driving inclusivity by offering tailored products for underserved populations, such as micro-loans for rural entrepreneurs. Increased investments in green finance and support for small businesses transitioning to sustainable practices. 74 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Vision for 2030 Malaysia’s Specific Goals and Directions 1.Digital-First Urban Banking: Cities like Kuala Lumpur and Penang are expected to see rapid adoption of cashless ecosystems driven by platforms such as DuitNow QR, GrabPay, and Touch ‘n Go eWallet. Banks offering AI-driven personal financial management tools, enabling customers to track and optimise their finances in real- time. Integration of blockchain for secure transactions and fraud prevention. 75 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Vision for 2030 2. Physical Branches for Rural Financial Inclusion: Branches remain crucial in rural areas where internet connectivity and digital literacy are lower. Example: Maybank could adopt a hub-and-spoke model where physical branches act as hubs supporting localised digital kiosks in smaller towns. Focus on providing essential services such as: Basic savings accounts. Affordable micro-financing for agriculture and small businesses. 76 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Vision for 2030 3. Green Finance Leadership: Malaysia’s position as a leader in Green Sukuk and green financing to support eco-friendly projects and renewable energy. Encouraging banks to innovate in climate resilience and sustainable development financing. Example: CIMB expanding its green finance portfolio to include energy- efficient housing loans and electric vehicle financing. 77 PROF MADYA DR MOHD FAIZAL BASRI, 2024  Conclusion Commercial banking is at a pivotal moment, transforming to meet the changing expectations of tech-savvy customers. Malaysia’s Vision for 2030:Combines sustainability, inclusivity, and digital innovation to align with global trends while addressing local needs. As commercial banks adapt to these changes, they will continue to play a crucial role in driving economic growth and financial inclusion. 78 PROF MADYA DR MOHD FAIZAL BASRI, 2024  END OF TOPIC 4 PROF MADYA DR MOHD FAIZAL BASRI, 2024