Malaysia's banks missed the digital moment, and now AI is forcing a reckoning, says veteran banker

Business Times

27-07-2025

[KUALA LUMPUR] Malaysia missed a crucial opportunity between 2018 and the Covid-19 pandemic to modernise its banking sector and become a regional digital leader. As that window closed, industry players now face greater challenges to achieve growth, said veteran banker Andrew Sheng.
'Between 2018 and the pandemic, that was the time for a huge transformation online. Especially during pandemic, everyone moves online – work, shopping and finance. That was when banks needed to go all in on digital, but we missed it,' the 79-year-old former central banker and currently an adjunct professor at the University of Malaya and Tsinghua University told The Business Times.
He noted that while other markets were embracing rapid technological upgrades, driven by competition, user expectations and regulatory shifts, many Malaysian banks remained conservative, slow-moving, and hesitant to innovate.
'That was the time for a huge transformation online. But the digital offerings of Malaysian banks, in my view, are slightly dated,' he said.
Sheng previously served as chairman of the Securities and Futures Commission of Hong Kong from 1998 to 2005, and held roles as a central banker with both the Hong Kong Monetary Authority and Bank Negara Malaysia.
Sheng also acted as chief adviser to the China Banking Regulatory Commission. In recognition of the impact he made, Time magazine included him among the 100 most influential people in the world in 2013.
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Sheng noted that some of the country's largest banks had previously shown ambition beyond national borders, particularly CIMB and Maybank with their regional expansion strategies. But even those forward-looking moves lost momentum in recent years.
'Since 2018, they have become more cautious… And then came the pandemic, when digital transformation should have been accelerated. But I don't see agentic offerings. My bank knows my spending patterns, but it's not giving me tailored investment advice or proactive digital tools,' he added.
The shortcomings go beyond the lack of advanced digital products. Sheng points to fundamental failures in basic customer service – failures that expose the sector's resistance to modernisation.
'Some of the banks are still in this old-fashioned call centre model,' he said. 'When you call them in the middle of the night, you either get somebody in Bangladesh or the service just isn't available.'
Even basic digital tools such as chatbots, which are widely deployed across South-east Asia, remain underused or poorly implemented in Malaysia. He described this as a systemic issue – one rooted not in technology, but in culture and governance.
'Getting a bank to move digitally when most of the staff are less digitally oriented is a major management challenge. The boards and CEOs need to be totally digitally focused. But most are made up of former bankers or businesspeople. They see the threat, but they don't internalise it.
'TechFin' is eating the bankers' lunch
Former central banker Andrew Sheng said: 'Platforms using crypto, blockchain, and decentralised finance are eating the banks' lunch. And that trend is only going to accelerate.' PHOTO: ANDREW SHENG
While Malaysian banks stagnated, technology platforms surged ahead, not just supporting finance, but redefining it, and Sheng believes the real disruption isn't traditional fintech, where banks adopt tech tools, but what he calls 'TechFin' – where tech companies disrupt finance from the outside.
'Since Covid, the dominant issue is not fintech – it's the financialisation of technology. It's TechFin rather than FinTech. The tech platforms overwhelm the finance industry,' he explained.
The competitive imbalance is stark, with tech companies having better software, more data, less regulation, and far more agility than traditional banks. Furthermore, they do not carry much debts.
Banks, on the other hand, are highly leveraged, highly regulated, and can't seem to compete, he said, noting that such a scenario isn't theoretical.
Across Asia, consumers now use mobile-based QR code systems, which are operated by tech firms, not banks – to transact in real time, said Sheng, adding that the beneficiaries aren't the banks, but e-wallet providers such as Alipay, WeChat Pay, or even small fintech startups.
This disruption extends far beyond payments. Sheng warns that even core financial activities, lending, wealth management, insurance, are being unbundled and digitalised by faster, leaner players.
'Platforms using crypto, blockchain, and decentralised finance are eating the banks' lunch. And that trend is only going to accelerate,' said Sheng, who is set to deliver the keynote address at MyFintech Week, Malaysia's flagship fintech event, scheduled for early August.
Tokenisation is the next frontier
With a population of just 33 million, Malaysia lacks the market size to build scale slowly. PHOTO: AFP
Compounding the threat is the rapid evolution of tokenised digital assets, which Sheng believes is a development that will radically transform capital markets and trade. Yet again, Malaysia is playing catch-up.
'Practically anything can be tokenised today… Liabilities, assets, and even a scribble by the next Picasso can be turned into a digital asset and sold,' he said.
Tokenisation, enabled by blockchain and decentralised infrastructure, allows assets to be divided, digitalised, and traded globally in real time. Gold, carbon credits, and even commodities such as palm oil are now being explored as tokenised products.
'If palm oil could be tokenised and made available to someone like me to buy a ton because I like the weather, why not?' Sheng said. 'But the reality is, I can't do it right now in Malaysia. Someone else will.'
And that's the real danger. He noted that if Malaysia does not act, others will dominate the digital asset space, and consequently, Malaysian capital, investors, and talent will go elsewhere.
'If you're not going to do it, someone else will… The money and the flows will go elsewhere,' he added.
With a population of just 33 million, Malaysia lacks the market size to build scale slowly. Countries such as Vietnam and the Philippines, with over 100 million people each, are better positioned to develop digital ecosystems quickly and able to attract regional liquidity.
Power shift to asset managers
Non-bank players such as Citadel and Jane Street, which have grown into trading behemoths that rival conventional banks in volume and influence. PHOTO: REUTERS
Beyond Malaysia and South-east Asia, Sheng observed that the global financial system is undergoing a quiet but profound power shift, away from conventional banks and towards dominant asset managers and trading platforms.
'Technology tends to concentrate. The top five banks in any country dominate most of the banking business. But the top five asset managers, not necessarily banks, are now just as powerful, if not more,' he said.
He noted that while large banking institutions such as JPMorgan and UBS remain influential, their growing strength lies less in traditional lending and more in their roles as global asset managers and market traders.
He cited UBS' increasing weight in asset management and JPMorgan's dominance across the dollar market, investment banking, and trading.
Sheng also highlighted the rise of non-bank players such as Citadel and Jane Street, which have grown into trading behemoths that rival conventional banks in volume and influence.
He noted that such a trend is being accelerated by digitalisation and scale. Technology amplifies the advantages of incumbents with deep data, large capital bases, and global reach, pushing smaller or slower institutions further to the margins.
At the same time, he warned, banks in emerging markets such as Malaysia are falling behind in digital transformation, leaving them vulnerable.
'Every bank needs to ask: how do we cut costs, improve productivity, manage risk, and create new value?' Sheng said. 'Those who don't ask that question now may not be around to answer it later.'