By Izzat Najmi Abdullah
Let me ask you something. What would you do if you opened your digital banking app one morning and found out the bank was shutting down?
Your first concern would probably be the money already sitting there, especially if your salary goes into that account or you keep part of your savings there.
If you also have a loan with the same bank, another question follows almost immediately. Am I already free from the debt?
Before anyone panics, none of Malaysia’s digital banks is currently in that position.
GXBank, Boost Bank, AEON Bank, Ryt Bank and KAF Digital Bank are all operating and listed as PIDM member banks.
Even so, the question is becoming more relevant now that millions of Malaysians have money sitting in these banks.
Bank Negara Malaysia’s 2025 Annual Report showed that the five digital banks collectively served 2.4 million customers by the end of 2025.
Those customers held RM4.2 billion in deposits, while around 65% came from unserved or underserved segments.
Once billions of ringgit are sitting in digital bank accounts, knowing what happens if one of these banks can no longer continue becomes a practical question rather than a hypothetical one.
Luckily, BNM required digital banks to prepare for that possibility before they were allowed to open.
Digital Banks Have to Plan Their Exit Before Launch
Anyone applying for a digital banking licence has to submit an exit plan as part of the application.
BNM’s Licensing Framework for Digital Banks says the plan must cover the bank’s first five years and explain what could make the business unsustainable.
It must also set out how an exit could be funded and carried out without causing unnecessary disruption to customers.
Planning does not stop once the licence is granted. Banks also have to keep their depositor information up to date so customers can be contacted or paid if needed.
Essential services are expected to continue during an exit, while the board has to review the plan every year.
All of this ties back to the special foundational phase that Malaysia’s digital banks operate under during their first three to five years.
Banks in this phase must maintain at least RM100 million in capital funds while keeping total assets below RM3 billion.
They can apply to leave the foundational phase after three years if they satisfy BNM’s requirements.
By the end of year five, however, the bank has to meet the regulatory requirements applied to existing licensed banks and hold at least RM300 million in capital funds unimpaired by losses.
A bank that fails to satisfy BNM’s requirements by the end of year five must implement its exit plan.
BNM says a full exit should result in the business being transferred or wound down, while failure to carry out the plan can lead to enforcement action, including licence revocation.
So even before we get to PIDM, there is already a regulatory route for a digital bank that cannot make it past its early years.
Closing a Bank Does Not Automatically Mean Closing Every Account
As the heading suggests, an exit also does not necessarily mean customers wake up one morning and find that their accounts have disappeared.
A voluntary exit could involve moving the business to another institution. A more serious situation arises when BNM determines that a PIDM member bank is no longer viable, at which point PIDM can step in to resolve it.
PIDM’s resolution framework gives it several ways to handle a failing institution.
Its preferred approach is to transfer all or part of the bank’s assets and liabilities to another financial institution where possible.
A buyer may not always be available at the right time, so PIDM can also establish a bridge institution.
Think of it as a temporary bank controlled by PIDM that keeps important services running until a longer-term solution is found.
PIDM can also take the bank down a different route and wind it up, with insured depositors reimbursed based on the bank’s records.
For a customer, then, a shutdown may look less dramatic than the word suggests. Your account could be moved elsewhere while access to banking services continues.
What Happens to the Money in Your Account?
If the bank does end up being wound down, PIDM protection becomes much more important.
Eligible deposits at Malaysia’s licensed digital banks are protected up to RM250,000 per depositor, per member bank, including principal and any interest or return.
PIDM says the coverage is automatic, which means customers do not have to register or pay separately for it.
Savings and current accounts can qualify, as can fixed deposits and Islamic deposit accounts. Foreign currency deposits are covered as well.
The RM250,000 ceiling covers most people, as PIDM said that around 97% of retail bank depositors are fully protected under the current limit.
But what happens above that amount is where things become more interesting.
Say you have RM300,000 in eligible deposits at one digital bank when it is liquidated. PIDM would cover up to RM250,000, leaving RM50,000 outside the insurance limit.
You can still file a claim with the liquidator for the remaining RM50,000. However, be mindful that getting all of it back is not guaranteed.
Recovery depends on what assets remain and how the liquidation plays out. However, spreading money across separate member banks changes the calculation.
Someone with RM200,000 at Bank A and another RM200,000 at Bank B could have the full RM400,000 protected because the limit applies separately to each member bank.
There is another distinction worth making here because digital banking and e-wallets can look very similar on a phone.
Money shown inside an app is not automatically a bank deposit.
E-money and e-wallet balances do not receive the same direct PIDM deposit protection. Unit trusts, shares and gold-related investment products also sit outside the Deposit Insurance System.
So when deciding where to keep your savings, the logo on the app matters less than whether your money is actually sitting in a PIDM-protected deposit account.
And No, Your Loan Does Not Disappear
Deposit protection answers what happens to money the bank owes you. Loans raise the opposite question.
If you borrowed from the bank, the debt still exists even if the bank itself stops operating.
Loans are assets of the bank, which means they can be transferred to another financial institution during a resolution.
They could also move into a PIDM bridge institution while the bank’s affairs are sorted out.
Borrowers would receive instructions on where future repayments should go and would be expected to keep paying according to their loan agreements.
So, unfortunately, the loan does not disappear just because the bank does.
Australia Has Already Seen Digital Banks Leave
Malaysia has never had to test all of this with one of its digital banks, but Australia gives us an idea of how differently an exit can unfold.
Xinja Bank announced in December 2020 that it would cease being a bank.
It had 37,884 customers holding more than approximately RM728 million (A$252 million) in deposits at the time. Australia’s prudential regulator, APRA, monitored the process until all deposits were returned without loss.
Volt Bank followed in 2022 after deciding to return its banking licence.
Its 5,730 customers held approximately RM309 million (A$107 million) when the exit was announced.
APRA again supervised the return of deposits, with customers receiving their money back without loss.
86 400 ended differently because it was acquired instead. National Australia Bank (NAB) already owned about 18.3% of the neobank before agreeing to buy the rest.
The remaining acquisition, together with upfront transaction expenses, was expected to cost up to approximately RM636 million (A$220 million).
Its banking assets and liabilities were subsequently transferred to NAB before APRA revoked 86 400’s standalone banking licence.
Australia therefore gives us two examples of digital banks returning customer deposits and leaving banking altogether. Plus another where the business ended up inside a larger bank.
Malaysia Has Not Needed the Safety Net Yet
PIDM said in September 2025 that it had accumulated RM7 billion to carry out the resolution of a failed member financial institution if one were ever needed.
Over its first 20 years, however, PIDM said it had not needed to take such resolution action.
No regulator can promise that a bank will never fail. What Malaysia has done is decide what should happen before it gets to that point.
For customers, the useful part is much simpler, as you only need to keep a few things in mind.
Check whether your bank is a PIDM member and whether the product holding your money qualifies for protection.
The RM250,000 per depositor, per member bank limit is the other number worth remembering.
If a Malaysian digital bank eventually decides it cannot continue, customers should not be the first people finding out what happens next. – FINTECH NEWS MALAYSIA
- Izzat Najmi is a Senior Writer for Fintech News Malaysia.
