Financial technology (fintech) is fast becoming a central part of the financial services industry and future economy. The fintech space has attracted a huge crowd of local start-ups and young entrepreneurs, and many of them have begun to establish a strong foothold in the financial sector.
The financial services industry rapidly transformed in 2020 as Covid-19 accelerated the growth of fintech and the adoption of digital banking services. Industry observers say the progress of digital adoption, typically carried out over five years, took place in a short space of 10 months during this period. Today, fintech is becoming a central part of the country’s financial services sector. Going forward, even more digital financial services, mostly provided by fintech, can be expected in the post-pandemic new normal as the business community moves to meet growing demand from digital natives and smartphone users in Malaysia and its regional neighbours.
Initiatives and programmes by the government and regulatory bodies, implemented in 2020, are also rapidly accelerating an ecosystem of innovation — a prerequisite if the country is to become a leading digital economy by 2030. According to the Fintech Malaysia Report 2021, RM460 million worth of mobile banking transactions were conducted in 2020, a 125% jump compared to 2019.The usage of e-wallets also reached new highs, with three million new mobile banking service subscribers in 2020, while 400,000 new businesses registered for QR code payment acceptance, a jump of 164% from the preceding year.
Rapid adoption of digital finance can also be seen across other fintech segments such as alternative financing and cryptocurrency trading. This pace of adoption is expected to pick up when Bank Negara Malaysia grants five digital banking licences in the first quarter of 2022. As many as 40 parties are reported to have registered their interest in applying for this licence.
The bustling fintech space in the country, mostly driven by the younger players in the industry, is led by digital payment solutions and e-wallets offered by local operators such as Touch ‘n Go, Kiplepay and senangPay. These are followed by insurtech, lending, remittances, investing and funding.
A major bank-backed player in the fintech industry is CIMB Digital Assets (CDA), which is helmed by CEO Effendy Shahul Hamid. The CIMB banking group’s acquisition of a stake in Touch ‘n Go laid the foundation for the formation of CDA. Today, CDA’s portfolio includes the Touch ‘n Go eWallet — which is owned by TNG Digital Sdn Bhd, itself a joint venture between TNG and Ant Group, the parent company of Alipay, China’s largest digital payment platform — as well digital banks in Vietnam and the Philippines. Early this year, TNG Digital made its foray into the financial services industry with the rollout of GO+, a financially inclusive investment product that allows Touch ‘n Go eWallet users to gain access to low-risk money market investments for as low as RM10. Aside from being able to earn more than their current accounts, users’ GO+ balances can also be used across all Touch ‘n Go eWallet payment use-cases.
Effendy, in a recent interview with The Edge, says that digital banks and payment heavyweights have the ability to change how society consumes financial services, and that incumbents who are very strong will not be sitting still. “I believe the consumer is going to win big, and that is good for everyone,” he adds. Thirty-three-year-old Teoh Wei-Xiang is founder of Versa Asia Sdn Bhd, a home-grown fintech start-up. It was launched in January last year to provide retail investors with an easier channel to invest their savings in a money market fund. By replicating the Ant Group’s Yu ‘e Bao business model, it also plans to tie up with a global payment company and let users invest in the fund.
There is also CoinGecko, one of the world’s most viewed cryptocurrency ranking and analysis websites founded in 2014 by Bobby Ong and T M Lee. In January this year, it received 120 million pageviews, which represented a tenfold year-on-year growth from the year before. While the duo have received various offers from other companies that want to either invest in or acquire it, Ong and Lee have not looked at any of these seriously as they have a lot more to work on and offer to the cryptocurrency community. They were included in the Forbes 30 Under 30 Asia List in 2019.
A new sub-segment that has generated a lot of interest is the buy now, pay later (BNPL) space, made up of local fintech companies such as Split, which reported processing RM10 million within months in 2020, and foreign players such as Atome, which has a presence in nine countries, including Malaysia.
Fintech in Malaysia is expected to drive a more inclusive economic recovery as financing is made accessible to low-income participants and small and micro businesses.
Levelling the playing field for economy growth
Kiplepay Sdn Bhd (Kiple), a technology solutions provider well known for its payment gateway services and a wholly-owned subsidiary of Green Packet Bhd, had initiatives to promote financial inclusivity among the underserved communities before the outbreak of Covid-19.
Acting CEO Ricky Lew, 43, says: “We provided cashless solutions for state governments to distribute financial aid to the B40 community before the pandemic. To implement this solution, we went to the grassroots level to teach merchants that serve these households how to accept digital (cashless) payments. I believe merchants that had adopted these technologies are in a better position now to meet the challenges of Covid-19.”
This aid distribution project, carried out in collaboration with state governments, disburses more than RM150 million a year to 100,000 households in the B40 income group in Selangor, Perak and Kedah. Kiple’s cashless systems, which include an e-wallet and prepaid cards, are used by more than 20,000 merchants across these states.
During the pandemic, Kiple continued to collaborate with government authorities and other entities to assist small traders in adopting cashless and contactless payment options. It also helped hawkers in Perak with digitalised business permit applications and transformed phones into payment terminals with multi-wallet features for merchants in Selangor. “We ensured that our systems are easily distributed and scalable. This allowed us to reach more states within a shorter time when we partnered with Selangor, Kedah and Perlis in the Kasih Ibu aid programme, which is designed for mothers from the B40 community,” says Lew.
“Tech users from the B40 households and the businesses that serve this community have totally different requirements compared with SMEs (small and medium enterprises) and larger entities such as financial institutions. We tailor our education material to serve each segment so that they can adopt technology quickly and integrate it seamlessly into their operations. We also have a dedicated team to offer end-to-end support such as onboarding, training and post-deployment guidance.”
Addressing pain points
The services provided by fintech providers are usually faster and cheaper than traditional financial services and therefore, more accessible to SMEs and microenterprises. Nevertheless, digitalising is a journey and often very challenging for traditional business owners that lack technical skills and are unfamiliar with digital tools. SMEs that had deferred the use of enterprise systems before the pandemic may find the cost of digitalising their operations to be a formidable barrier now. “The systems for microenterprises and small traders are fairly straightforward. Their entire operations may not have to be digitalised, and often, a hybrid solution that caters for digital and manual processes will suffice until they decide to do more,” says Lew. “Bigger SMEs with more complex operations and more daily orders need a comprehensive solution. They need a secure and scalable solution that is customised to their needs and that can help transform manual procedures and be implemented fairly quickly. This system must comply with regulatory requirements. Many SMEs are finding the cost of investing in an end-to-end system to be a barrier to adoption now.”
“We see collaborations between the private and public sector as an effective way to assist SMEs with the financial investment needed to digitalise their operation. An example is our (via Green Packet Bhd) collaboration with Malaysian Industrial Development Finance Bhd (MIDF), launched on July 8. Here, MIDF provides financing solutions and financial advisory services while we provide digital solutions. There is no doubt that Malaysian SMEs must digitalise quickly and efficiently to compete in the new normal.”