FinTech in Malaysia’s Financial Picture

With a growing middle class and impressive mobile phone penetration rates, Malaysia is one of Southeast Asia’s fintech pioneers, enough so that the fintech ecosystem is dubbed as ‘flourishing’ by the International Monetary Fund. Second only to Singapore, Malaysia’s fintech position itself with both conventional finance and Islamic finance being quick to adapt and innovate. In fact, Malaysia is considered to be the world leader in Islamic Fintech.

82% of Malaysian financial institutions believe that FinTech will play a prominent role in shaping the local financial and banking industry, which is higher than their global counterparts, averaging at 67%, and Singapore (shocker), at 73%. One has to wonder where such haste comes from. Well, the three areas in finance that are the most disrupted in Malaysian Finance are payments, consumer banking, and general insurance.

For one, the fund transfer and payments sector are increasingly adopting biometric authentication, token services, and both local and global mobile payment services such as Touch ‘n Go eWallet, GrabPay and Paypal, which are said to have the potential to redefine revenue distributions and profit pools across the payments value chain. The pandemic has also accelerated the adoption of digital payments as vendors move to QR codes or e-wallets. Moreover, government’s initiatives such as distribution of government subsidies through e-wallets and e-Tunai Rakyat that incentivises e-wallet usage has contributed significantly to its growth.

On the other hand, online consumer banking offers convenience to simpler, faster, and cheaper services onto everyday devices such as mobile phones and desktops. Such comfort is only recent and redefines not only consumer banking, but also evolves consumer habits and makes online shopping an entirely possible experience. Internet banking alone has quadrupled to a whopping 90% usage rate as of 2018. Coupled with the boom of Mobile Banking, near-universal 4G and 5G that are affordable, it is no wonder World Economic Forum’s Network Readiness Index ranked Malaysia high, even higher than Qatar, Indonesia, and Chile.

Unique to Malaysia alone, general insurance is perceived to be more disrupted by FinTech compared to investment and wealth management. Critics believe that InsurTech poses more threat to existing agencies' underwriting and distribution models.

Given such disruptions, Malaysian financial institutions are by no means sitting back and letting the industry run its course by itself. A good majority of them are planning to invest in FinTech themselves. A third of PwC’s survey respondents (Catching the FinTech Wave 2016) plans to invest at least 10% of their margins on fintech, and almost half of them has FinTech at the heart of their long-term strategy. We can assume that the favor to FinTech has only been growing since then, otherwise, these financial institutions await a Kodak moment to befall them, wouldn’t they?

Of course, rapid evolving technology as well as new consumer habits are not without their own risks and challenges. Fortunately, Malaysia has always been a leader on regulations to ensure that the local financial systems remain safe. To ensure that consumer confidence remains intact under such uncertainty, Malaysian banks and regulators list cybersecurity as the top concern to address.

That is all for now! To learn more about FinTech, drop by our website to check out more articles at https://www.myfint.org/.

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References:

1. PricewaterhouseCoopers. (n.d.). Embrace fintech or risk losing your competitive edge in today's disruptive landscape. PwC. Retrieved June 10, 2022, from https://www.pwc.com/my/en/press/161125-embrace-fintech-or-risk-losing-your-competitive-edge.html

2. Network Readiness Index. (n.d.).Countries. Retrieved June 10, 2022, from https://networkreadinessindex.org/countries/

Written By:

Loh Reen