EXCLUSIVE: How Has Malaysia Paved The Way For Successful Fintech Growth?

The Malaysian Fintech scene has undergone great progress in recent times and looks set to continue its upwards trend. Not only are we seeing strong regulatory support for the area, but through public and private partnerships, increased customer engagement and a national five-year digitalisation plan, Malaysia is moving from strength to strength. The money in fintech is clearly moving around Malaysia at an exciting rate. Malaysia’s fintech sector grew by 27% in 2021, hosting a total of 294 fintechs now. In the first three quarters of 2021, fintech companies in Malaysia raised a record US$117 million in funding, surpassing 2020’s total of US$77 million by 52%.

Will Malaysian Fintech explode into stardom?

Advancing The Digital Payments Ecosystem In 5 Years – Bank Negara Malaysia (BNM) shared their blueprint for the financial sector from 2022 to 2026, highlighting central bank development priorities, key ambitions for an open data ecosystem, a national digital identity scheme and much much more!

It seems that the process will begin with the future-proofing of key digital infrastructures, including data and payment settlement systems. What follows will be greater support and strength issued to cyber security, with stronger use of technology for regulation and supervision to follow, thereby continuously improving the efficiency of financial regulation. Some key targets and milestones as part of the process included:

“Narrowing a gap between Malaysia’s OECD/INFE* financial literacy scores and the average score of OECD members”
“Increase in e-payment per capita at CAGR of higher than 15%”
“Steady growth in alternative finance channeled to new, innovative enterprises”
“More than 50% of new financing is for green and transitioning activities”

When evaluating already existing payment trends in Malaysia, it’s clear that there is strong emphasis on the adoption of internet banking and e-banking already. In fact, since 2019 internet banking transactions have risen from less than 500 million to over 2 billion transactions in 2021. It’s clear then that focusing on further digitalising of finance would be welcomed, embraced and evolutionary for the Malaysian fintech scene.

We’re also witnessing how this transition is already in motion. Bank Islam Malaysia Berhad officially launched its fully cloud-native digital banking proposition, Be U. This first-of-its-kind technology stack is anticipated to be the cornerstone of all upcoming digital banks to be introduced in Malaysia. The app allows users to do their banking transactions online in a seamless manner, specifically targeting the digital-native younger generation. This will only strengthen the connection between Malaysia and digital banking as time goes on – the positive correlation will hopefully result in many positive outcomes for Malaysian fintechs and Fis.

Furthering Financial Inclusion – One of the desired outcomes of the 5 Year Plan is for there to be a greater level of financial inclusion, which is already in motion as fintechs are increasingly pushed out to the rural regions of Malaysia in a bid to promote the uptake of digital services in these areas.

Fitch Solutions recently released a report titled “Financial Technology To Enhance Financial Inclusivity In Malaysia”, which outlined the expectations further. It voiced how opportunities do exist for financial players within, or looking towards, the rural market of Malaysia, and that “ increasing digital connectivity, strong government support, as well as digital adoption tailwinds provided by the Covid-19 pandemic will drive the uptake of fintech services.”

With more people involved within the financial system, it will only increase financial mobility, opportunity and prosperity for the country as a whole.

The Adoption Of BNPL – I’ve always been skeptical whether BNPL has reached its ceiling or not. Some critics argue that BNPL providers’ high-growth-at-all-costs strategy has ignored basic consumer lending risk criteria and has ultimately created instant gratification, followed by high levels of bad debt and delayed pain. “With high losses and with very low margins, you will never make a profit, no matter how much growth is achieved,” claimed payments veteran Grant Halverson.

However, BNPL in Malaysia seems to be well on the rise. In fact, since 2021, at least 11 companies have launched BNPL offerings in Malaysia, six of which were homegrown institutions. This has caused greater regulatory oversight of BNPL in Malaysia, with the Consumer Credit Act, looking to regulate all consumer credit activities, including BNPL arrangements, and mitigate the risks brought about by the new schemes. Some may see this as a hindrance to the BNPL scene in Malaysia, but greater protection means greater safety, and if customers are made to feel safer, they will likely feel happier and be more encouraged to use BNPL.

What do you think? Will Malaysia be the next scene for fintech to explode out of? Be sure to keep your eyes out!