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 economic 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 Liew, 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 Liew.

“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 Liew

“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. But there are significant barriers to overcome and all parties — from government entities and regulators to private-sector players such as Kiple — must do their part to expedite this journey.”

Kiple is seeing greater demand for its white label e-wallet solution during the pandemic as SMEs look for a cost-effective and scalable payment solution that provides customer relationship management services as well as Visa-enabled solutions. 

Kiple’s partnership with Visa, launched in August, enables SMEs to roll out an e-payment platform in as quickly as four months. This accelerates their speed to market by five times as opposed to the conventional 24-month lead time. Meanwhile, in July, Kiple received approval from Bank Negara Malaysia to increase the limit of its e-wallet payment solution to RM10,000 and include an e-KYC (Know Your Customer) solution for companies to identify and verify their customers online and to issue virtual and physical prepaid cards linked to Kiple’s e-wallet. 

Digital literacy is another critical element for a business to successfully digitalise its operations. This includes having the right skills and the right mindset to compete in a digital marketplace such as an e-commerce platform. 

A relatively newcomer to the fintech space is W H Mak, aged 37. He is CEO of Subplace, the first subscription-based and rental e-commerce platform in Asia. According to Mak, a significant amount of effort is required to educate traditional SMEs that started using online channels during the pandemic. 

“There are many misconceptions about e-commerce. A common one is that merchants think that by putting their products online, they will sell. But it doesn’t work that way, especially now, when so many businesses are going online and offering big discounts to attract customers. Aggressive promotions are not a sustainable way of doing business. This is why I spend a lot of my time educating SMEs on alternative ways to compete successfully on a platform,” says Mak.

Subplace has attracted 200 SMEs to its portal since its launch in November 2020. According to Mak, for SMEs, a subscription-based business model helps merchants stabilise their cash flow and create a long-lasting sticky relationship with their customers — both important aspects for a business looking to grow in the current highly competitive and uncertain business environment. 

Most of Subplace’s SMEs are traditional brick-and-mortar businesses that are looking to sustain their sales revenue during the pandemic and adapt to customers’ changing behaviour during lockdown periods.

Mak recently launched his own subscription-based product, a smart lock, on Subplace to serve as proof of concept. This smart lock, called LOCKIN, set a new record as the fastest equity fundraising campaign by crowdfunding RM10 million in just four days in early August. 

“The subscription-based business model has existed for years but it is a new concept for most of the SMEs on Subplace. This business model builds brand loyalty and customer retention. Growing their subscription customer base also provides the opportunity for merchants to upsell other products or services when they connect with customers to fulfil their orders every month. They can also obtain valuable insights by asking for feedback when a customer decides to stop subscribing to their products or services,” says Mak. 

The BNPL payment method is also helping traditional SMEs address falling traffic at their physical stores. Customers can use BNPL to pay for their purchases in three instalments. There is no interest, annual or servicing fee. The BNPL provider charges a small transaction fee to provide this service and pays the merchant the remaining amount.

Although BNPL is gaining traction, there are few home-grown players who have made an impact. Most of the players are joint ventures, such as Split, a Malaysian-Singapore partnership.

Atome is also headquartered in Singapore and launched its operations in Malaysia in December 2019. Its merchant network has grown more than 500% since then and its order volume has surged 100 times. This trend is seen across the region. In Hong Kong, Atome’s order value grew 400% within six months of its launch.

“Our business model helps the retail industry and shopping malls meet the challenges arising from the pandemic. On average, our retail partners have seen an increase of 30% in their ticket order (purchase order) size since adding BNPL as a payment option for their customers,” says Trasy Lou-Walsh, general manager for Atome Singapore and Malaysia.

There are concerns that the ability to defer payments will lead to overspending. Lou-Walsh points out that the average ticket size among Atome’s Malaysian customers is between RM200 and RM400. 

“This means that the risk of overspending is quite low. Moreover, we have features that prevent customers from buying more than they can afford. For example, if a payment is overdue, we immediately suspend their account to prevent them from buying other things,” she says.