The field of financial technology, better known as FinTech, has shaken up the financial world since the last decade or so. FinTech has improved and upgraded areas such as insurance, market provisioning, investment management, and capital raising. It has developed faster, cheaper, and more efficient financial services. FinTech has opened credit access to the previously underserved and unserved, especially among SMEs and small businesses – notably through models such as debt investment financing.
The growth of FinTech is also happening in Malaysia. Regulations have been issued by Bank Negara Malaysia (Malaysia’s Central Bank) and Securities Commission Malaysia to support the FinTech movement. How is the development of FinTech in Malaysia so far?
Supported by Bank Negara Malaysia and Securities Commission Malaysia
Malaysia is joining the FinTech game and the ambition is substantiated by Bank Negara Malaysia’s introduction of a FinTech regulatory sandbox. The regulatory sandbox allows FinTech platforms to experiment with their solutions in a controlled environment, accompanied by appropriate safeguards for a limited period. On the other hand, Securities Commission Malaysia has released the guidelines for debt investment financing and equity investment.
By issuing the FinTech regulatory sandbox, the Central Bank of Malaysia shows expectations for increased FinTech activity. Malaysia’s share of FinTech transactions is currently still small, at $7.207 million in 2017. Yet many experts believe that the regulatory framework will provide the much-needed base to assist technological innovations in Malaysia’s financing sector.
Relationship with incumbent financial institutions
In a study held by PricewaterhouseCoopers in 2016, a significant majority of respondents (82%) from Malaysian financial institutions were concerned about the threat FinTechs pose to their businesses. This is a higher number compared to global respondents (67%). Malaysian respondents worried that their businesses will be disrupted.
Yet despite the perceived threat of FinTech to the traditional banking system, collaborative relationships are growing between banks and FinTech platforms around the world. It is likely the same synergy will develop in Malaysia, as banks need FinTech to innovate and upgrade their banking systems, while the FinTech industry can take advantage and work with the core banking systems available.
Read more on the synergy between banks and FinTech in “The Counterintuitive Synergy between Banks and FinTech”.
Despite the worry of more conventional institutions, FinTech is growing fast in Malaysia. Malaysian FinTech’s transaction value is expected to grow at an annual rate of 21.4%. It’s an exciting time to see where digital technology is taking the financial world in Malaysia.