Edmund Ingham, PR and Content Manager at The Money Cloud on how the government is supporting fintech in Malaysia and the startups to watch.
After 10 days in Kuala Lumpur I’ve finally got over the jetlag (it really can take that long) and I’m becoming acclimatised to the tropical heat. Kuala Lumpur has so much to offer every type of traveller, from its hipster cafes, to its bustling centre, to the Batu caves and the giant Buddha that sits beside them.
I would encourage anybody travelling SE Asia to visit Kuala Lumpur. It may be an administrative centre and financial powerhouse first and foremost, but it is also a cultural melting pot and everywhere you look there is lush greenery, a range of things to see and places to eat and drink, and people enjoying everything the city has to offer.
The best way to get around in Malaysia, at least for me as I am based around 30 minutes outside of the centre of Kuala Lumpur, is using an Uber or its big South East Asian rival Grab Taxi, which is allegedly in talks with Alibaba, the Chinese ecommerce giant led by Jack Ma, about a $1.4 billion funding round, led by Softbank, The Japanese electronics company with a $100 billion-dollar war chest to invest into tech.
I’ve chatted to a few drivers out here who say working for Uber or Grab is easy to do, and pays well, even despite the jaw-droppingly (for a Londoner, anyway) cheap prices they charge for long journeys. My 30-minute journey into KL costs less in a cab than a ride on the tube in London!
I think it was Vincent Vega in the cult classic film Pulp Fiction who returns to the US from Europe and talks about the “little differences” between the two cultures, and after nearly two weeks here I can definitely see what he means. I haven’t checked if you can get mayonnaise with your chips or whether you can order “Le Big Mac”, but one thing I have noticed is that Malaysian’s know and love their tech!
For example, when I program my not especially new looking washing machine, it doesn’t just beep, it sings. It chimes away when I choose the temperature setting, let’s out a whistle of delight when I start the cycle, and gives me a full verse of high pitched pop-song style beeps when it is done.
In the West, we talk about how the “Robots are coming”. In the East, it seems, they have already been around for some time!
The Fintech scene in Malaysia is coming online!
Which brings me neatly on to the subject of this post. In terms of fintech, who are the hottest startup companies pushing the latest disruptive financial tech in Malaysia, and how are the government encouraging innovation in the space?
Let’s answer the latter question first. I mentioned in my last post that fintech in Malaysia is seen as a double-edged sword; great for the disruptors, but a threat to the existing banking infrastructure. Recently, the Governor of the Bank Negara Malaysia, Datuk Muhammad Ibrahim referred to a report from McKinsey which suggests that between 10-40% of banking revenues are at risk to “innovations outside banking institutions”.
But balanced against that, some analysts have estimated that the value of total global fintech investment will reach as high as $40 billion dollars by 2020.
The Malaysian government and its central bank have been busy launching a series of initiatives designed to harness, and to a certain extant help to control the rising influence of fintech. In 2016, for example, the Securities Commission of Malaysia approved a number of equity crowdfunding platforms, including FundedByMe, Crowdonomic, Eureeca and Crowdplus.
At the same time the government also approved peer-to-peer lending platforms including FinPAL, Kapital, and PeopleLender. This is a particularly noteworthy move as it was a first for any country across the ASEAN region. Malaysia has a competitive relationship with neighbouring Singapore, which is generally thought of as the most advanced fintech hub in the world, alongside London. The Malaysian authorities would no doubt have been delighted to have got one over their more prestigious rivals.
The innovation has kept on coming. In May, the Malaysian Securities Commission released its Digital Investment Management framework, which deals with the licensing and conduct requirements for automated wealth, or so called “Robo-advisory” platforms, aimed at the affluent and mass-affluent markets.
In October last year, the Malaysian Central Bank developed its own version of the ever-popular “regulatory sandbox”, which allows fintech startups to test their technologies in a safe, closed environment, before making their services available to the public. This helps to ensure that firms do not contravene any existing regulations, and also gives the authorities the opportunity to change certain regulations that are preventing more agile and better services from thriving.
The MDEC is a government-linked entity that is responsible for driving the digital economy in Malaysia, and this year it has raised $20 million to launch a project known as the “Fintech Space”, an “ecosystem and Launchpad for the fintech community”. The MDEC hopes to raise another $30 million for the project by the end of the year.
And there’s more; MDEC is also responsible for the Malaysia Tech Entrepreneur Program. The “MTEP” is not specifically aimed at fintech practitioners but can benefit all tech startups, providing benefits such as exemption form Corporation tax, high speed broadband, mentoring, access to funding, and a friendly business environment that includes “freedom of ownership for foreign companies for investors”.
So, who is benefitting from this new push towards disruptive service providers and new ways of delivering old services; from money transfer, to payments, to search and discovery of financial products, to crowdfunding; and new services entirely, such as digital currencies, mobile banking and automation of wealth advisory services?
iMoney.my is one; a financial comparison site through which users can easily obtain loans, credit cards and other financial products. Plus, the iMoney.my site also lists MoneyMatch, a money transfer site that allows users to exchange currencies at midrate, saving them up to 30% per transaction, StoreHub, a point-of-sale system with “full-fledged inventory and customer relations management”, SkolaFund, a crowdfunding platform to hep promising students find funds for their higher education, and NextMoneyKL, a local chapter of a global fintech collaboration platform providing a strong fintech community, events, and training programmes.
At an event last week I also got chatting with the founder of FlashCash, an e-wallet that enables users to make secure payments in stores, in-app and on the web. This startup benefits both store merchants and customers, providing a secure way for merchants to collect contactless payments from digital wallet holders. His enthusiasm was palpable. There is no doubt that Malaysia “gets” fintech.
That said, the amount of fintech transactions completed in Malaysia is still negligible; just $6 million this year, according to some sources, compared to a global figure of $769 billion. There is still a lot of catching up to do in that respect.
Some Malaysian fintech startups have raised funding. Soft Space, an e-banking and payments play, has been awarded a grant from the Malaysian Government of $5.6 million dollars, whilst iMoney, mentioned above, has raised $6.5 million in funding. Neuroware, a blockchain startup, is an alumni of the legendary 500 Startups accelerator, which suggests that investment will be forthcoming.
To summarise, the fintech startup scene in Malaysia can best be described as “nascent”, but also as having massive potential. The country seems receptive to fintech style services, the government are committed to aiding its development, and the country as a whole has a business-friendly environment.
In fact, this could ironically be the biggest obstacle that fintech faces in Malaysia. The country, and especially its capital, has a very strong reputation for financial services, and consumers here are naturally tech savvy, which suggests that the startup environment might suffer from an intolerance of failure. We all know that fintech firms often fail many times before their services are ready for market. Will Malaysia embrace the culture of “fail fast, fail often”?
Thank goodness for the regulatory sandbox, and the government’s support!
It will be fascinating to see how the big banks and financial services players in Malaysia try to integrate with disruptive fintech players, and it may well dictate how strong a footprint fintech startups can gain in the region.
And that will be the subject of our next post, coming soon – how ready are the big banks and early stage fintech firms to work with one another?
It’s a fascinating topic, but it will have to wait. I am off to the nearest street food stall to grab a portion of Malaysia’s favourite meal, curried chicken with rice. It’s sold here everywhere from the best restaurants to small trucks on the side of the road. It is nearly always delicious, and as my Uber driver told me, some people are content to eat it for breakfast, lunch and dinner – I think I may fall into that category!
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