Regional Fintech Landscape in SEA

When it comes to financial technology (Fintech), Southeast Asia (SEA) certainly holds the jewel in the crown. With 70% of the population in SEA countries being unbanked, coupled with 82% of the same population being willing to use Fintech products, it is unsurprising that SEA’s Fintech market is projected to be worth about US$70 million by 2020. On a regional level, the prospects for Fintech in SEA are boosted by the ASEAN Financial Innovation Network (AFIN), which was established in 2017 through collaboration between the Monetary Authority of Singapore (MAS), the International Finance Corporation (IFC), World Bank Group, and the ASEAN Bankers Association (ABA) with the objective of promoting financial inclusion through the digital transformation of the banking and financial industries of SEA countries. 

To this end, AFIN had in 2018 launched the API Exchange (APIX), which functions as the world’s first cross-border, open-architecture application programming interface (API) marketplace and sandbox platform for Fintech companies and financial institutions from across SEA. It can be surmised, therefore, that not only is there a palpable need for Fintech in SEA, but there is also strong political will in the region to use Fintech for the promotion of financial inclusion among SEA’s population. Blockchain, with its transparent and immutable ledgers that allow for automated recording of financial transactions, may prove to be the tool that can take the development of the Fintech landscape in SEA to the next level. In this article, we will be zooming in on the Fintech industry in Malaysia, before proceeding to look at some blockchain use cases in the industry.

Fintech Landscape in Malaysia

According to statistics disclosed by Bank Negara Malaysia (BNM), the central bank of Malaysia, there are a total of 240 Fintech companies operating in the country as of June this year. This represents an almost 45% increase from 166 in July last year. Other than quantity, Malaysia’s Fintech market is also looking good in terms of quality, as the market was dubbed the “emerging Fintech hub of Asia” by Ernst & Young’s (EY) in its ASEAN FinTech Census 2018 (henceforth, the “Census”). 

The recognition by EY of Malaysia’s rising Fintech market was granted based on the fact that the market raked in about US$75 million worth of investments in 2017, 15 times the amount recorded in 2016. Although Malaysia is no match for its neighbor Singapore, EY noted in the Census that Malaysia is effectively leveraging its lower cost of living and pitching itself as the “low cost cousin of Singapore”. With this in mind, let’s explore the blockchain use cases in the Malaysian Fintech industry, which presents an economical alternative to that of Singapore.

Blockchain for Digital Banking and Islamic Financing in Malaysia

When it comes to the topic of Fintech, digital banking naturally comes into the picture. In this regard, it was reported back in June this year that the digital banking framework being developed by BNM was about 50% completed, with the framework slated to be launched by the end of this year. Although the digital banking framework is yet to be ready in Malaysia, decentralized finance (DeFi) has already made its entry into the country, as Malaysia is already playing host to a decentralized banking platform in the form of local startup FINX, which leverages blockchain to provide a range of banking and financial services, including fiat-crypto conversion, remittance transfer, payment systems, and micro-loans financing. 

As the business presence of FINX transcends the shores of SEA to reach European countries such as Switzerland, it is perhaps rather ironic to note that FINX expressly states on its website that it will not be operating in Malaysia. Blockchain enthusiasts in Malaysia will presumably be keeping their fingers crossed that this will change once BNM’s digital banking framework comes into operation.

In the context of Islamic finance, Malaysia is undoubtedly a global leader, as it produced more than a quarter i.e. 26% of the world’s Shariah-compliant financial assets in 2017. Leveraging its strength in this regard, it was reported in September this year that the Malaysian government through its state agency i.e. the Malaysian Productivity Council (MPC) is collaborating with TideiSun Group (iSunOne) to build a blockchain platform which will provide Islamic financial services to the local population. On the private sector front, HelloGold is a Malaysian startup that operates a Shariah-compliant blockchain platform through which users can engage in the trading of physical gold, be it to purchase, sell, save or redeem the commodity.

Blockchain as the Way Forward for the Malaysian Fintech Industry

In October 2016, BNM established the Financial Technology Enabler Group (FTEG), which is tasked with the formulation of regulatory policies that are conducive to the promotion of technological innovation in Malaysia’s financial services industry. At around the same time, BNM launched the Financial Technology Regulatory Sandbox Framework with the aim of supporting the use of Fintech in Malaysia. Given that blockchain is increasingly being touted as the technology that could herald a new era of Fintech innovations, it is about time BNM puts its fancy tools to practical use to reinvent the Malaysian Fintech landscape for the benefit of all and sundry in the country.

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