Travelling Malaysia Part III – The Big Banks & Fintech; A Symbiotic Relationship?

The Money Cloud, your best resource for overseas money transfer comparison, explores Malaysia, its big banks and the fintech scene. Read our earlier posts on Malaysian fintech startups to watch and and overview of fintech in Malaysia.

Kuala Lumpur – A Big, Young City

Kuala Lumpur, is a big, sprawling city with a population of nearly 2 million, and it combines all the trappings of the big city; traffic jams, busy people rushing here, there and everywhere, as dramatic a skyline as you could hope to see anywhere in the world; extravagant wealth on one street, street hawkers selling their wares for just a few ringgits on the next; with some entirely unique features of its own.

Kuala Lumpur, which means “muddy confluence”, in Malay, or “muddy landing place” in Cantonese depending on your source, a reference to the nearby Klang river, Sungei Lumpoor, is not much more than 150 years old.

It was founded for the access it provided to newly discovered tin mines, and its early years were characterised by gangs scrapping for ownership of the best mines – culminating in the Selangor Civil War, and the razing of the city in 1872.

From such inauspicious beginnings however, the town was rebuilt and began to flourish, thanks in large part to two of its most famous residents; Yap Ah Loy, a Chinese mining chief, and Frank Sweetenham, appointed “Resident” in 1882.

The rubber industry brought wealth, and more foreign influence to the city, which had been largely controlled by the Chinese until this point. The city was captured by the Japanese during the Second World War, but surrendered it to the British in 1946. Malaysia won independence from Britain in 1957.

It was only in 1972 that Kuala Lumpur achieved full city status – since then the city has had 9 Lord Mayors, or “Datuk Bandar”, whose office helps administer the eleven city districts. Today, Kuala Lumpur, with its tropical climate protected by the Titiwangsa mountains in the East and the Indonesian island of Sumatra in the West, is at the epicentre of the fastest growing region in Malaysia.

Not bad for a city that, less than a century ago, used to organise regular tiger hunts in what is now ChinaTown, near enough the City Centre. Today Kuala Lumpur is the only Alpha World City in Malaysia.

Finance, Insurance, Payments – A National Economy “ripe for destruction”?

The Malaysian banking industry is performing well with CIMB Research projecting that core net profit growth is expected to be in the region of 13.3% in 2017, after a decline of 3.1% in 2016, but it is also true that the financial services industry in Malaysia is nervously looking over its shoulder at the fintech firms trying to eat into its market share.

As I mentioned in a previous post, the Governor of the Bank Negara Malaysia, Datuk Muhammad Ibrahim has suggested that between 10-40% of banking revenues are at risk to “innovations outside banking institutions”.

But it is also a myth that fintech firms operate independently of big banks. In fact, in many cases, just as in the UK, it is the big banks who are helping to drive innovation.

Maybank is Malaysia’s largest bank; in June this year it became the first company listed on the Bursa Malaysia stock exchange to achieve a market cap of M$100 billion.

The bank seems to be all too aware that when it comes to Fintech, rather than trying to beat them, it is better off joining forces with early stage fintech firms. As far back as 2015, Maybank organised a conference, the Maybank Fintech 2015, in partnership with a local VC firm, L337 Ventures.

The event attracted more than 100 companies from 10 different countries, intent upon solving problems and disrupting sectors such as digital payments, lending, distributed ledger technology and the blockchain, IoT, security and also Islamic finance; Malaysia can lay claim to being the world’s Islamic finance hub. The conference was repeated in 2016, and again this year, helping to give emerging fintech firms access to Maybank’s 22-million plus customers.

Malaysian Central Bank playing key role via Fintech Technology Enabler Group

The Bank Negara Malaysia, the country’s central bank has also formed a key part of the fintech push. In June 2016 the bank launched the Financial Technology Enabler Group to “formulate and enhance regulatory policies to facilitate the adoption of technological innovations in the Malaysia financial services industry.”

The FTEG has helped to introduce a “regulatory sandbox” allowing startups to trial new technology before releasing it to the public; sandboxes are popular with the banking authorities in many fintech hubs, including London and Singapore. It has also launched Fintech Hacks, an initiative aimed at the public, who are asked to give their view on possible improvements to the financial services industry.

Every Malaysian big bank has a fintech strategy

Another Malaysian bank, CIMB Group, has appointed a westerner, Olivier Crespin, as its Chief Fintech Officer; Crespin heads up a unit dedicated to “experimenting and realising our digital ambitions.” CIMB is the second largest bank in Malaysia, with 7.5 million customers and 40,000 employees.

The bank runs its own incubator programme, Innochallenge, designed to devise new fintech solutions for startups to work on.

Hong Leong Bank Nerhad (HLB) has launched its own incubator, a 3 month program dedicated to creating the next wave of Malaysian fintech startups. HLB Launchpad has opened up a relationship with the Malaysian Business Angel Network, and early stage funding provider Cradle Fund. The program will see 5 start-ups awarded 25,000 Malaysian Ringgits (around £5k), which they can use for development, and to compete for a much larger 1 million Ringgit overall prize.

RHB Bank, Malaysia’s fourth largest, is an exclusive partner to Startupbootcamp, and helps the incubator run Hackathon’s in and around Kuala Lumpur. The bank has also promised to spend up to 20% of its capex this year on executing new digital strategies, according to BankTechAsia.

The Fintech Association of Malaysia

Finally, in November last year, the Fintech Association of Malaysia was formed by a group of “entrepreneurs, founders, enthusiasts, community leaders, government agencies, regulators, and like minded people”.

The FAOM was formed with the goal of creating a national platform to “support Malaysia to be the leading hub for Fintech and innovation & investment in the region. The society has four objectives; to engage with industry players and influence policy, to be the go-to contact point and channel for Fintech discussion in the country, to connect with stakeholders locally and nationally and partner with other fintech hubs, and to build a fintech focused community to provide thought leadership via conferences and forums.

Conclusion – Is Fintech Assimilation in Malaysia ahead of the game?

Fintech is a term you can no longer get away from if you work in the financial services industry, but my experience spending time in Kuala Lumpur has taught me that if anything, banks are ahead of the game when it comes to assimilating fintech services into their overall businesses.

Unlike in London, there are fewer stand out independent fintech players, and less of a “scene” than you might find in the UK, Europe or even Silicon Valley. But that does not mean that the underlying tech is not being embraced just as enthusiastically.

In Malaysia, despite some fears, the financial services industry seems more sang froid about the rise of fintech. Fintech has not taken Malaysia by surprise, rather it seems the big banks have anticipated its rise and taken steps to incorporate it into their business models.

Malaysia is still waiting for its first big fintech startup success, and it may well come in the form of a disruptive payments company, a blockchain solution for currencies or traders, a cyber security firm or, perhaps most likely, an AI or big data driven robo-advisory service. But even if it does, I would expect the hype around the company to be less than in one of the regions I have mentioned above.

As I have said before, Malysians are more than familiar with the latest tech developments, and tend to take disruptive services and products into their stride more. That is certainly the impression I have gained during my two weeks here.

Perhaps this is due to a lack of Venture Capital – such a vital cog in the wheel of the growth of disruptive services elsewhere in the world. There is still plenty of time for Malaysian fintech firms to embrace the venture capital investment model. Asia is no stranger to it; think Alipay, GrabTaxi, or even Softbank’s £100 billion-dollar tech fund. If it does happen, however, the chances are Malaysia will view these developments as business as usual.

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