Technology has been inspiring various sector, including financial services. Fintech is replacing the traditional financial services and driving the new business model now. The pace of change is rising as many financial institutions are transforming their business using technology. Since 2017, Fintech startups have been focusing on blockchain technologies, which have successfully attracted a venture capital funding of over US$ 1.4 billion. Below are some key facts in the fintech industry:
China and India are the two countries with the highest consumer fintech adoption rates, reaching 87% in 2020. Other countries such as Russia, South Africa, UK are also one of the countries which own high consumer fintech adoption rate between the range of 71% to 82%, as shown in the graph above. China has the highest percentage of digitally active consumers who use fintech, at 69% while India has only 52%. On average, the global digital active consumers who use fintech is about 33%, which is about half of the active consumers in China.
The Fintech’s ecosystem mainly involves in the Robo advisors & personal finance, Regtechs, Digital banks & banking software providers, payments & remittances, blockchain/DLT & Bitcoin, Insurtechs, Digital identity verification and alternative finance. A list of notable players is presented in the figure above under each category.
The following are the top trends which will bring the most impact on every aspect of the FinTech sphere in the future:
- Digital-only banking
Digital-only banks can eventually replace the brick-and-mortar banks as people find it convenient by not wasting time on queuing at the physical banks. People can pay their bills, reset pins, and have a quick balance review at home at any time. Physical banks are forecasted to have a 36% drop in visitors from 2017 to 2022.
- Blockchain & Smart Contracts in the global finance sector
The first practical blockchain was utilized for the transaction of cryptocurrency, namely Bitcoin, to accommodate secure and fair transactions as blockchains can prevent fraudulent activities by retaining origin data on the blockchain. Blockchain technology has brought beneficial features which are desired by the financial sector. These values include providing transactional security and fast transacting operation between two transacting parties, other than ensuring safe transactions with secured and reliable digital identities.
Blockchain technology utilizes the concept of “smart contracts” to ensure the integrity and performance of agreements, whereby governance and compliance of intercompany agreements will be enhanced. Smart contracts are code lines stored on a blockchain which function as self-executing protocols, enforcing predetermined terms and conditions via code lines. Smart contracts eliminate the involvement of intermediary and therefore help reduce manual manipulation of financial operations, allowing companies to focus on value creation instead.
In short, bitcoin technology ensures transparency, security, ownership and low-cost transactions in financial activities.
- Artificial Intelligence & Big data for financial institutions
By combining the Artificial Intelligence (AI) and Big Data will allow the financial organisations to collect and analyse vast amounts of data, which then provide favourable insights on each customer’s needs. Physical banks have started harnessing AI and big data by creating AI-based chatbots and personal assistants to enhance the processes as well as understanding their customer behaviour. By 2030, banks are projected to reduce 22% of their operating costs by using AI technology.
- Cybersecurity & Intensified fintech regulation
Due to the increasing cases on cyberattacks, data breaches and financial fraud schemes, governments are intensifying Fintech regulations to protect users and organisations. Besides that, blockchain and distributed ledger technologies play an essential role in preventing cyberattacks. Banks are predicted to save up to US$ 15 to US$ 20 billion annually by 2022.
- Payment innovations
Payment innovations in fintech include mobile payments, mobile wallets, contactless payments, smart speaker systems, AI & machine learning for security and others. Mobile wallets are estimated to replace all the physical wallets due to various benefits. In addition, the number of people using contactless payments is forecasted to reach 760 million by 2020. In conclusion, digital wallets, mobile payments will be driving the fintech payment innovations.
Future of Fintech in Malaysia
Fintech industry in Malaysia has been burgeoning recently where Shariah-compliant fintech is moving to the leading position as most of the population in Malaysia are Muslims. In 2019, Malaysia continued to lead in the Global Islamic Economy Indicator (GIEI), which secures top 5 positions in all the sub-category for GIE Index, including the Islamic Finance.
Out of 138 Islamic fintech start-ups across the world, 41% are in Asia, where 26 Islamic fintech providers are found in Malaysia. This is one of the factors why Malaysia has a strong fintech ecosystem. Malaysia is also becoming the global hub for Islamic fintech as fintech adoption is growing fast.
In addition, the use of digital financial services has increased due to COVID-19 pandemic. The demand for Islamic fintech is expected to be accelerated. Mohammad Ridzuan, who is the Fintech Association of Malaysia president mentioned that there are areas can be developed by Islamic fintech which include halal payment gateways, digital ar-rahn pawnbroking platforms and Shariah-compliant versions of successful conventional financing that use blockchain and smart contracts.
While all the fintech players have to face and solve different regulatory challenges, the Malaysian government can support the fintech players in a more globalised mindset as the fintech industry will shine in the future as well as creating various job opportunities and contribute positively towards the country’s economic growth.
Written by Yu-Ting Tan, Consultant at 27 Advisory. Obtained her bachelor’s degree in the field of Chemical Engineering (Honours) at Monash University. She is interested in nanotechnology as well as the consulting field and wishes to gain more experience in these areas to help people afford a better quality of life.
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