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Malaysian Fintech Sector Hampered by Mistrust and Skill Shortages

Although fintech is finding a ready market in Malaysia, a number of challenges need to be overcome before such innovations can be widely implemented, including cultural concerns, regulatory shortcomings and a lack of skilled staff.

Photo: Capital Bay: Change in the financial services sector has to begin at the top.
Capital Bay: Change in the financial services sector has to begin at the top.
Photo: Capital Bay: Change in the financial services sector has to begin at the top.
Capital Bay: Change in the financial services sector has to begin at the top.

Asian bankers, banking technology professionals and financial technology (fintech) start-ups were all well represented at the recent BankTechAsia event in Kuala Lumpur. Among the participants, there was a consensus that many of the latest developments in fintech could genuinely improve the way people live, work, play, invest and consume. Before these benefits can be delivered, however, it was also agreed that there remains a number of challenges that need to be overcome – most notably an incipient distrust of new technology, concerns over security, several overly restrictive regulatory issues and a number logistical problems.

In essence, many fintech start-ups are finding success by providing more efficient and cost-effective methods of delivering financial services. Typically, these are methods that are easier, simpler and more convenient for both service providers and end users.

Opening the conferences, Malikkhan Kotadia, Mentor at The FinLab Pte and former Senior Vice-president for Global Digital Transformation at Citi, said: "Emerging technologies aside, the key factors driving fintech in Southeast Asia remain the 2008 crisis and the subsequent trust deficit suffered by banks.

"On top of that, there is the explosive growth in smartphone use, a development that has seen mobile apps become all but ubiquitous. There has also been an exponential growth in venture funding, while a huge number of previously unbanked consumers in the region is now on course to leapfrog directly to digital banking.

"Overall, the disproportionately young population of Southeast Asia is very net-savvy and keen to have access to information and data at all times. Against this, you have the traditional financial services institutions with their high fees and lack of transparency. It is no wonder that fintech, frequently offering lower charges and no hidden fees, is now making such inroads."

Despite the apparent benefits of this new order, there is still considerable resistance to its wholehearted adoption, particularly in Malaysia. Highlighting the obstacles ahead, Deepak Panigrahy, Vice-president for Marketing at EZMCOM, a California-based online security company, said: "It's a question of mind-set. It's like we're telling them to wear a tuxedo, but to them a T-shirt will do. Some companies will wait until it is illegal to continue as they are before they adopt new technologies.

"What some seem to neglect considering is that by adopting technology quickly, they can save time and money while having less wastage – something that could help boost their competitive advantage. While they think they are playing safe, they unwittingly end up paying more for their complacency."

Photo: Currenseek: An ‘enabling’ fintech app.
Currenseek: An 'enabling' fintech app.
Photo: Currenseek: An ‘enabling’ fintech app.
Currenseek: An 'enabling' fintech app.
Photo: (ISC)²’s Victor: Poorly-trained staff pose a threat.
(ISC)²'s Victor: Poorly-trained staff pose a threat.
Photo: (ISC)²’s Victor: Poorly-trained staff pose a threat.
(ISC)²'s Victor: Poorly-trained staff pose a threat.

In broad agreement with Panigrahy is Justin Saw, a Senior Consultant with M-Security, the Malaysian distributor of the SkyBox online security system. Outlining his own take on the issue, he said: "Malaysians are notoriously slow when it comes to adopting new technology. In the case of Skybox, as it produces a report on security loopholes that need to be addressed at the employee level, we encounter resistance as many see this as additional work. They fail to realise that preventative measures are considerably less resource-intensive – and far less stressful to implement – than any actual disaster recovery process."

Ang Xing Xian, Director of Capital Bay, an invoice financing app, believes he has found the solution. He said: "When conveying your value proposition, you really have to go to the very top and not go through lower-level employees."

Overall, though, many of the exhibitors at the show believed that there is a genuine desire to upgrade, although many companies are deterred by the often complex and expensive implementation procedures involved. Confirming this, Saranyan Umapathy, a director of the Business Consulting Services Division of KGiSL, an Indian software consulting firm, said: "Many Malaysian businesses are hungry for technology – that culture is flowing in from Singapore."

For Joe Hock Thor, Chief Executive of Kuala Lumpur-based RE Solutions, a consulting and technology solutions company, it is more a question of the under-developed nature of sector. He said: "You have to remember that in the Malaysian financial services industry, as a whole, a sufficient proportion of its processes has been properly automated. Before advanced technologies can be adopted, the sector needs to refine its infrastructure, systems and staff capabilities."

Rajendran Janardhanan, Director of Banking and Financial Business Solutions for KGiSL, also believes the Malaysian financial services sector is yet to lay the groundwork required for any true technological upgrade. He said: "Most of the banks here have legacy applications that they need to maintain. In order to adopt advanced digital technologies, such as blockchains, banks will need to put the necessary support systems in place first."

Perhaps understandably then, it is the technology that is seen as supportive of existing systems – as opposed to being disruptive – that tends to get a warmer reception from the established players. A clear example here would be Currenseek, an app that enables travellers to get the best forex deals by comparing the rates of a number of nearby money changers.

Amir Haghbin, Co-founder of Malaysia-based Currenseek, said: "Broadly speaking, I believe there are two types of fintech apps – disruptors and enablers. Disruptors look to completely bypass the traditional market players, whereas enablers strengthen, enhance or optimise certain capabilities of the existing order. Naturally, it's the enablers that many of incumbent financial institutions are more willing to co-operate with."

Regulatory constraints are another obvious hurdle, with financial regulators often wary of the potential cyber-security shortcomings of new technology. Emphasising the absolute necessity of protecting sensitive personal and corporate financial data, Eann Yong Siew, a consultant with Macrokiosk, a Kuala Lumpur-based mobile technology, said: "Compliance is always an issue – enterprises want to change, but implementation is often difficult. Without a more open and collaborative relationship between the public and private sector, the industry won't advance at the speed required for Malaysia to become globally competitive."

The final obstacle is that sophisticated new technology requires people with the expertise to use it properly, something frequently seen as lacking in the Malaysian financial services sector. One organisation looking to remedy this is (ISC)², a non-profit body of certified cyber, information, software and cloud computing infrastructure security professionals.

Acknowledging the threat posed by poorly trained staff, Philip Victor, (ISC)²'s Head of Market Development, says: "There is a real need to ensure properly trained staff are in place to utilise the full potential of new technology. Powerful software is useless – even dangerous – in the hands of unskilled, untrained or unethical people.

"We're now working with a number of organisations and governments in order to ensure they have access to all the required expertise, processes, response plans, and threat intelligence. The biggest security threat to the financial services industry and its best line of defence is one and the same – people."

Photo: BankTechAsia 2016: Where banking meets technology.
BankTechAsia 2016: Where banking meets technology.
Photo: BankTechAsia 2016: Where banking meets technology.
BankTechAsia 2016: Where banking meets technology.

BankTechAsia 2016 took place from 8-9 November at the Nexus Conference Centre in Kuala Lumpur.

Geoff de Freitas, Special Correspondent, Kuala Lumpur

Content provided by Picture: HKTDC Research
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