## 1mysea2020002 - References ## Source details **Canonical URL:** [1mysea2020002 - References](https://www.imf.org/-/media/files/publications/cr/2020/english/1mysea2020002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1mysea2020002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1mysea2020002.pdf.json) --- ### Glossary - Chatbot: An artificial intelligence computer program that is designed to have a conversation with human users. - Cloud services: The delivery of services such as servers, storage, databases, software, analytics over the internet (the cloud). - Crowdfunding: The activity or process of raising money from a large number of people, usually through online platforms, for a project or a small business. - Cryptocurrency: A digital asset that depends mainly on cryptography and distributed ledger technology as part of its perceived or inherent value. Bitcoin is an example of a cryptocurrency. - Electronic Know-Your-Customer (e-KYC): Paperless authentication process of the user, in which credentials such as identity and address can be verified electronically. - Electronic payment (e-Payment): A non-cash payment method that includes mobile payment, or through charge cards, credit cards and debit cards. - GrabPay: The mobile wallet created by Grab, Southeast Asia’s largest ride-hailing operator. - Initial Coin Offering (ICO): An operation through which companies, entrepreneurs, developers or other promoters raise capital for their projects in exchange for digital tokens (or ‘coins’) that they create. - Insurtech: The combination of insurance and technology, refers to the use of technology in insurance to raise efficiency, reduce costs, or improve customer service. - Interoperable Credit Transfer Framework (ICTF): A framework issued by Bank Negara Malaysia (BNM) that creates a shared payment infrastructure for banks and non-bank e-money issuers with the aim to promote collaborative competition. - Islamic finance: Financial activity that is shariah-compliant. Key principles include the prohibition of charging interest (riba), uncertainty (gharar), speculation (maysir) and dealing with impermissible activities or products (such as alcohol). - Maybank QRPay: An application by Maybank that allows users to pay at authorized merchants by scanning a QR code. - Mobile wallet: Mobile wallets are smartphone applications that enable users to make online and in-person payments at authorized merchants via the mobile phone. - Open Application Program Interface (API): Publicly available programming interface for a software application or web service that a programmer can access with relatively few restrictions. - Quick response (QR) code: The trademark for a machine-readable code that consists of an array of black and white squares, which usually stores URLs or other information that can be read by a camera of a smartphone. - Payments Network Malaysia Sdn Bhd (PayNet): A Malaysian payments infrastructure company that designs, builds and operates payments and financial market infrastructures. It is jointly owned by BNM and 11 Malaysian banks. - Peer-to-Peer (P2P) lending: The lending of money to individuals or businesses through online platforms that match lenders to borrowers. - Regtech: The use of technology in regulation. - Regulatory sandbox: A framework that allows for the experimentation of innovative FinTech solutions in a live market environment within specified parameters and timeframes. - Sukuk: Debt security structured under any Shariah compliant contract, which is also known as an Islamic bond. - Takaful: A type of Islamic insurance in which at least two parties agree to jointly guarantee one another in the event of a loss or damage. ### A. Introduction — Key findings - Financial Technology (FinTech) is increasingly important in Malaysia’s financial sector. - Conditions favorable for FinTech growth: a growing middle class, high mobile and internet penetration rates, and government commitment to grow the digital economy through proactive regulations and support. - Opportunities span incumbent financial institutions (FIs) and new entrants, including Islamic finance. - Challenges to sustained rapid growth: skills, talent, infrastructure, and funding, with financial stability considerations. ### B. Digital readiness and connectivity - Malaysia ranked 31 out of 139 countries in the World Economic Forum’s Network Readiness Index. - Internet banking usage: exceeding 90 percent in 2018 (calculation based on total subscribers; number of active internet banking users estimated at close to half the population). - Mobile data affordability: Malaysia’s cost of 1GB of mobile internet data was 0.2 percent of Gross National Income per capita in 2018, compared with 0.8 percent in the six Southeast Asian Countries covered in the e-Conomy SEA 2018 report. - 4G network coverage: described as almost universal; roll out of 5G planned in the next years alongside affordable mobile data to support mobile FinTech growth. ### C. Changing financial sector landscape — scale and segments - Number of FinTech startups: close to 200 as of April 2019. - Five FinTech sub-categories (per Financial Stability Board framework): (1) payments, clearing and settlement; (2) deposits, lending and capital raising; (3) insurance; (4) investment management; and (5) market support. Key statistics and developments by sub-sector: - Payments, clearing and settlement: - Payments segment: 40 percent of the market according to BNM (largest FinTech segment). - Malaysia’s cash-use as a share of GDP: already below the regional average of 10 percent. - Non-bank e-money issuers offering mobile apps: grew seven-fold to 35 in 2018 from five in 2016 (BNM). - Non-bank mobile payment transactions (value and volume): surged to MYR1.3 billion and 31.1 million, respectively, in 2018 from MYR240.3 million and 1.0 million in 2017. - ICTF effective date: July 1, 2018. - PayNet’s interoperable QR payment scheme: national roll-out to promote seamless merchant/customer payments across providers. - TransferWise obtaining a remittances license: June 2019. - Deposits, lending and capital raising: - Digital-only banks: none in operation as of text; BNM launched exposure draft on digital bank licensing framework on December 27, 2019. - Parties expressing interest in the digital bank license: more than 20 as of end 2019. - Licensed market-based financing platform operators (Securities Commission): 21 (11 P2P and 10 ECF) as of September 2019. - Amount provided by these platforms: MYR587 million as of September 2019, with P2P accounting for 89 percent. - Growth: provided amount growing approximately 18 times from September 2017 figures. - Number of successful financing campaigns: grew 84 times to 6,292 over the same period. - Insurance: - Local insurtech startups include PolicyStreet and Katsana. - Investment management: - Automated discretionary portfolio management and digital advisers used by firms including ALGEBRA and StashAway. - Hellogold: a shariah-compliant Malaysian-based wealth management FinTech promoting savings in gold. - Market support: - Innovations include e-KYC, voluntary Open API, and cloud services; e-KYC currently available for individuals in Malaysia for money services businesses and planned phased implementation across other sectors. - Digital currency and tokens: - No official statistics on domestic ICO activity; activity appears small. - Trading on declared digital asset exchanges (DAX): decreasing trend in number and value of transactions in 2018 (BNM). ### D. FinTech and incumbent financial institutions (FIs) - Malaysian banks continue to dominate deposits, lending and capital raising but are reducing emphasis on physical distribution networks. - ATM network trend: ATMs fell to 46.75 ATMs per 100,000 adults in 2018 from a peak of 53.7 in 2010. - Incumbent FIs responses: - Increased investment in digitalization and partnerships with entrants. - Banks launching digital transformation plans and adopting technologies such as advanced analytics, automation and chatbots. - PwC survey (2016): 87 percent and 76 percent of Malaysian FinTech firms listed differentiation and cost reduction as the two main opportunities relating to the rise of FinTech. ### Box 1 — Mobile Wallets in Malaysia (selected facts) - Non-bank e-money issuers offering mobile apps: grew to 35 in 2018 from five in 2016 (BNM). - Popular mobile wallets identified: GrabPay, Touch ‘n Go eWallet (partnership with Ant Financial), and WeChat Pay MY (Financial Times Confidential Research survey). - GrabPay: - Rolled out in Malaysia in June 2018 (after Singapore launch in 2017). - Users can top up via online banking, debit and credit cards; in-store purchases at authorized merchants. - Partnership with Maybank since 2018 to improve top-up experience and merchant acceptance. - Touch ‘n Go eWallet: - Partnership with Ant Financial since 2017. - Accepted by more than 18,000 merchants in mid-2018. - WeChat Pay MY: - Introduced in Malaysia in 2018. - At a March 2019 launch event reported merchant base of more than 3,500. - Chinese tourist payments: - World Travel and Tourism Council survey: 90 percent and 66 percent of Chinese outbound travelers used Alipay and WeChat Pay, respectively, for travel-related transactions. - Government digital stimulus: e-Tunai Rakyat - One-time transfer: MYR30 to qualified Malaysians aged 18 and above with annual income less than MYR100,000. - Government allocation: up to MYR450 million to Khazanah Nasional to implement the digital stimulus. - Potential beneficiaries: up to 15 million Malaysians. ### Box 2 — Examples of Malaysian FinTech players (selected profiles) - CapitalBay (Deposits, lending and capital raising): - Established in 2016; one of 11 P2P players licensed by the SC. - Uses optical character recognition and machine learning for supply chain finance to SMEs. - Since starting operations in late-2017, conducted approximately 1,500 transactions of over MYR100 million with zero defaults to date. - MoneyMatch (Payments, clearing and settlement): - Founded in 2015; products established in 2017. - Provides cross-border payments at lower cost and has used the Ripple blockchain for transactions out of Malaysia. - Graduate of the central bank’s regulatory sandbox. - PrimeKeeper (Market support): - Founded in 2015; provides a payment aggregator platform enabling management of multiple bank accounts for merchant payments via ATM pins and QR codes. - Product currently in the pilot phase. ### Policy, regulatory and market-enabling developments - BNM initiatives: - Interoperable Credit Transfer Framework (ICTF): effective July 1, 2018, to create shared payment infrastructure for banks and non-bank e-money issuers and to promote collaborative competition. - Support for PayNet’s interoperable QR payment scheme to enable seamless payments across QR providers. - Regulatory sandbox for FinTech experimentation (BNM’s FTEG sandbox referenced). - Exposure draft on digital bank licensing framework: launched December 27, 2019. - Securities Commission (SC): - Licensing and oversight of market-based financing platform operators (21 operators as of September 2019). - Government measures: - e-Tunai Rakyat digital stimulus: one-time MYR30 transfers; up to MYR450 million allocated to Khazanah Nasional; potential reach up to 15 million Malaysians. ### Technology-related spending by banks - Average technology-related spending as a share of overall expenses rose to 6.4 percent in 2018 from 4.1 percent in 2016. - This 6.4 percent was close to an estimated 6.5 percent average for ASEAN-5. - Singaporean banks spent an average of 13.2 percent of overall expenses on technology in 2018. ### Bank–FinTech partnerships and strategic collaboration - Leading Malaysian FIs have sought strategic partnerships with startups to access agility, creativity and talent, while startups leverage banks’ distribution networks, customer data and reputation. - Example: In the insurance sector, 14 leading insurers and Islamic insurance (takaful) companies partnered with Grab to offer usage-based motor insurance for its ride-hailing drivers, starting from August 2019. - World FinTech Report 2018: FinTech companies partner with incumbent banks to enhance visibility through banks’ established brand names. - Open API adoption is increasing voluntarily in the financial services sector, particularly around publicly available and product-related data. BNM is working on an Open Banking framework and is looking to release a consultation paper in 2020. ### Regulatory environment: balance between innovation and financial stability - Regulators involved: Bank Negara Malaysia (BNM), Securities Commission (SC) and Malaysia Digital Economy Corporation (MDEC). - Regulatory aim: reduce barriers to innovation, develop supportive infrastructure, encourage competition and experimentation, while ensuring financial stability and confidence. - BNM established the Financial Technology Enabler Group (FTEG) in June 2016 to facilitate technological innovation and testing; FTEG operates the regulatory sandbox and coordinates regulatory measures with other regulators. - MDEC supports FinTech innovation through working spaces and collaborative initiatives. - FinTech in conventional and Islamic finance tends to be subject to the same regulations, given a function-based regulatory approach. ### Cybersecurity and systemic risk management - Cyber security is among the top issues in annual reports of major Malaysian banks due to the threat to customer trust and financial stability. - BNM’s Financial Stability Review First Half 2019 highlighted cyber risks. - BNM policy: Risk Management in Technology provides basic guidelines for FIs on cyber security risk management. - Initiative: BNM and the financial industry are creating a ‘Financial Threat Intelligence Platform’ by 2020Q2 to collate, analyze and disseminate real-time information on cyber threats. - National Cyber Security Policy was updated in late-2019. ### Crypto assets and digital asset regulation - BNM clarified in 2014 that digital assets are not legal tender in Malaysia and reiterated this in multiple press releases. - SC has warned investors about ICO risks and shut down an ICO in 2018. - SC approach: phased development of a regulatory framework for digital assets. - Recognition and rules: - The SC has recognized digital currencies and tokens as securities subject to securities regulation. - Requirements for electronic platforms that aid trading of these assets began from January 2019. - The SC conditionally approved three recognized market operators to establish and operate DAX beginning from June 4, 2019. - 19 DAX were not permitted to continue operations with effect from June 1, 2019. - AML/CFT measures: legislative and regulatory measures in 2017 and 2018 for certain virtual asset activities. - SC introduced crowdfunding and P2P regulatory frameworks in 2015 and 2016, respectively. ### BNM’s FTEG FinTech Regulatory Sandbox (Box 3) - Sandbox established on October 18, 2016. - As of December 2019: - 83 applicants have applied for the sandbox. - Seven solutions approved for live-testing. - One firm currently remains in the sandbox. - Six approved participants (two insurance aggregators, two e-remittance service providers, an e-KYC solution provider and a secured chat banking service) have completed live-testing. - Post-sandbox outcomes: firms have either obtained necessary regulatory approvals to commercialize, ceased operations or are exploring new technology partners. - Six applications are in the preparation stage to conduct live-testing. - 2018 enhancement: introduction of the ‘Specialized Sandbox’ with thematic tracks; example: an e-KYC specialized sandbox currently with seven participant banks. - Eligibility and process highlights: - Applicants must demonstrate potential to improve accessibility, efficiency, security and quality of financial services; enhance risk management effectiveness; or address financing/investment gaps. - Business plan must demonstrate a viable business model upon exiting the sandbox. - Testing is limited to a one-year period. - Sandbox requires firms to identify potential risks in financial stability, consumer protection and ML/TF, and to produce interim and final reports. ### FinTech and Islamic finance (Box 4) - Islamic bank loan growth: 8.9 percent y/y in 2018, compared to 2.5 percent y/y for conventional banks. - Islamic loans reached close to 32 percent of overall bank loans (2017: 30.2 percent). - Malaysia’s share of global outstanding sukuk: approximately half of total outstanding sukuk (USD 456.7 billion). - Saudi Arabia holds a 12.6 percent market share (distant second). - Takaful accounts for 10 percent of Malaysia’s insurance market. - Islamic FinTech status: - Malaysia is home to seven Islamic FinTech startups (DinarStandard’s Islamic FinTech Report 2018). - Around 70 percent of Islamic FinTech companies globally are focused on equity crowdfunding (ECF) and P2P lending. - BNM launched the Investment Account Platform (IAP) in 2016—an Islamic crowdfunding platform for SMEs involving six Islamic banks. - Example private platform: Ethis Venture (one of 10 ECF players licensed by the SC) aiming to launch by March 2020 to support domestic SME funding; SMEs and startups must be shariah-compliant and issuance of shares must align with Mudarabah. - Bank digital investment commitments reported in 2019: - MBSB Bank Berhad’s board approved MYR250 million for IT investments. - Bank Islam Malaysia Berhad committed MYR250 million for digitalization. ### Key challenges for FinTech development - Talent shortage: - Shortage in machine learning and data analytics talent; need for upskilling existing bank staff. - Rising demand for compliance talent among FinTech companies. - 100 percent of Malaysian respondents reported trouble hiring talent in Ernst & Young’s ‘ASEAN FinTech Census 2018’. - Conforming to regulations: - Regulators must balance financial stability and consumer protection with promoting innovation. - BNM, SC and MDEC conduct quarterly regulatory bootcamps to improve FinTech firms’ regulatory understanding. - FinTech Booster Program (BNM with MDEC) aims to guide promising solutions in ideation stages. - 45 percent each of Malaysian respondents found it moderately difficult or difficult to conform to local regulations in Ernst & Young’s ‘ASEAN FinTech Census 2018’. - Access to funding: - Malaysian FinTech funding volumes were relatively modest compared to peers. - UOB research: Singapore attracted USD222 million in FinTech funding in the first 10 months of 2018, compared to USD13 million in Malaysia. - Difficulty attracting later-stage funding reported by local FinTech companies. - Implementation of digital infrastructure: - Need for digital identities and open APIs; requires coordination across multiple government agencies for interoperability. - Balancing innovation and financial stability: - Regulators must frequently refine regulations and supervision to keep pace with FinTech developments. ### Initiatives and regulatory timeline (selected entries) - Sep-15: Alliance of FinTech Community (afFINity@SC) established by the SC. - Jun-16: BNM’s Financial Technology Enabler Group (FTEG) established. - Oct-16: FinTech Association of Malaysia (private sector initiative). - Sep-18: Digital Finance Innovation Hub and Inclusive FinTech Accelerator launched by BNM, UNCDF and MDEC. - Nov-18: Project Castor launched by the SC to test blockchain feasibility for unlisted and OTC markets. - 2019: Orbit FinTech Hub co-working space licensed by MDEC. Regulatory frameworks and guidance (selected) - Feb-15: Equity Crowdfunding (ECF) Framework (SC supervision). - May-16: Peer-To-Peer (P2P) Lending Framework (SC supervision). - Oct-16: Bank Negara Malaysia Financial Technology Regulatory Sandbox (monitored by FTEG). - May-17: Digital Investment Management Framework for automated discretionary portfolio management services. - Nov-17: AML/CFT - Money Services Business (Sector 3) e-KYC standards for remittance service providers. - Feb-18: AML/CFT – Digital Currencies (Sector 6): minimum requirements to improve transparency; reiterated digital currencies are not recognized as legal tender. - Mar-18: Interoperable Credit Transfer Framework (ICTF) for bank and non-bank e-money issuers. - Dec-18: Policy Document on Outsourcing addressing cloud services and related risks. - Jan-19: Policy Document on Publishing Open Data using Open API (guidance on Open Data APIs and governance). - Jan-19: Order under Capital Markets and Services Act recognizing digital currencies and digital tokens as securities. - Jan-19: Revision to Guidelines on Recognized Markets adding requirements for electronic platforms that facilitate trading of digital assets. *International Monetary Fund — Malaysia: FinTech in Malaysia (excerpts and references contained in source document)* ### References ____________________________________________________________________________ 21 ### 1mysea2020002 - References ### Glossary - Chatbot: An artificial intelligence computer program that is designed to have a conversation with human users. - Cloud services: The delivery of services such as servers, storage, databases, software, analytics over the internet (the cloud). - Crowdfunding: The activity or process of raising money from a large number of people, usually through online platforms, for a project or a small business. - Cryptocurrency: A digital asset that depends mainly on cryptography and distributed ledger technology as part of its perceived or inherent value. Bitcoin is an example of a cryptocurrency. - Electronic Know-Your-Customer (e-KYC): Paperless authentication process of the user, in which credentials such as identity and address can be verified electronically. - Electronic payment (e-Payment): A non-cash payment method that includes mobile payment, or through charge cards, credit cards and debit cards. - GrabPay: The mobile wallet created by Grab, Southeast Asia’s largest ride-hailing operator. - Initial Coin Offering (ICO): An operation through which companies, entrepreneurs, developers or other promoters raise capital for their projects in exchange for digital tokens (or ‘coins’) that they create. - Insurtech: The combination of insurance and technology, refers to the use of technology in insurance to raise efficiency, reduce costs, or improve customer service. - Interoperable Credit Transfer Framework (ICTF): A framework issued by Bank Negara Malaysia (BNM) that creates a shared payment infrastructure for banks and non-bank e-money issuers with the aim to promote collaborative competition. - Islamic finance: Financial activity that is shariah-compliant. Key principles include the prohibition of charging interest (riba), uncertainty (gharar), speculation (maysir) and dealing with impermissible activities or products (such as alcohol). - Maybank QRPay: An application by Maybank that allows users to pay at authorized merchants by scanning a QR code. - Mobile wallet: Mobile wallets are smartphone applications that enable users to make online and in-person payments at authorized merchants via the mobile phone. - Open Application Program Interface (API): Publicly available programming interface for a software application or web service that a programmer can access with relatively few restrictions. - Quick response (QR) code: The trademark for a machine-readable code that consists of an array of black and white squares, which usually stores URLs or other information that can be read by a camera of a smartphone. - Payments Network Malaysia Sdn Bhd (PayNet): A Malaysian payments infrastructure company that designs, builds and operates payments and financial market infrastructures. It is jointly owned by BNM and 11 Malaysian banks. - Peer-to-Peer (P2P) lending: The lending of money to individuals or businesses through online platforms that match lenders to borrowers. - Regtech: The use of technology in regulation. - Regulatory sandbox: A framework that allows for the experimentation of innovative FinTech solutions in a live market environment within specified parameters and timeframes. - Sukuk: Debt security structured under any Shariah compliant contract, which is also known as an Islamic bond. - Takaful: A type of Islamic insurance in which at least two parties agree to jointly guarantee one another in the event of a loss or damage. ### A. Introduction — Key findings - Financial Technology (FinTech) is increasingly important in Malaysia’s financial sector. - Conditions favorable for FinTech growth: a growing middle class, high mobile and internet penetration rates, and government commitment to grow the digital economy through proactive regulations and support. - Opportunities span incumbent financial institutions (FIs) and new entrants, including Islamic finance. - Challenges to sustained rapid growth: skills, talent, infrastructure, and funding, with financial stability considerations. ### B. Digital readiness and connectivity - Malaysia ranked 31 out of 139 countries in the World Economic Forum’s Network Readiness Index. - Internet banking usage: exceeding 90 percent in 2018 (calculation based on total subscribers; number of active internet banking users estimated at close to half the population). - Mobile data affordability: Malaysia’s cost of 1GB of mobile internet data was 0.2 percent of Gross National Income per capita in 2018, compared with 0.8 percent in the six Southeast Asian Countries covered in the e-Conomy SEA 2018 report. - 4G network coverage: described as almost universal; roll out of 5G planned in the next years alongside affordable mobile data to support mobile FinTech growth. ### C. Changing financial sector landscape — scale and segments - Number of FinTech startups: close to 200 as of April 2019. - Five FinTech sub-categories (per Financial Stability Board framework): (1) payments, clearing and settlement; (2) deposits, lending and capital raising; (3) insurance; (4) investment management; and (5) market support. Key statistics and developments by sub-sector: - Payments, clearing and settlement: - Payments segment: 40 percent of the market according to BNM (largest FinTech segment). - Malaysia’s cash-use as a share of GDP: already below the regional average of 10 percent. - Non-bank e-money issuers offering mobile apps: grew seven-fold to 35 in 2018 from five in 2016 (BNM). - Non-bank mobile payment transactions (value and volume): surged to MYR1.3 billion and 31.1 million, respectively, in 2018 from MYR240.3 million and 1.0 million in 2017. - ICTF effective date: July 1, 2018. - PayNet’s interoperable QR payment scheme: national roll-out to promote seamless merchant/customer payments across providers. - TransferWise obtaining a remittances license: June 2019. - Deposits, lending and capital raising: - Digital-only banks: none in operation as of text; BNM launched exposure draft on digital bank licensing framework on December 27, 2019. - Parties expressing interest in the digital bank license: more than 20 as of end 2019. - Licensed market-based financing platform operators (Securities Commission): 21 (11 P2P and 10 ECF) as of September 2019. - Amount provided by these platforms: MYR587 million as of September 2019, with P2P accounting for 89 percent. - Growth: provided amount growing approximately 18 times from September 2017 figures. - Number of successful financing campaigns: grew 84 times to 6,292 over the same period. - Insurance: - Local insurtech startups include PolicyStreet and Katsana. - Investment management: - Automated discretionary portfolio management and digital advisers used by firms including ALGEBRA and StashAway. - Hellogold: a shariah-compliant Malaysian-based wealth management FinTech promoting savings in gold. - Market support: - Innovations include e-KYC, voluntary Open API, and cloud services; e-KYC currently available for individuals in Malaysia for money services businesses and planned phased implementation across other sectors. - Digital currency and tokens: - No official statistics on domestic ICO activity; activity appears small. - Trading on declared digital asset exchanges (DAX): decreasing trend in number and value of transactions in 2018 (BNM). ### D. FinTech and incumbent financial institutions (FIs) - Malaysian banks continue to dominate deposits, lending and capital raising but are reducing emphasis on physical distribution networks. - ATM network trend: ATMs fell to 46.75 ATMs per 100,000 adults in 2018 from a peak of 53.7 in 2010. - Incumbent FIs responses: - Increased investment in digitalization and partnerships with entrants. - Banks launching digital transformation plans and adopting technologies such as advanced analytics, automation and chatbots. - PwC survey (2016): 87 percent and 76 percent of Malaysian FinTech firms listed differentiation and cost reduction as the two main opportunities relating to the rise of FinTech. ### Box 1 — Mobile Wallets in Malaysia (selected facts) - Non-bank e-money issuers offering mobile apps: grew to 35 in 2018 from five in 2016 (BNM). - Popular mobile wallets identified: GrabPay, Touch ‘n Go eWallet (partnership with Ant Financial), and WeChat Pay MY (Financial Times Confidential Research survey). - GrabPay: - Rolled out in Malaysia in June 2018 (after Singapore launch in 2017). - Users can top up via online banking, debit and credit cards; in-store purchases at authorized merchants. - Partnership with Maybank since 2018 to improve top-up experience and merchant acceptance. - Touch ‘n Go eWallet: - Partnership with Ant Financial since 2017. - Accepted by more than 18,000 merchants in mid-2018. - WeChat Pay MY: - Introduced in Malaysia in 2018. - At a March 2019 launch event reported merchant base of more than 3,500. - Chinese tourist payments: - World Travel and Tourism Council survey: 90 percent and 66 percent of Chinese outbound travelers used Alipay and WeChat Pay, respectively, for travel-related transactions. - Government digital stimulus: e-Tunai Rakyat - One-time transfer: MYR30 to qualified Malaysians aged 18 and above with annual income less than MYR100,000. - Government allocation: up to MYR450 million to Khazanah Nasional to implement the digital stimulus. - Potential beneficiaries: up to 15 million Malaysians. ### Box 2 — Examples of Malaysian FinTech players (selected profiles) - CapitalBay (Deposits, lending and capital raising): - Established in 2016; one of 11 P2P players licensed by the SC. - Uses optical character recognition and machine learning for supply chain finance to SMEs. - Since starting operations in late-2017, conducted approximately 1,500 transactions of over MYR100 million with zero defaults to date. - MoneyMatch (Payments, clearing and settlement): - Founded in 2015; products established in 2017. - Provides cross-border payments at lower cost and has used the Ripple blockchain for transactions out of Malaysia. - Graduate of the central bank’s regulatory sandbox. - PrimeKeeper (Market support): - Founded in 2015; provides a payment aggregator platform enabling management of multiple bank accounts for merchant payments via ATM pins and QR codes. - Product currently in the pilot phase. ### Policy, regulatory and market-enabling developments - BNM initiatives: - Interoperable Credit Transfer Framework (ICTF): effective July 1, 2018, to create shared payment infrastructure for banks and non-bank e-money issuers and to promote collaborative competition. - Support for PayNet’s interoperable QR payment scheme to enable seamless payments across QR providers. - Regulatory sandbox for FinTech experimentation (BNM’s FTEG sandbox referenced). - Exposure draft on digital bank licensing framework: launched December 27, 2019. - Securities Commission (SC): - Licensing and oversight of market-based financing platform operators (21 operators as of September 2019). - Government measures: - e-Tunai Rakyat digital stimulus: one-time MYR30 transfers; up to MYR450 million allocated to Khazanah Nasional; potential reach up to 15 million Malaysians. *International Monetary Fund — Malaysia: FinTech in Malaysia (excerpts and references contained in source document)* ### 8. The top five Malaysian banks have increased their technology-related spending over ### 8. The top five Malaysian banks have increased their technology-related spending over ### Technology-related spending by banks - Average technology-related spending as a share of overall expenses rose to 6.4 percent in 2018 from 4.1 percent in 2016. - This 6.4 percent was close to an estimated 6.5 percent average for ASEAN-5. - Singaporean banks spent an average of 13.2 percent of overall expenses on technology in 2018. ### Bank–FinTech partnerships and strategic collaboration - Leading Malaysian FIs have sought strategic partnerships with startups to access agility, creativity and talent, while startups leverage banks’ distribution networks, customer data and reputation. - Example: In the insurance sector, 14 leading insurers and Islamic insurance (takaful) companies partnered with Grab to offer usage-based motor insurance for its ride-hailing drivers, starting from August 2019. - World FinTech Report 2018: FinTech companies partner with incumbent banks to enhance visibility through banks’ established brand names. - Open API adoption is increasing voluntarily in the financial services sector, particularly around publicly available and product-related data. BNM is working on an Open Banking framework and is looking to release a consultation paper in 2020. ### Regulatory environment: balance between innovation and financial stability - Regulators involved: Bank Negara Malaysia (BNM), Securities Commission (SC) and Malaysia Digital Economy Corporation (MDEC). - Regulatory aim: reduce barriers to innovation, develop supportive infrastructure, encourage competition and experimentation, while ensuring financial stability and confidence. - BNM established the Financial Technology Enabler Group (FTEG) in June 2016 to facilitate technological innovation and testing; FTEG operates the regulatory sandbox and coordinates regulatory measures with other regulators. - MDEC supports FinTech innovation through working spaces and collaborative initiatives. - FinTech in conventional and Islamic finance tends to be subject to the same regulations, given a function-based regulatory approach. ### Cybersecurity and systemic risk management - Cyber security is among the top issues in annual reports of major Malaysian banks due to the threat to customer trust and financial stability. - BNM’s Financial Stability Review First Half 2019 highlighted cyber risks. - BNM policy: Risk Management in Technology provides basic guidelines for FIs on cyber security risk management. - Initiative: BNM and the financial industry are creating a ‘Financial Threat Intelligence Platform’ by 2020Q2 to collate, analyze and disseminate real-time information on cyber threats. - National Cyber Security Policy was updated in late-2019. ### Crypto assets and digital asset regulation - BNM clarified in 2014 that digital assets are not legal tender in Malaysia and reiterated this in multiple press releases. - SC has warned investors about ICO risks and shut down an ICO in 2018. - SC approach: phased development of a regulatory framework for digital assets. - Recognition and rules: - The SC has recognized digital currencies and tokens as securities subject to securities regulation. - Requirements for electronic platforms that aid trading of these assets began from January 2019. - The SC conditionally approved three recognized market operators to establish and operate DAX beginning from June 4, 2019. - 19 DAX were not permitted to continue operations with effect from June 1, 2019. - AML/CFT measures: legislative and regulatory measures in 2017 and 2018 for certain virtual asset activities. - SC introduced crowdfunding and P2P regulatory frameworks in 2015 and 2016, respectively. ### BNM’s FTEG FinTech Regulatory Sandbox (Box 3) - Sandbox established on October 18, 2016. - As of December 2019: - 83 applicants have applied for the sandbox. - Seven solutions approved for live-testing. - One firm currently remains in the sandbox. - Six approved participants (two insurance aggregators, two e-remittance service providers, an e-KYC solution provider and a secured chat banking service) have completed live-testing. - Post-sandbox outcomes: firms have either obtained necessary regulatory approvals to commercialize, ceased operations or are exploring new technology partners. - Six applications are in the preparation stage to conduct live-testing. - 2018 enhancement: introduction of the ‘Specialized Sandbox’ with thematic tracks; example: an e-KYC specialized sandbox currently with seven participant banks. - Eligibility and process highlights: - Applicants must demonstrate potential to improve accessibility, efficiency, security and quality of financial services; enhance risk management effectiveness; or address financing/investment gaps. - Business plan must demonstrate a viable business model upon exiting the sandbox. - Testing is limited to a one-year period. - Sandbox requires firms to identify potential risks in financial stability, consumer protection and ML/TF, and to produce interim and final reports. ### FinTech and Islamic finance (Box 4) - Islamic bank loan growth: 8.9 percent y/y in 2018, compared to 2.5 percent y/y for conventional banks. - Islamic loans reached close to 32 percent of overall bank loans (2017: 30.2 percent). - Malaysia’s share of global outstanding sukuk: approximately half of total outstanding sukuk (USD 456.7 billion). - Saudi Arabia holds a 12.6 percent market share (distant second). - Takaful accounts for 10 percent of Malaysia’s insurance market. - Islamic FinTech status: - Malaysia is home to seven Islamic FinTech startups (DinarStandard’s Islamic FinTech Report 2018). - Around 70 percent of Islamic FinTech companies globally are focused on equity crowdfunding (ECF) and P2P lending. - BNM launched the Investment Account Platform (IAP) in 2016—an Islamic crowdfunding platform for SMEs involving six Islamic banks. - Example private platform: Ethis Venture (one of 10 ECF players licensed by the SC) aiming to launch by March 2020 to support domestic SME funding; SMEs and startups must be shariah-compliant and issuance of shares must align with Mudarabah. - Bank digital investment commitments reported in 2019: - MBSB Bank Berhad’s board approved MYR250 million for IT investments. - Bank Islam Malaysia Berhad committed MYR250 million for digitalization. ### Key challenges for FinTech development - Talent shortage: - Shortage in machine learning and data analytics talent; need for upskilling existing bank staff. - Rising demand for compliance talent among FinTech companies. - 100 percent of Malaysian respondents reported trouble hiring talent in Ernst & Young’s ‘ASEAN FinTech Census 2018’. - Conforming to regulations: - Regulators must balance financial stability and consumer protection with promoting innovation. - BNM, SC and MDEC conduct quarterly regulatory bootcamps to improve FinTech firms’ regulatory understanding. - FinTech Booster Program (BNM with MDEC) aims to guide promising solutions in ideation stages. - 45 percent each of Malaysian respondents found it moderately difficult or difficult to conform to local regulations in Ernst & Young’s ‘ASEAN FinTech Census 2018’. - Access to funding: - Malaysian FinTech funding volumes were relatively modest compared to peers. - UOB research: Singapore attracted USD222 million in FinTech funding in the first 10 months of 2018, compared to USD13 million in Malaysia. - Difficulty attracting later-stage funding reported by local FinTech companies. - Implementation of digital infrastructure: - Need for digital identities and open APIs; requires coordination across multiple government agencies for interoperability. - Balancing innovation and financial stability: - Regulators must frequently refine regulations and supervision to keep pace with FinTech developments. ### Initiatives and regulatory timeline (selected entries from Table 3) - Sep-15: Alliance of FinTech Community (afFINity@SC) established by the SC. - Jun-16: BNM’s Financial Technology Enabler Group (FTEG) established. - Oct-16: FinTech Association of Malaysia (private sector initiative). - Sep-18: Digital Finance Innovation Hub and Inclusive FinTech Accelerator launched by BNM, UNCDF and MDEC. - Nov-18: Project Castor launched by the SC to test blockchain feasibility for unlisted and OTC markets. - 2019: Orbit FinTech Hub co-working space licensed by MDEC. Regulatory frameworks and guidance (selected) - Feb-15: Equity Crowdfunding (ECF) Framework (SC supervision). - May-16: Peer-To-Peer (P2P) Lending Framework (SC supervision). - Oct-16: Bank Negara Malaysia Financial Technology Regulatory Sandbox (monitored by FTEG). - May-17: Digital Investment Management Framework for automated discretionary portfolio management services. - Nov-17: AML/CFT - Money Services Business (Sector 3) e-KYC standards for remittance service providers. - Feb-18: AML/CFT – Digital Currencies (Sector 6): minimum requirements to improve transparency; reiterated digital currencies are not recognized as legal tender. - Mar-18: Interoperable Credit Transfer Framework (ICTF) for bank and non-bank e-money issuers. - Dec-18: Policy Document on Outsourcing addressing cloud services and related risks. - Jan-19: Policy Document on Publishing Open Data using Open API (guidance on Open Data APIs and governance). - Jan-19: Order under Capital Markets and Services Act recognizing digital currencies and digital tokens as securities. - Jan-19: Revision to Guidelines on Recognized Markets adding requirements for electronic platforms that facilitate trading of digital assets. *International Monetary Fund* ### References ### References ### Central bank and government speeches, reports, and frameworks - Bank Negara Malaysia (BNM). 2016. “Regulatory Sandbox Framework.” - Bank Negara Malaysia (BNM). 2018. “Financial Stability and Payment Systems Report 2018” - Bank Negara Malaysia (BNM). 2018. “Transforming Mobile Phones into E-Wallets in Malaysia” BNM Quarterly Bulletin, 2Q2018” - Bank Negara Malaysia (BNM). 2019. “Financial Stability Review – First Half 2019” - Adnan Zaylani Mohamad Zahid. 2019. “Re-inventing Payments: The Future of Financial Services” Keynote Address. Kuala Lumpur. Available at http://www.bnm.gov.my/index.php?ch=en_speech&pg=en_speech&ac=832&lang=en - Datuk Nor Shamsiah Mohd Yunus. 2019. “Opening Remarks at the MyFintech Week 2019 - "Shifting Tides: Future of Finance". Kuala Lumpur. Available at http://www.bnm.gov.my/index.php?ch=en_speech&pg=en_speech&ac=826 - Guan Eng, Lim. 2019. “Unlocking the Potential of the Digital Economy” Keynote Address. World Bank HQ, Washington, DC. Available at https://www.treasury.gov.my/index.php/en/gallery-activities/speech/item/5105-speech-unlocking-the-potential-of-the-digital-economy.html ### IMF, World Bank, and international organizations - International Monetary Fund (IMF). 2019. “Fintech: The Experience So Far” - World Bank. 2018. “Malaysia’s Digital Economy.” - Financial Stability Board. 2017. “Financial Stability Implications from Fintech.” - UNSGSA FinTech Working Group and CCAF. 2019. “Early Lessons on Regulatory Innovations to Enable Inclusive FinTech: Innovation Offices, Regulatory Sandboxes, and RegTech.” Office of the UNSGSA and CCAF: New York, NY and Cambridge, UK. ### Industry and consulting reports, market studies, and sector analyses - Capgemini, LinkedIn and Efma. 2018. “World FinTech Report 2018.” - CBInsights. 2019. “2019 Fintech Trends to Watch.” - CBInsights. 2019. “Startup Continent: The Most Well-Funded Tech Startups in Asia & The Pacific.” Available at: https://www.cbinsights.com/research/asia-startups-most-well-funded/ - Ernst & Young. 2018. “ASEAN FinTech Census 2018.” - PwC. 2016. “Catching the FinTech Wave: A Survey on FinTech in Malaysia.” - PwC. 2017. “Global FinTech Report 2017.” - The Economist Intelligence Unit. 2019. “FinTech in ASEAN Unlock the Opportunity.” - UOB. 2018. “State of FinTech in ASEAN.” - UOB. 2019. “FinTech in ASEAN The Next Wave of Growth.” - Google, Temasek. 2018. “e-Conomy SEA 2018.” Available at https://www.thinkwithgoogle.com/_qs/documents/6870/Report_e-Conomy_SEA_2018_by_Google_Temasek_121418_cpsLjlQ.pdf - World Travel and Tourism Council. 2019. “Mobile Payments in Travel & Tourism: Unlocking the Potential.” - Fintechnews.my. 2019. “Malaysia FinTech Report 2019.” - Financial Times. 2019. “Malaysia’s Crowded e-Wallet Market Faces Mass Cull.” - CBInsights. 2019. “Startup Continent: The Most Well-Funded Tech Startups in Asia & The Pacific.” Available at: https://www.cbinsights.com/research/asia-startups-most-well-funded/ *References list from the content unit "1mysea2020002 - References."* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1mysea2020002.pdf_