Bank Rakyat_FinTech in Islamic Finance in Malaysia

FINTECH IN
ISLAMIC

FINANCE IN

M A L AY S I A

DR. EMA IZATI ZULL KEPILI
DR. NIK HADIYAN NIK AZMAN

Contents 1.0 Definition of FinTech

2.0 FinTech throughout the World
3.0 FinCTeocmhpCoosmitipoonnents &
4.0 FinTech in Malaysia
5.0 MoPsatyumseedntFi&nTWecahll:eDt igital
6.0 UntRaaphpne-dTePcohtential: Pawn-Tech /

1.0 Definition Financial technology (Fintech) is used to describe new
of FinTech tech that seeks to improve and automate the delivery
and use of financial services.
At its core, fintech is utilized to help companies,
business owners and consumers better manage their
financial operations, processes, and lives by utilizing
specialized software and algorithms that are used
on computers and, increasingly, smartphones.
Fintech, the word, is a combination of "financial
technology".
- Investopedia

FinTech Adoption Rates show the FinTech users as a percentage of the digitally
active population in 2017. Based on EY FinTech Adoption Index 2017 report,
several findings are worth to look at. First, China has the highest percentage of
FinTech users followed by India. Second, the average adoption rates across
emerging markets is 46%. Third, money transfer and payments are the most
popular category, used by 50% of consumers. Fourth, insurance is experiencing
growth, reaching 24% adoption across markets. Fifth, the greatest fintech usage:
25-34 (48%) and 35-44 (41%), and sixth, services with highest expected increase
in demand is borrowing and financial planning.

Source: EY FinTech Adoption Index 2017

Interest in making mobile contactless
payments

In 2019, among South East Asian countries,
the Philippines recorded the highest
interest in making mobile contactless
payments. It was followed closely by
Thailand, Indonesia and Vietnam. Only
63% Malaysian and half of Singaporean
were interested in making mobile
payment. The number might be different
during COVID19.

• Source: https://fintechnews.my/ (2019)

What are the possible reasons for ASEAN
consumers not using mobile payment?

Of course the main reason was due to their
preference towards cash, simply due to their
familiarity in using the instrument when making
payment. Businessmen were also preferring cash,
perhaps due to liquidity and cashflow reason. Many
too feel more secure carrying cash and quite
sceptical when using technology. Well, it makes
sense when there have been numerous cyber-
hacking happened in the internet. Other reasons
include preferring to keep any fund movement
private and ageing generation thinks that digital
payments are too complicated for them.

2.0 FinTech
throughout the
World

FinTech Country
Rankings

According to the Global Fintech Index City
Rankings 2020, the top 5 FinTech countries
are the USA, the UK, Singapore, Lithuania
and Switzerland. What does these countries
have that we can learn from? The USA
position as the top FinTech country is due to
huge number of fintech-related deals and
the of fintech-related investments. They pool
FinTech leaders such as Stripe, Coinbase and
Robinhood and these giants are not only
leaders in the country but also in the world.
The focus centre is in San Francisco where
the city is also listed as the top FinTech hub.
Follow closely is the UK (London) where
housing big companies such as TransferWise,
Greensill and others. Singapore is the only
country in Asia Pacific which position itself in
the top 10. The government huge support in
expanding FinTech includes providing huge
financial support while now at encouraging
the production of low-cost fintech
applications. Malaysia stands at no 36,
increased by 11 steps from previous year.



Top 20 global financial centers
vs global fintech hubs

• Not all cities which are known as top financial
centres are top fintech hubs. The comparison
between Global Financial Centers Index 2019
and Global Fintech Index 2020 show significant
difference in these country role in taking up
Fintech as also global hub. For example, New
York might be no 1 as financial center, but in
terms of fintech hub, the city is in the 3rd
position. Hong Kong is very well known as a
financial center throughout Asia, however, when
it comes to Fintech, it falls to no 11. So as
Shenzhen which is on no 8 as financial center, is
at no 80 as fintech hub.

Who got the
highest pay?

3.0 Fintech
Components &
Composition

FinTech in Singapore

Singapore is building itself as a main Fintech hub in the
world. While other countries has usage and application
Fintech as its major composition, Singapore is
concentrating on developing apps and system. AI,
Machine Learning and Cognitive Computing hold the
highest composition in the its ecosystem. It reflects that
efforts on building application system has strategically
position them to be sustainable in this sector. The second
composition is savings and investments which include
robo-advisor and in the future we would see InsurTech in
Singapore will expand.

Fintech Composition in Singapore

Source: https://www.fintechmagazine.com/venture-capital/singapore-fintech-association-fintech-talent-set-grow

FinTech in Indonesia

Indonesia stands at #47 in FinTech Country Ranking. The
country’s Fintech components include lending, payments,
blockchain, personal finance and so on. Unlike Singapore,
the highest composition is in lending application, reflecting
that investment done in the sector focused on getting
companies offering services. The highest composition in
lending (50%) would also reflect the demand for loan is
very high in Indonesia.



FinTech in
Malaysia

Malaysia is at #36 in the world ranking.
Interestingly, the highest composition in the
country’s Fintech components are payments
and wallets. This was evident as Malaysians are
becoming comfortable with online purchasing.
Company like Touch n Go plays an active role by
working hard being a payment solution
company. InsurTech, Lending, Wealthtech,
Blockchain and Remittance share similar
fraction of 7% for each component. Despite
wanting to become Islamic FinTech hub, the
Islamic FinTech composition stands at 3% only.



4.0 Fintech In Malaysia



How much FinTech usage (by business) in
Malaysia?



Where did Malaysian spend their money
(online) on?



Key pillars of Malaysian Fintech Ecosystem

Source: 2020/21 Islamic Fintech in Malaysia Reality & Outlook

Pillars of Regulatory Framework Fintech Technology Enabler Group (FTEG)
Malaysian Bank Negara Malaysia
Fintech (BNM) Financial Technology Regulatory Sandbox
Ecosystem Framework
(Regulatory Recommendation in Fintech areas such as
Framework) e-money, digital banking, open banking.

Securities Commission of Capital Market & Services (Prescription of
Malaysia (SC) Securities) (Digital currency & digital token)
Order 2019

Guidelines on Recognized Markets 2019

Guidelines on Digital Assets 2020

Pillars of Funding MOSTI R&D Fund for SMEs & International
Malaysian MOSTI Funding Collaboration Fund
Fintech Grant for Research University (RU - like USM)
Ecosystem MOHE Funding
(Funding)
Transdisciplinary Research Grant Scheme
(TRGS)

Grant for HiCOE

Fundamental Research Grant Scheme (FRGS)

Long Term Research Grant Scheme (LRGS)

Prototype Research Grant Scheme (PRGS)

Cradle Fund Sdn Bhd (CFSB) Funding Super Seed Fund, 500 Durians
MAVCAP (Malaysia Venture Capital) Funding

KMP (Kumpulan Modal Pertama) Funding Funding focusing on E&E
MDV (Malaysia Debt Ventures) Funding MDV Tech Acceleration & Commercialization
Scheme
MBAN (Malaysian Business Angel Network) Venture Capital Fund
Funding

Pillars of Funding Incentives for tech-founders to
Malaysian venture into the ASEAN market from
Fintech MTEP (Malaysia Tech Malaysia
Ecosystem Entrepreneur Programme)
(Human Produce high quality grads for digital
Capital PDTIs (Premier Digital Tech tech-based.
Development) University)
eXpats Service Centres Facilitate foreign knowledge
workers’ applications for MSC Status
Fintech Booster Program and ICT companies operating in
Malaysia
Academic Program
Facilitates for fintech companies to
understand legal, compliance and
regulatory requirements

UG & PG programs

Pillars of Funding MDEC, MAVCAP, Cradle
Malaysian Government supportive agencies &
Fintech business incubators Selangor Accelerator Program (SITEC),
Ecosystem Accelerators & Digital Labs MaGIC Global Accelerator Program,
(Supporting Fintech Lab Accelerator Program, Orbit;
Fintech Association Fintech Hub, UNCDF Finlab.
Institutions)

5.0 Mostly Used
FinTech: Digital
Payment & Wallet

Digital payment or
E-Wallet

• A digital wallet also known as "e-Wallet" is
an electronic device, online service, or
software program that allows one party to
make electronic transactions with another
party bartering digital currency units for
goods and services.

Which one is mobile payment and digital/e- wallet?

Mobile Payment vs E-Wallet

Mobile Payment can help you pay when you're shopping
online (think: PayPal), transfer money between friends
(think: Venmo), or pay with your phone at the gas station
(think: Apple Pay, CIMB debit card).

An E-wallet is a type of digital wallet that's accessible
through an app on a mobile device (usually a phone or
wearable).

Functions of E- Store Credit & Debit Card Information
wallets Pay at a store
Peer to peer (P2P) Payments
Online payments
Hold funds
Hold coupons & loyalty cards
Store ID
Store Transit Tickets
Security



How does digital payment and e-wallet
companies earn money (business model)?



What do you need to have if you intend
to start-up a new mobile payment
gateway (Business Proposition Model)?

• Source: Hedman, Jonas & Chae, Sang-Un. (2013). EXPLORING BUSINESS MODELS FOR NFC ENABLED MOBILE PAYMENT SERVICES: THE CASE OF GOOGLE WALLET AND ISIS.

6.0 Untapped
Potentials:
Pawn-Tech
and Rahn-
Tech

Why ar Rahnu
Needs Technology?

• Being in touch digitally
• Creating an ecosystem that is
responsive and communicative
• Company monitoring and
review at the highest level
• Boost employee motivation







ASSIGNMENT (Group)

1. Study the different technology
approach used by ar Rahnu Bank
Rakyat and Pawn Hero

2. Illustrate PawnHero business
model

3. Adapt PawnHero business model
in your proposed ar Rahnu –
Tech business proposition

4. Present in class (10 minutes per
group)

Assessment
4 essay questions
2 hours

THE END