FINANCIAL
MARKETS
FINTECH 2021
Prepared By:
Nur Sorfina Binti Mohd Razali (0339401)
Jaskiran Kaur A/P Gurmit Singh (0335960)
Shareentheran A/L Navinthiran (0337124)
Fahad Dad Mohamed Abdallah Dad Albalushi (0330080)
Arnab Jalil (0334782)
Prepared For:
Rabiatul Munirah Bte Alpandi & Juristech
STNETNO
Background of FinTech & Financial Markets 1-4
How FinTech can Modify Financial Institutions in 5-8
Financial Markets
FinTech Products & Services in Malaysia Financial 9-13
Markets
Advantages & Disadvantages of FinTech 14-18
Reference List 19-21
Marking Rubric 22
BACKGROUND OF
FINTECH AND
FINANCIAL MARKETS
BACKGROUND OF FINTECH &
FINANCIAL MARKETS
Fintech is rapidly becoming a fundamental part of
Malaysia's financial industry, according to a 2020
International Monetary Fund report. In Malaysia, the
number of people using internet banking has
quadrupled in the last decade. Digital payments and "The pandemic
mobile wallets are the most popular kinds of fintech in
the country, followed by "insurtech" lending, digital has expedited
remittances, blockchain, crowdfunding, electronic
Know-Your-Customer operations, and other financial
technologies (IMF, 2020). Malaysia's digital
acceptance of
transformation has been underway for a decade, but the
pandemic has expedited acceptance of digital banking. digital banking"
Mobile banking transactions worth RM 460 million
were conducted in 2020, increasing 125% from the
year before. Last year, the Malaysian government's
MCO resulted in the addition of 3 million new mobile
banking service customers as well as new highs in e-
wallet usage and adoption (Malaysia, 2021).
2
BACKGROUND OF FINTECH &
FINANCIAL MARKETS
82% In recent years, the financial sector has seen a lot of innovation. Banks have had to
modify their business models to compete with FinTech and platform-based adversaries,
which all threaten the traditional banking system's profitability. Algorithms, big data,
blockchain, peer-to-peer lending, and crowdsourcing are redefining the role of the
intermediary, but they may also be overcoming some of the past competitive issues in
Malaysia's financial institutions see
financial markets, such as high switching costs or high transaction costs (OECD,
FinTech as a threat to their business
2020). According to a survey conducted by PWC and AICB in 2015 and the first half
of 2016, 82% of Malaysian financial institutions see FinTech as a threat to their
business, 22% believe they will lose more than 20% of their revenues to FinTech
companies, 42% believe customers are ready to embrace FinTech, and 47% say they
22%
have made FinTech a priority (pwc, 2016). The central bank issued a licencing
framework for digital banks in December 2020. It is expected that up to five digital
banking licences would be given by Q1'22 (Malaysia, 2021).
Believe to lose more than 20% of their
revenues to Fintech
42%
Believe customers are ready to
embrace FinTech
47%
Made Fintech a priority
3
BACKGROUND OF FINTECH &
FINANCIAL MARKETS
United States
China
Malaysia
While Malaysia appears to be far ahead of Vietnam and the Philippines, it still lags behind Singapore known as
“Asia’s Fintech Hotspot” . Malaysia is leading in certain areas but underperforming in others, according to Jason Lee,
interim VP of NEM.io Foundation Ltd. (Shen, 2019). It's no secret that, in addition to sharing a common history,
Singapore and Malaysia have always had a rivalry. 39% of fintech companies that are set up in ASEAN are in
Singapore and 15% are in Malaysia (Fong, 2017). Malaysia, ahead of China, was ranked first among developing and
rising Asian countries in the World Economic Forum's 2019 Network Readiness Index (IMF, 2020). However, when
compared to the US, Malaysia has a lot of catching up to do. US based companies like Paypal, Visa, Mastercard and
Square have a combined market capitalization of $1.07 trillion which even eclipses the “big six” banks, and they have
been operational for much longer (Delouya, 2020). There were 10,605 fintech startups in the United States and 6,129
in the Asia Pacific region as of February 2021 (Statista, 2021).
10,605 6,129
FinTech startups in United States FinTech startups in Asia Pacific region
4
HOW FINTECH CAN
MODIFY FINANCIAL
INTERMEDIARIES
In Financial Markets
INSIGHTS:
FINTECH MODIFIES
FINANCIAL INTERMEDIARIES
Sneak Peek: "Improve efficiency of
human advisors"
Fintech-may-not-fully eliminate financial intermediaries in Besides-that, the-portfolio-rebalancing can be performed
financial-markets-but-the-financial institutions (FIs) need to efficiently-by-using-such-algorithms-as the clients’ portfolio
embrace-the-development-of-Fintech for the improvement of will-be-automatically-adjusted-according to their investment
financial-services.-Firstly,-Machine-Learning-in Robo-advisors preferences-and-current-market-condition (Curry and Marquit,
helps-to-improve-the-efficiency of human advisors in 2021). As-such, the-portfolio-managers can focus on serving
investment-planning-via-automated-financial advice (O’Shea, clients-with-complex-investment-objectives. FIs can save costs
2021).-Human-advisors-do-not-have-to spend much time on in-hiring-more-human-advisors-and-portfolio managers as some
beginner-investors-to-educate, guide and manage their of-the-job-scope-can-be-performed-by-Robo-advisors.
investments.-Those-job-scopes-could be performed by the
automated-algorithm-advice-that helps human advisors to
collect-clients'-data-via-standardized questionnaires (Deutsche
Bank, 2017). As-such, human-advisors can save time in
gathering-clients’-information-and-focus-on probing follow-up
questions-to-better-understand-clients’-financial-situation.
6
INSIGHTS:
FINTECH MODIFIES
FINANCIAL INTERMEDIARIES
Sneak Peek: "Blockchain - Bonds Issuance"
Furthermore, Fintech-helps-to-improvise-the-bonds-issuance-by the banks via-Blockchain-technology. It-could-be-proved-by the first
public-Blockchain-Bond-issued-by-the-World-Bank-and developed-by-the-Commonwealth Bank of Australia (Ming, 2018). Blockchain
is-incorporated-with-distributed-ledger-technology in which all-information-and-transactions will-exist on nodes within a network
(BuiltIn, 2021). Such-information-is-unalterable-and-open-visible-to-participants via unique hardware configuration. The Blockchain
bond-helps-FIs-in-automating-bond-sales-at reduced costs and it-contains-high-security-information that could not easily be hacked
(Thadaney, 2021). FIs-can-replace-paper-based-contracts-to-digital “smart-contracts” that promote efficient transactions for bond
issuers-and-investors (HSBC, 2020). As-the-stored-information-will-be-recorded-in time-stamped, it would be definitely easier for the
government-to-monitor-the-transaction-flows-in-blockchain-and-may-prevent-bond-market manipulations by the banks or unfair pricing
that-could-impede-market-conditions (Chen and Wang, 2020).
7
INSIGHTS:
FINTECH MODIFIES
FINANCIAL INTERMEDIARIES
Sneak Peek: "RegTech - Regulatory Compliance Rules"
Moreover, Regulatory Technology (RegTech) is the Fintech product that helps FIs meet regulatory compliance rules such as Anti-
Money Laundering (AML) and “Know Your Customers (KYC)” protocols (Deloitte, 2021). Prior to the emergence of Fintech, FIs
analysts spend 90% of time on data collection only and 10% on data analysis (Suresh, 2021). As such, RegTech may help FIs perform
data analytics efficiently without spending too much time on data collection leading to better decision making, understanding customers
very well that helps to comply with KYC protocols and improvising banking products to serve customers effectively (Burkhalter, 2021).
Even though FIs are considered as trustable and established organizations, there are high possibilities of the employees being involved
in illegal activities such as fraud or money laundering. However, Artificial Intelligence (AI) in RegTech helps FIs to detect suspicious
activity and avoid huge losses from payment fraud and strengthen their financial strength (Parmar, 2021). Early fraud prevention may
lead to an increase of trustworthiness towards FIs and increase their credit and bond rating – having enough funds to pay the investors
principal and coupon payments.
8
FINTECH PRODUCTS &
SERVICES
In Malaysia Financial Markets
4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA
Malaysian financial markets have adopted many fintech instruments at an
accelerating rate. Digital payments by e-wallets is the largest segment that
the market has adopted, valuing transactions at $12,653 just in 2021
(Statista,2021). The major e-wallet merchants in Malaysia are Touch n Go
(TnG), Grab Pay and Boost. These e-wallets are widely used in the
Malaysian markets. During the pandemic in 2020, the International Data
Corporation (IDC) stated that digital economy growth accelerated as the
consumers utilized digital payments more (Gomez, 2020). Bank Negara
Malaysia (BNM) has made initiatives for the adoption of e-wallets like
GrabPay, TnG and boost by transferring funds of e-Penjana, e-Tunai Rakyat
and eBelia via e-wallets. In a study by
Hussain et.al (2021), participants
widely adopted TnG e-wallet as it
eased many tasks such as reloading
money, transferring funds,
performing payment at merchants
and checking account balance.
10
4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA
Neuroware is a blockchain and ledger technology developer that has
worked with organizations like Maybank, BNM, Tenaga National and
Securities Commission Malaysia (SCM) (Neuroware, 2019). SCM and
Neuroware worked on a project, Project Castor in 2019. This project has
aided equity crowd funding and has also enhanced capital markets. Project
Castor identified challenges in the capital market such as liquidity,
transparency and efficiency for unlisted and over-the-counter (OTC)
markets. Using their blockchain technology they were able to overcome
these challenges by implementing governance, smart contracts, neutrality,
auditability, interoperable and user friendly. The smart contracts in this
project, ERC20 and ERC721 are now recognized and supported by The
HyperLedger project for their Fabric and Sawtooth protocols (Project
Castor, 2019).
11
4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA
Money Match is a multinational FinTech firm focusing on international
payments (MoneyMatch, 2021). In 2017 BNM approved MoneyMatch to
operate within the FinTech Regulatory Network. It has also been legalized
by Australia and Brunei central banks as a remittance operator. It has
unveiled many vague fees that are charged by their competitors. They
charge a low transaction fee and better exchange rates. It has an extensive
coverage around the globe where 71 countries and 21 currencies are
supported and growing (MoneyMatch, 2021). MoneyMatch has over RM
150 million transacted via digital remittance (Alam et.al,2019). In
Malaysia, our economy is heavily dependent on foreign labour.
International payments from Malaysia are widely transacted due to
foreign labour from Indonesia, Bangladesh,
Myanmar and Vietnam.
MoneyMatch has provided
a better and competitive
exchange rate that secures the
wealth of the sender.
The transfer fee of
MoneyMatch varies
according to the user.
12
4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA
Capbay is a multi-bank supply chain finance and peer to peer (P2P)
financing platform (Capbay, 2021). They facilitate business funding while
utilizing existing trade data. This P2P network is governed and regulated
by SCM. Capbay connects multiple liquidity providers to businesses that
are in need of a capital. Capbay has assisted in 12,000 transactions valued
at $ 15 million. This lending firm facilitates the process of obtaining
short-term credit for businesses of all sizes. They also assist financing
deals between banks and investors. They have a faster approval, do not
need a collateral, charges zero set up fee and is industry agnostic
(Herbert, 2015).
13
ADVANTAGES &
DISADVANTAGES OF
FINTECH
ADVANTAGES
REDUCED COST
FinTech has grown rapidly internationally and this has
brought many advantages to consumers. Firstly, reduced
cost, the factors affecting remittance costs are such as FX
spreads and the difference between the bank rate and the
quoted rate, processing fees for each transfer of money and
processing multi-intermediary commissions. In addition,
often suppliers of Fintech solutions fail to charge additional
costs such as additional fees, cancellation charges and other
hidden charges. (Mention, 2019). There are tools that help
companies to send their accounts and receive cash through
several currencies without a heavy conversion fee burden.
Fintech has made it possible to integrate payment methods
physical and digital to consolidate multiple banking GREATER
accounts or cards via a single interface. This enables
enterprises to operate more easily and to reduce overall
costs. (Saksonova, 2017).
CONVENIENCE
Secondly, greater convenience, transactions,
processes and systems have been made much
faster by technological progress in a variety of
industries and sectors. Some fintech solutions also
allow users to choose from a number of delivery
options including an express delivery way focused
at improving transmission speed further.
Traditionally, customers have been forced to
transfer money outside the country into their
respective bank branches or by using online
banking applications. Until sometime, some banks
were only open. No limit is made when it comes
to a payment system enabled by Fintech that can
process transactions anywhere and anytime.
(Iman, 2020).
15
INCREASED
TRANSPARENCY
Increased transparency is another advantage of
fintech. According to (Saksonova, 2017), fintech
"Improve has also started paving the way for improved
transparency in the finance industry, in addition
transparency in to efficiency and cost advantages. International
payment solutions set the benchmark for
finance industry" perception of the global transfer process. Users
of Fintech platforms are usually kept in close
contact with their transactions, whether they
send or receive funds through a specific payment
solution. Customer support is often available 24
hours a day, as are updates in real time and strict
security measures. Technological empowerment
has affected issues such as reliability and trust.
(Stulz, 2019).
16
DISADVANTAGES
DATA THEFT &
TECHNOLOGY RISKS
Fintech companies generally invest in millions ensuring the
security of user data to be kept safe. However, fintech is still
vulnerable towards data theft and technology risks. Fintech
companies are required to collect private data about their
customers. The usage of big data has the risk of violating
consumer privacy (Jagtiani and Lemieux,2017). Therefore,
there are high chances that the personal information could
be misused by the hackers, and anyone could be the victim
of cybercrime. The hackers would capitalize the
opportunities that data is available online and might use it
for lucrative purposes or for identity theft. For example, the
infringement of data privacy may lead to use for illegal
activities such as tax evasion and money laundering LACK OF
(Vardi,2017).
REGULATION
Next, the lack of regulation governing Fintech is the main
challenge for the Fintech companies (Rabbani et al.,2020).
Example of fintech application, the usage of peer to peer
(P2P) lending platform has its own drawback. It possesses’
high risk of non-repayment for the funds provided,
knowingly the Deposit Guarantee Fund does not guarantee
the deposited money (Sirenko et al.,2020). Furthermore, the
platform only plays the role of agent instead of principal,
hence it’s not the platform responsibility if any loss occurred
due partial or complete default. This is due to lack of
comprehensive legislation to regulate P2P lending and
regulatory framework to safeguard the depositors from
incurring any losses. The fact that most fintech companies are
not considered as traditional financial institutions, the current
legislation in the United States and Europe does not imply for
fintech companies which provide a loop to be misused
(Munteanu,2016). Example of a fintech scandal would be
Ezubao in China which implemented a Ponzhi scheme and
failed to pay the investors around $5.5 billion dollars
(Feng,2018).
17
FINANCIAL &
REGULATORY RISKS
"FinTech faces Finally, Fintech has a big challenge in
implementing due to various risks such as
challenges when financial and regulatory risk. For instance, the
fintech companies that provide financial services
implementing it" such as mortgages and student loans could
experience counterparty risk in which big financial
institutions could cushion the risk as it is highly
capitalized compared to fintech companies. Next,
implementing robo-advisors in the wealth
management for instruments like stocks, treasury
bills, and bonds could lead the customers to be
exposed to financial risk. If any loss takes place
because of a failure of an algorithm, the fintech
company has to take responsibility. Based on the
past lawsuits, the settlement amount due to
substandard derivatives instruments by top
financial institutions states that fintech companies
could not absorb the liabilities due to inaccurate
robo-advisors (Lee and Shin,2018). Since the
emergence of fintech, financial institutions tend to
provide financial service through online or robots
which replaces human touch. According to
Almossawi (2001), the key element that attracts
Bahraini students to prefer banks is due to
reputation and staff’s friendliness.
(2136 words)
18
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19
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21
MARKING RUBRIC
22
