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
ONTENTS

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
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 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).

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 BACKGROUND OF FINTECH &
FINANCIAL MARKETS

82%
Malaysia's financial institutions see
FinTech as a threat to their business
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
financial markets, such as high switching costs or high transaction costs (OECD,
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

22%
companies, 42% believe customers are ready to embrace FinTech, and 47% say they
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

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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

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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.

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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).

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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.

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FINTECH PRODUCTS &
SERVICES
In Malaysia Financial Markets
4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA

Malaysian financial markets have adopted many fintech instruments at an

accelerati ng rate. Digital payments by e-wallets is the largest segment that
the market has adopted, valuing transacti ons at $12,653 just in 2021
(Stati sta,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 Internati onal Data
Corporati on (IDC) stated that digital economy growth accelerated as the
consumers utilized digital payments more (Gomez, 2020). Bank Negara
Malaysia (BNM) has made initi ati ves for the adopti on 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), parti cipants
widely adopted TnG e-wallet as it
eased many tasks such as reloading
money, transferring funds,
performing payment at merchants
and checking account balance.

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4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA

Neuroware is a blockchain and ledger technology developer that has

worked with organizati ons 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 identi fied challenges in the capital market such as liquidity,
transparency and effi ciency 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).

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4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA

Money Match is a multi nati onal FinTech firm focusing on internati onal
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 competi tors. They
charge a low transacti on 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.
Internati onal payments from Malaysia are widely transacted due to
foreign labour from Indonesia, Bangladesh,
Myanmar and Vietnam.
MoneyMatch has provided
a better and competi ti ve
exchange rate that secures the
wealth of the sender.
The transfer fee of
MoneyMatch varies
according to the user.

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4 FINTECH PRODUCTS
& SERVICES IN
MALAYSIA

Capbay is a multi -bank supply chain fi nance and peer to peer (P2P)
financing platform (Capbay, 2021). They facilitate business funding while
uti lizing existi ng 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 transacti ons 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 agnosti c (Herbert,
2015).

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 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 GREATER
CONVENIENCE
consolidate multiple banking accounts or cards via a single
interface. This enables enterprises to operate more easily
and to reduce overall costs. (Saksonova, 2017).

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).

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 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).

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 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 (Vardi,2017).
LACK OF
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).

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 FINANCIAL &
REGULATORY RISKS

"FinTech faces Finally, Fintech has a big challenge in

challenges when implementing due to various risks such as
financial and regulatory risk. For instance, the
implementing it" fintech companies that provide financial services
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)

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REFERENCE LIST
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Almossawi, M. (2001). Bank Selection Criteria Employed By College Students in Bahrain: An Empirical Analysis.
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REFERENCE LIST
Hussain, A., Mkpojiogu, E.O., Kamal, F.M. and Che Meh, N.H. (2021) An Instrumental Assessment of Touch'n Go eWallet
Mobile App. International Journal of Interactive Mobile Technologies, 15(6).

Iman, N. (2020) The rise and rise of financial technology: The good, the bad, and the verdict. Cogent Business & Management,
7(1),

Jagtiani, J. and Lemieux, C., (2017). Fintech lending: Financial inclusion, risk pricing, and alternative information.

Lee, I. and Shin, Y.J., (2018). Fintech: Ecosystem, business models, investment decisions, and challenges. Business Horizons,
61(1), pp.35-46

Mention, A. (2019) The Future of Fintech. Research-Technology Management, 62(4), pp.59-63.

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2021].

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Sirenko, N., Atamanyuk, I., Volosyuk, Y., Poltorak, A., Melnyk, O. and Fenenko, P., (2020) Paradigm Changes that Strengthen
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REFERENCE LIST
Statista, 2021. Number of Fintech startups globally by region 2021. Available at:
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Vardi, M. (2017). Cyber Insecurity and Cyber Libertarianism. Communications of the ACM, 60(5), p.5.

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MARKING RUBRIC

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