In Malaysia, adoption of wealthtech and alternative asset classes has increased over the past year, but in order for the sector to reach its full potential, there’s a need to raise financial literacy levels, experts said.

In a virtual panel discussion hosted by Fintech News Malaysia earlier this month, senior executives from Kenanga Investment Bank, Funding Societies, pitchIN and Luno discussed the state of wealthtech in Malaysia, arguing that while consumers are growing accustomed to investing in equity crowdfunding, peer-to-peer (P2P) lending or even cryptocurrencies, financial illiteracy remained a major challenge, and perhaps the biggest one for the wealthtech industry right now.

Chan Ken Yew, Head of Quant and AI Trading, Kenanga Bank commenting on the state of financial literacy said that

“Industry players have been doing their part in training and offering investment seminars to public investors. However, in order to enhance financial literacy, investor education and awareness needs to be there as this is a major factor in encouraging more participants.“

“Education is paramount and the major challenge for us,”

Sam Shafie, CEO and co-founder pitchIN, the largest equity crowdfunding platform in Malaysia, said during the panel discussion.

“While there is a lot of innovation going on, I think there’s also a lot of lackings to be filled. I think any startup focusing on financial literacy is very sexy. There’s a need for it. If [financial illiteracy] is not addressed, I’m afraid us as an industry will not be able to grow as big and as fast as we would like to.”

Financial literacy refers to the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing, to make financially responsible decisions. Financial literacy includes understanding how a checking account works, what using a credit card really entails, how to avoid debt, as well as managing financial risks effectively and avoiding financial pitfalls.

In Malaysia, financial literacy is still very low, and the National Strategy for Financial Literacy was launched in July 2019 to address just that. According to the Financial Capability and Inclusion Demand survey conducted in 2018, 1 in 3 Malaysians rate themselves to be of low financial knowledge, and 3 in 10 of working adults need to borrow money to buy essential goods. Moreover, 52% do not have sufficient emergency funds set aside to cope with unexpected events, and almost half of Malaysians are not confident of having an adequate stream of income for retirement.

Echoing with the statements made by pitchIN’s Shafie, Wong Kah Meng, CEO of Funding Societies, said that improving financial literacy is more important than ever today as technology and fintechs are making the financial landscape ever so complex, introducing new ways of investing and new asset classes.

“Financial education and awareness is very important especially for new investment products with new characteristics,”

Kah Meng said.

“Investors cannot look at these products like they look at fixed deposit instruments. A lot of education, awareness, but also disclosure need to happen.”

This is a pressing issue that needs to be addressed, the experts said, adding that the financial industry will continue to embrace technology. While technology promises to bring new investment opportunities to the masses, these new propositions are also introducing new risks that are often not well understood by the average consumer.

Malaysia’s wealthtech industry in 2020

Looking back at the wealthtech industry this year, Shafie said that despite COVID-19, 2020 has been, overall, a good year for equity crowdfunding (ECF).

“In 2020, from a fundraising, equity crowdfunding platform operator’s perspective, we’ve seen a boom, not just on pitchIN, but also across the board. We’ve seen other ECF platforms raise more money than they did in 2019 and before that,”

Sam Shafie said.

“In the last few deals, we’ve also seen … more traditional companies coming onboard to pitchIN to raise funding, probably due to the effort we’ve put in education and awareness. So it’s been quite positive.”

2020 also saw the Securities Commission Malaysia (SC) lift limits on ECF platforms and allow both ECF and P2P lending platforms to operationalize secondary trading, a positive news for the industry, Sam Shafie added.

He added that pitchIN was currently awaiting regulatory approval and was hoping to be able to launch its secondary market in Q1 2021.

In P2P lending, Funding Societies’ Kah Meng said the platform saw a significant pullback in investment appetite in Q2 2020 as investors shifted to riding the stock market’s volatility. That being said, levels “have recovered almost to pre-COVID-19 levels,” he said.

Kah Meng said that while Funding Societies has managed to gain a foothold in the Malaysian market, there is still place for growth.

The majority of investors on our platform are retail and are below the age of mid-30s, so the younger generation, metropolitan crowd,”

Kah Meng said.

“We are still scratching the surface in terms of adoption as a mainstream digital investment platform, rather than an alternative [investment platform]. Our goal is to reach the other population.”

Both Kah Meng and Sam, concurred that the ECF and P2P lending market will likely see some consolidation in 2021 as players seek more market efficiency and synergy through mergers and acqusitions.

Meanwhile in the crypto space, exchange platform Luno saw a surge in trading activity and “huge movements in the Bitcoin price” during the pandemic. Aaron Tang, country manager of Luno, said when markets crashed in February-March, people began turning to Bitcoin as a hedge against traditional investments.

“2020 has been a recognition of people getting comfortable with crypto and most particularly bitcoin as an investment,”

Aaron said.

“That’s the trend we’ve seen in 2020: the coming of age of Bitcoin as an asset class.”

2020 surely was an interesting year for wealthtech in Malaysia and 2021 promises to see greater adoption of technology in the space. Chan Ken Yew, said that while adoption of AI in trading was still at a very early stage, it will eventually take off, he said,

“AI will support financial institutions and fintechs’ business needs. The low hanging fruit will be automating processes … but also big data, analytics, as well as [better] engaging with customers.”

“This new age of investment and wealth will be definitely tech-driven, From account opening to transactions … financial advisors will also be tech-driven as well. With fintech, investors can expect more products, more markets, assets classes, to be offered.”

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