The digital economy is widely seen as a critical driver for global growth as many countries have long realised how digital technologies and services have been significant drivers of their economic development.
For Malaysia, its digital economy has become a key contributor to the national gross domestic product (GDP), with 2023 recording a 23.5% contribution and estimated projections being set at 25.5% by 2025.
Malaysia managed this feat due to the vibrancy of its digital technologies landscape and highly supportive policies that it put in place to foster and accelerate innovation within the digital economy.
This high level of support is one of the major enablers that propelled Malaysia to be an attractive destination for major technology investments, securing investments from the likes of Google, Amazon Web Services, Microsoft, Tencent and Oracle. To date, an estimated US$25.65 billion (RM114.7 billion) has been approved for investments into data centre and cloud services deployment between 2021 and 2023.
While data centre investments are powering the current growth of Malaysia’s digital economy, these achievements are built upon the diverse breakthroughs and critical milestones that Malaysia’s fintech sector has achieved over the last 18 months.
These major touchstones include the rapid transition to Quick Response codes (QR codes) for cashless payments – a move that DuitNow and Malaysian e-wallet players have popularised; wider adoption of instant cross-border payments between Malaysia and its neighbours around Southeast Asia; and ramping up interest for Malaysia’s new digital banks, three of which have already come online and quickly acquired a growing user base.
The innovation and openness to experiment also enabled the establishment of CoinGecko, a Malaysian startup that operates as a crypto data aggregator. After operating for 10 years, it clawed its way to become the world’s largest independent listing of crypto exchanges and tracker for crypto-currency coins – over 900 and 12,000, respectively. Just recently, it began to serve on-chain decentralised exchange data to over 100 blockchain networks and 800 exchanges.
All these industry milestones have contributed to the growing market value of Malaysia’s fintech sector. According to Wilson Beh, President, Fintech Association of Malaysia, Malaysia’s fintech market value is now estimated to be at US$50 billion. “This estimation will double up to US$100 billion in the next five years,” he shared during a recent regional tech conference.
Policy Powered Expansion
The massive interest that Malaysia generated for its fintech sector, as shown by the various secured funding rounds; the rise in awareness of the growth potential across the world for Malaysia’s fintech sector, and having the recognition of being a leading innovator for Islamic fintech platforms and services, are achievable due to its progressive policies.
Developing this robust and ecosystem-friendly regulatory framework for the fintech sector took inspiration from equally versatile policies that helped start and grow the Islamic finance sector.
In developing and implementing these new regulations, Malaysia is considered as a global hub for developing and growing the Islamic digital economy.
These new policies include regulatory updates, such as the revised Financial Technology Regulatory Sandbox Framework that Bank Negara of Malaysia (BNM) rolled out earlier this year. This recently implemented update, which initially focused on creating a regulated environment that is conducive for fintech innovation, had simplified its eligibility assessment to closely align with the developmental cycle of new innovations.
It also introduced a new Green Lane accelerated pathway that enables fintech players with strong track records in risk management and governance to ramp up their innovation efforts. This is only allowed via sandbox project collaboration with financial institutions that have received BNM approval.
Another critical change to the fintech regulatory framework is the introduction and implementation of the Digital Insurance and Takaful Operator (DITO) licenses.
The creation of DITO licensing – a policy-focused initiative that enables smaller financial services providers to help those who are under-insured or not insured at all – will foster competition within the insurance and takaful sector; reinforce innovation within the burgeoning insurtech marketplace; and enhance financial inclusion efforts that target vulnerable groups
The DITO licensing rollout and updates to the fintech regulatory sandbox, along with other extensive ecosystem collaborations, are working towards re-shaping and improving Malaysia’s fintech ecosystem.
They have, to some extent, created new opportunities to inject new surges of creativity and innovation; improve access to fintech solutions for all; and ensure Malaysia’s fintech sector remains robust and ever-ready for any industry volatility.
Fintech as the Pivotal Enabler for Digital Economic Growth
All these ongoing transformative developments have one goal in mind – to grow the local fintech ecosystem. As is, efforts of BNM and other government agencies that focus on expanding the digital economy, like the Malaysia Digital Economy Corporation (MDEC), that is under the purview of the Ministry of Digital, have been focused on specific growth areas for the fintech space.
This includes critical ecosystem growth initiatives from MDEC, such as the Gateway, Amplify, Invest, Nurture (GAIN) programme and the Founders Centre of Excellence (FOX) platform.
The GAIN programme is part of Malaysia Digital (MD), a national strategic initiative aimed at addressing current key challenges in the digital landscape for a robust and agile digital economy.
Minister of Digital, Gobind Singh Deo shared that GAIN has helped more than 150 Malaysian tech companies reach over 26 nations, and more than 1,500 one-to-one-business meetings have been held between these Malaysian tech companies and international ecosystem players.
Since its inception in 2017, GAIN has helped generated revenues of RM31.9 billion and exports worth RM11.2 billion.
Beyond providing comprehensive support to businesses with their expansion efforts, both MDEC initiatives provide critical facilitation with relevant government entities to address any industry challenges; customised consulting and advisory programmes that ensures businesses are aligned to their goals; and access to high-value investment and critical support programmes.
Scaling Up with GAIN
GAIN is a long-running programme by MDEC that provides MD status businesses with capacity building and process enhancement that help fast-track their scaling capabilities. This initiative focuses on those that have taken their operations onto the next level of growth and move towards becoming regional leaders in their respective verticals. This includes long-time e-remittance and salary management platform, Merchantrade; Asia’s largest digital-based securities trading service provider, N2N Connect; and security focused eKYC and Digital Identity platform provider, Innov8tif Solutions.
These three, among other GAIN cohorts, are very specific examples of local solutions and service providers that drive forward fintech innovation.
For Merchantrade, which started as an online-based currency exchange and remittance platform, its push into fintech saw it expand into digital and cross-border remittance, branch into payroll platform that empowers migrant workers, and provide digital payments to rural communities. These efforts have attracted the attention of various partners who later on became investors, with the latest being Kenanga Investment Bank.
With N2N Connect, which ventured into capital market trading in its early days, there had been a deep understanding of how banks and brokerages are not in the business of understanding and deploying technology. To address the challenges that these institutions face, N2N Connect moved to fill that gap and quickly grew into a digital trading platform that now consistently serves more than two million corporate and retail users across Asia.
As for Innov8tif Solutions, it knew that there is an inherent need for advanced eKYC and Digital Identity capabilities – especially with the rapid deployment of a nationwide high-speed mobile network over the last decade; digital payments and financial services now being the norm; and Malaysia’s ongoing efforts to implement its Digital Identification Document (ID) Project.
With its extensive background in software development and workflow automation, Innov8tif Solutions had worked on digital identification technologies and, from there, expanded into eKYC solutions as demand for the digital registration platform gained momentum. Just recently, it registered an official patent in the US for its new technology that uses real-time video processing to verify and authenticate ID cards via smartphone cameras.
Achieving Next-Level Growth with FOX
While MDEC helped fintech players to scale with its GAIN programme, its Founders Centre of Excellence (FOX) platform focuses on assisting 38 selected Malaysian companies that have showcased high growth and innate potential to become a unicorn.
Other long term goals that FOX also aims to achieve include guiding these high performance businesses to deliver lasting economic impact to Malaysia’s digital economy and power socio-economic growth; create high-skill, high-value jobs; and push towards being publicly listed as part of its long-term efforts to maximise growth.
Of the 38 that are part of the FOX programme, two fintech players – Soft Space and Paywatch – are standouts. While both provide different fintech solutions and services, they have achieved multiple industry benchmarks and paved the way for other fast-track businesses to follow.
With Fintech as a service provider Soft Space, it grew from its Malaysian roots into an Asian-wide solutions platform for digital payments.
This rapid growth caught the attention of multiple investment funds that are focused on digital payments; the likes of Japan’s JCB Co. Ltd. and Sumitomo Mitsui Card Company; and the securing of a Pre-Series C funding round. Last year, it also completed a US$31.5 million Series B1 funding round as part of its global push.
This is followed by a pre-series C round raised in the 2024 from Japan’s GMO Financial Gate.
To-date, Soft Space now powers digital payments across 30 global markets and received multiple industry certifications.
This includes being certified with Europay, MasterCard & Visa (EMV) Level 1 and 2 approval; registered with Visa Ready Program, MasterCard Mobile POS Self-certified Solution Providers, and UnionPay International Registered Mobile Point-of-Sales (mPOS) Solutions; and fully certified with Mobile Payments on Commercial off-the-shelf (MPoC) security standards. The latter ensures digital payments can be made on commodity mobile devices and payment terminals that are commonly used among small- and medium-sized businesses.
PayWatch, as one of four entrants into the Forbes Asia’s 100 Watch List 2024, is the only Malaysian fintech player on this list.
Barely five years from its founding, this earned wage access solution provider had secured direct backing from Malaysia’s financial institutions and regulators; completed multiple rounds of funding from various investment funds; and is the go-to platform for ethical finance best practices, such as on-demand salary payout and promoting employee-focused financial empowerment.
Beyond its latest US$30 million funding round, other industry milestones that PayWatch had set include creating strong working relationships with established banks in Malaysia and Indonesia, making it the only bank-backed earned wage access platform; collaborating with clients that manage high workforce headcount to reduce turnover and boost productivity; and being more active with championing financial inclusion alongside ecosystem partners.
Growing towards US$100 Billion Market Valuation
The various industry accolades that Malaysia’s fintech sector managed to achieve is only doable because of its very supportive policies and regulatory framework that focus on fostering innovation and ecosystem growth.
This is also reflected in the GAIN and FOX programmes that MDEC developed and other similar initiatives from BNM, the Securities Commission of Malaysia, and various fintech ecosystem enablers.
As interest in fintech continues to grow on a global scale, there will be even more parties looking to invest in this rapidly expanding digital economy driver, specifically in Southeast Asia and the wider Asian region.
With its supportive ecosystem policies and multiple high performing industry players who are now leading innovators in their respective segments, the fintech industry in Malaysia is poised to continue its strong growth for the rest of 2024 and ready itself for accelerated development in 2025 and beyond.
These growth drivers, along with the long-standing efforts to develop, grow, and transform the Islamic fintech space, have set the stage for Malaysia to turn into a regional supercharger for the fintech sector and push towards making its fintech sector a US$100 billion marketplace within the next five years.
MDEC offers various programmes for Malaysia Digital status companies. Apply for the Malaysia Digital status here.
Featured image credit: edited from freepik
