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Being one of the largest economic centres in Southeast Asia, Malaysia stands out for its diversified economic structure and strong financial sector. In recent years, the government has opted for digitisation and innovation to boost its main industries. The government's plan aims to incentivise the digital economy and accelerate the adoption of digital technologies. To achieve this, for example, the government plans to invest more than RMI 1.65 billion in telecommunications companies to develop 5G deployment and cloud services. Also, in order to promote digitisation, the digital economy is expected to take a 22.6 per cent share of the country's GDP and provide approximately 500,000 jobs by 2025.

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The economy in Malaysia has been growing for some years now. One of the main reasons is due to exports and the high-tech industry. For example, in 2021, the country's economic growth was 3.1%. In 2022, a higher growth (between 5% and 6%) was expected due to the lifting of the COVID-19 restrictions, however, due to the current conflict in Ukraine, it is believed that there may be some setbacks. 

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In 2020 and 2021, the Fintech sector prospered in the wake of the COVID-19 pandemic. With the implementation of the national quarantine and cordon sanitaire measures, referred to as the Movement Control Order in Malaysia, the need for digital connectivity intensified.  

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When the pandemic hit, Malaysia was relatively well-prepared thanks to a country's remarkable commitment to improving its economy and addressing its social challenges. This commitment remains intact, with new intensified goals to follow. However, COVID 19 was a critical event for the whole world. In reaction to this, the Malaysian government imposed strict restrictions aimed at containing the first wave of infections in March 2020, but this resulted in one of the sharpest contractions in GDP in the region. After managing the second wave, the third wave of infections in 2021 required strict but renewed measures and targeted restrictions. To avoid big damage, significant fiscal stimulus packages have been introduced and monetary policy has been relieved and the economy is expected to grow again.

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As infections subsided, the national economy was seen on a steady recovery path. Building public health capacity helped mitigate the social and economic effects of the pandemic. Also, government measures were taken to promote public and private investments in digital infrastructure, facilitating the digitalisation of companies, which achieved increased productivity.

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Digitisation has accelerated over the course of the pandemic and will continue to do so. While many Malaysians purchased goods and services online during the pandemic, commercial digitisation was really not widespread before.

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Mobile Penetration

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Malaysia has 32.98 million inhabitants, of whom 78.2% live in urban centres and 21.8% reside in rural areas. 

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Of the total population, there are 42.11 million mobile connections (1.27 per inhabitant) and 29.55 million Internet users, that is, almost 90% of the population is digitalised.  

In recent years, the Malaysian population, averaging 31 years old, has started to adopt new technologies at an advanced rate thanks to the fact that a big part of the population lives in urban areas and has access to mobile phones, internet and 4G. This created a huge opportunity for web-based or technology-oriented companies. For example, compared to pre-pandemic levels, QR acceptance increased by 164% and online banking transactions increased by 49%. 

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Unbanked Population 

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Although the proportion of digitised citizens is very high, there is still a great financial exclusion. According to global consultancy Bain & Company, around 55% of the adult population in Malaysia is still unbanked. These people are generally from rural areas, with little financial education, low income, or are self-employed.  This percentage of unbanked adults is quite surprising despite almost 90% of the population being digitalised, as mentioned before. 

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Fintech Ecosystem

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Many companies, including banks, have started to use technology to adapt to the new generation of customers in the last decade. In Malaysia, traditional financial institutions are migrating to fintech as digital banks have quadrupled in size in the previous decade, and there are fewer physical commercial bank branches and ATMs.

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According to the Fintech Malaysia 2021 report published by Fintech News Malaysia (with reference to statistics obtained from the Central Bank of Malaysia and the Malaysian Securities Commission), the number of Fintech companies in Malaysia reached 233 in 2020. Following COVID-19, in 2020 digital transactions grew abruptly - more than double that of 2019 - reaching RM 460 billion, and 20 million subscribers.

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Electronic payments and digital wallets lead the Malaysian fintech space, although other sub-sectors such as crowdfunding platforms, P2P financing, digital assets (cryptocurrencies) and digital investment management platforms are also growing.  Malaysian consumers and businesses are already embracing new technologies: from digital wallets, electronic payments to insurance and crowdfunding.

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Islamic Fintech

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Malaysia is also one of the leading countries in Islamic finance. The country's banking system is dual as the Islamic finance industry operates in parallel with the conventional industry. The Islamic financial system includes the Islamic banking system, the Islamic money market, Islamic insurance or takaful, the Islamic capital market, and specialised financial institutions that provide alternative sources of finance.

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The existence of the Islamic capital market plays an important role in reducing potential sources of financial vulnerabilities and contributes to enhancing the robustness and resilience of the Islamic financial system, leading to greater financial stability. The Islamic Fintech market is also expected to grow strongly in the coming years, as a growing number of Muslims seek to take advantage of digital finance and banking services that follow Sharia principles.

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According to the 'Global Islamic Fintech Report' (produced by DinarStandard and Elipses), Saudi Arabia, Iran, United Arab Emirates, Malaysia and Indonesia are the leading countries in terms of Islamic Fintech transaction volumes within the countries of the Cooperation Organisation Islamic (ICO).

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Credolab solutions can help both conventional and Islamic finance through alternative data, machine learning and artificial intelligence. Thanks to digitisation, it is now easier to calculate credit scores in real-time based on evidence, with risk management and creditworthiness evaluation in a safe way.

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Insurtech in Malaysia 

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The insurance industry is also an important sector in the fintech ecosystem. Thanks to digitisation, Insurtech is emerging: a new insurance technology that seeks to improve the customer experience and simplify policy management. As a result, today, more and more people are buying their life insurance online without the need for intermediaries.

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As a result of the pandemic, the sector has been destabilised, slowing down the growth of recent years due to the insured's debts. Likewise, the cost of insurance has been increasing year after year, generating an exclusion of people with limited resources. This is due to high medical costs (adoption of new technologies and medical equipment), hospitalisation fees, consultations and operating room. In reaction to this, insurers offered plans to defer payment of premiums.

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Today, the insurance industry's penetration rate is 54% and is still far from the government's goal, whose initiative was to achieve 75% insurance penetration in the country. However, a report by Allianz Global Insurance indicates that growth of 5.8% per year is expected in the next decade. In other words, everything indicates that this market still has potential with ample room for growth.

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How credolab can help them

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Strong digitisation, innovation and a 55% unbanked population make Malaysia a country with opportunities for fintech and financial inclusion. Through credolab, providers or insurers will be able to minimise the risk of fraud and expand their client portfolio thanks to alternative data. They will be informed about the client's behaviours, habits, and interests obtained from non-traditional sources such as social networks, emails, telephones, apps, etc.

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Credolab offers credit scoring solutions that lenders and insurers can integrate into their systems. Thanks to credolab's machine learning algorithms, the lender or insurer can more transparently and effectively predict and evaluate potential clients.

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To learn more about credolab: https://www.credolab.com/