Four Emerging Technologies in 2024 That Are Shaping the Future of BFSI in Malaysia

In the rapidly evolving landscape of the Banking, Financial Services, and Insurance (BFSI) industry, technological advancements have become more than just tools for efficiency. They are the cornerstones of transformation.  

With an ever-increasing emphasis on agility and customer-centric operations, BFSI institutions are leveraging the latest trends to not only streamline their processes but also to sculpt novel pathways for growth and innovation. 

The Central Bank reaffirmed its commitment to ensuring Malaysia’s financial system remains resilient amid evolving trends. It also emphasized that it is mandated to promote financial stability conducive to the sustainable growth of the economy and that it would continue to promote financial stability even as the financial landscape continues to evolve, driven by greater digitalization of financial services, climate change, and demographic shifts.  

Before we delve into some of the latest trends, let’s look at how the banking and fintech industry outgrew over the

The Development of Banking & Fintech Industry in Malaysia

The usage of the first credit cards back in 1978 (issued by Bank Bumiputera, known as CIMB Bank today) can be marked as one of the earliest keys turning points in Malaysia’s Fintech development of the digital-based banking sector. Financial institutions were permitted to offer the full range of Internet banking services in 2000, but only under the Central Bank’s guidance and control.  

In 2004, the Central Bank launched the Financial Process Exchange (FPX), the multi-bank internet platform to provide a more secure platform that allows for real time interbank fund transfer. 

The Alliance of Fintech Community (AFINITY) was founded by the Securities Commission Malaysia (SC) in 2015 to boost the development of Fintech in Malaysia. It functioned as a central hub for Fintech stakeholders, fostering communication and collaboration among financial institutions, government bodies, and others.

The adoption of Fintech sped up when the pandemic hit nationwide in 2020 due to movement restrictions. This pushed the BFSI sector to move their businesses digitally and forced customers to use a digital platform. This allowed the BFSI to expand their digital products and services. In April 2022, five digital bank licenses were awarded to eligible applicants. This marked a significant milestone in Fintech history.  

Looking ahead, Malaysia is poised to continue its journey towards becoming a leading fintech hub in the region, driven by ongoing digitalization efforts and a supportive regulatory environment. 

Emerging Technology Disruption in Malaysia: Implementation and Use Cases

With an ever-growing emphasis on digitalization and technological advancement, Malaysia stands at the forefront of embracing emerging technologies to drive efficiency, enhance customer experiences, and foster unprecedented growth opportunities. 

Let’s go into how these emerging technologies are reshaping the industry landscape and redefining the future of finance in the country.

Open API

Open banking relies on direct access to a consumer’s banking and financial data through APIs. It has revolutionized the financial services industry as it offers a more comprehensive view of customers because it can gather various customers’ information such as income sources, spending patterns, and other details. It provides a more accurate picture of their financial situation. This approach enables lenders to anticipate potential future spending patterns and assess the borrower’s ability to repay the loan by analyzing both historical and current spending habits. 

Open banking in Malaysia is bringing in a new era of innovation and convenience. The FinTech community in Malaysia is eager for advancement and is willing to collaborate with banks to develop new products and services. Refer below for open banking initiatives done in Malaysia.  

June 2016– The Central Bank formed FTEG (The Financial Technology Enabler Group) to develop and improve regulatory regulations to make it more feasible for Malaysia’s financial services sector. 

October 2016– Central Bank launched Regulatory Sandbox. This framework will help to outline the eligibility, requirements, and how to connect to APIs. 

March 2018– The Central Bank established an Open API implementation group; responsible for establishing industry standards for the API infrastructure 

December 2020 – The Central Bank issued a policy document on digital bank licensing. Open APIs are included in the licensing requirement. It highlighted the necessity of open APIs, data security, and governance for secure data sharing.

The Central Bank is actively encouraging proposals from the BFSI sector, FinTech community, and other interested parties, emphasizing the potential benefits of standardized open banking.  

With open banking, it can:  

1. Streamline payments and transfers.
2. Enhance lending processes by utilizing customer financial data for accurate credit assessments and personalized loan products.
3. Verify customers’ identities more efficiently.
4. Able to provide customers with seamless and cost-effective cross-border payment services.
5. Foster an inclusive marketplace where customers can explore a diverse selection of financial services and products, sourced from both the in-house offerings and third-party providers.

Blockchain

Blockchain technology is a decentralized digital ledger system that enables secure and transparent recording of transactions across multiple computers in a network. Each computer holds information about a transaction, like who sent what to whom and when.

Once a transaction is recorded, it can’t be changed without changing all the computers after it. Since it is decentralized, there’s no central authority controlling it. This makes it secure because no single person or entity can manipulate the data.  

In 2019, the Securities Commission Malaysia (SC) released a Guidance Note on Digital Assets, recognizing blockchain’s capacity to enhance transparency, auditability, and efficiency in financial reporting. This technology is poised to transform the financial reporting and auditing sector in Malaysia.

The Malaysian Industry-Government Group for High Technology (MIGHT) has announced Malaysia’s intention to adopt blockchain by 2025, with Malaysian banks actively promoting its growth. Leveraging blockchain technology in BFSIs results in high efficiency by eliminating intermediaries like clearinghouses, auditors, and reconciliation agents. This streamlines transactions, making them faster and more cost-effective.

Malaysian BFSIs are exploring:

1. Blockchain-based payment solutions: Facilitates faster and more cost-effective cross-border payments by eliminating intermediaries and reducing transaction times.
2. Blockchain-based identity management solutions: To streamline Know Your Customer (KYC) compliance processes by enabling real-time access to verified customer identity data.
3. Blockchain-based claims verification: Allows insurers to streamline the claims verification process, reducing fraud and improving trust between insurers and policyholders.

These are just a few examples of how blockchain technology is being utilized in Malaysia to drive innovation and transform traditional banking and financial processes.

Artificial Intelligence

AI involves replicating human intelligence in machines, enabling them to think and learn similarly to humans. It encompasses various techniques and technologies aimed at empowering computers to undertake tasks that traditionally demand human intelligence, like understanding natural language, identifying patterns, decision-making, and problem-solving.

The growing use of AI in BFSIs opens doors for enhancing customer experiences and diversifying product offerings. AI unlocks insights for them to make informed decisions, automates processes, and aids in risk management, boosting efficiency and productivity while cutting costs. This was highlighted in the Central Bank’s Financial Stability Review for the second half of 2022.

In 2021, the Central Bank conducted a survey on AI usage by Financial Service Providers (FSPs), uncovering widespread adoption and ongoing development of AI and ML (Machine Learning, a subset of AI) techniques in Malaysia. Currently, AI/ML is predominantly utilized for customer analytics and engagement, electronic- Know Your Customer (e-KYC), and digital customer onboarding.

Nevertheless, there has been a significant rise in generative AI, a subset of AI. Generative AI revolves around creating new content, like images, text, music, or videos, that mirrors human creativity. This trend gained traction with ChatGPT’s introduction, leading to rapid adoption. According to a study done on Generative AI in Malaysian Banking sectors, it shows that 3 out of 5 surveyed banks have at least 1 Generative AI project actively in use.  

The use cases of AI are being implemented in various segments in the BFSI sector.

Below are some of the examples.

1. Customer Service Automation – Deploying AI-powered chatbots and virtual assistants to provide personalized customer support, answer queries, and assist with basic banking transactions.
2. Credit Scoring and Risk Assessment – AI algorithms are used to analyze vast amounts of customer data, including credit history, transaction records, and other details to assess creditworthiness and calculate credit scores. Thus, this can make more accurate lending decisions and minimize the risk of defaults.
3. Fraud Detection and Prevention – AI-based fraud detection systems are deployed to identify suspicious activities, unauthorized transactions, and fraudulent claims in real time. These AI algorithms help to mitigate risks and protect customers’ assets. 
4. Regulatory Compliance and AML – AI algorithms analyze vast amounts of data to identify suspicious transactions, monitor compliance with regulatory requirements, and generate reports for regulatory authorities, ensuring adherence to local and international regulations.

Low Code Technology

Low-code technology is a development approach that enables the creation of applications with minimal hand-coding. 

The BFSI sector is embracing digitalization to enhance convenience, usability, functionality, and streamline business processes. Low-code platforms enable rapid development and deployment of applications, even for users with limited programming experience. These platforms handle complexities like database management, UX design, security, and integration. Consequently, adopting low-code technology will lead to faster time-to-market for products and services. 

There are no initiatives done by the government, however, there are companies that are already using low code technology. For example, PETRONAS DIGITAL Sdn Bhd has partnered with OutSystems, a global leader in providing low-code application development. This is done to promote and accelerate the use of low-code app development in PETRONAS Group.

The BFSI sector is taking baby steps to adopt low-code technology. Low code technology can:

1. Streamline loan origination and processing 
2. Enhance Customer Relationship Management (CRM)  
3. Enhance compliance and risk management  
4. Identify valuable insight in data analytics and reporting  

Above are some of the general overviews of how low code technology helps in the BFSI sector.

As BFSIs adopt these emerging technologies, they are positioned to elevate customer experiences, optimize operations, manage risks effectively, and seize opportunities in the digital economy. As Malaysia’s BFSI landscape evolves, staying informed about these technological advancements will be imperative for organizations like FinTech to sustain competitiveness, adaptability, and readiness in an evolving environment.