Cover Story: Financial literacy the key to growing fintech sector

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on August 19, 2019 - August 25, 2019.

Despite all the buzzwords that may give some people the impression that fintech has gained a lot of traction in recent years, try going to suburban or rural areas further away from cities such as Kuala Lumpur, Johor Baru and Penang to organise a fintech event. How many people will attend and understand what it is all about? - Mohammad Ridzuan

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The growth of the local financial technology (fintech) industry has been slow compared with those in other countries. The main reason for this is the low level of financial literacy in the country, says FinTech Association of Malaysia (FAOM) president Mohammad Ridzuan Abdul Aziz.

Many Malaysians still do not know enough about the basics of finance, let alone fintech, he tells Personal Wealth. This includes an understanding of how banks and the capital markets operate.

“Many people are not taught basic financial knowledge in school and struggle to understand this when they start working. Now, add a layer of technology on top of finance and it confuses them further. So, how will they be able to understand what fintech is and how to use it?” says Mohammad Ridzuan.

“Despite all the buzzwords that may give some people the impression that fintech has gained a lot of traction in recent years, try going to suburban or rural areas further away from cities such as Kuala Lumpur, Johor Baru and Penang to organise a fintech event. How many people will attend and understand what it is all about?”

As a result, the people and businesses that want to be part of the fintech landscape are unable to come up with innovative solutions to address the industry’s real needs. “For instance, Bank Negara Malaysia announced that the virtual banking framework would be launched by the end of this year. Some parties who want to apply for the licence have approached me. They thought that with the licence, they could launch mobile banking applications [that target existing bank customers rather than the underbanked]. You will not be approved if you apply for the licence based on that understanding,” says Mohammad Ridzuan.

“These people need to know what fintech is. It is about understanding the industry’s issues and how they can solve these problems with a viable business model that utilises technology. In the case of virtual banking, for instance, serving the underbanked and underserved is one of the strong value propositions they can offer. That is because virtual banks can use technology to lower their [operating] costs and tap into the unbanked and underserved segments of society.”

The slow progress towards achieving financial inclusion has not helped either, he adds. Instead of providing innovative products and solutions to those in the lower income group, the incumbent banks — given their cost structure — can only afford to service the more affluent. This means those in the lower class, which make up a large number of the nation’s population, have limited exposure to fintech products and solutions.

“Instead of serving those with RM200 or RM2,000 in their bank accounts, traditional banks tend to serve those with RM2 million,” says Mohammad Ridzuan.

He compares this with Singapore, where the level of financial literacy and inclusion is much higher. He believes this is what underpins the city state’s advanced and vibrant fintech industry.

“I once went to the St Joseph’s Institution International School in Singapore to teach the children financial literacy. A 12-year-old raised his hand and asked me, ‘What is yield and coupon?’ It turned out that his dad was a bond trader and he would hear these terms whenever his father was in a conference call with clients. He asked me the question because he did not want to bother his busy father,” he says.

“You may say this was an isolated case, but it is not. I received other [finance-related] questions from other children at the school and this is just one example. This is how different the two countries are when it comes to financial literacy.”

 

Fintech playbook

Upon realising this, Mohammad Ridzuan decided that FAOM should do something to address such a fundamental issue in the country. What he intends to do, together with other association members, is come out with a playbook to educate not only investors who are unfamiliar with the fintech industry but also the general public.

The playbook will include information on all the local fintech start-ups and companies, he says. “It will be like a nationwide database. It will allow you to understand who are involved in these start-ups and companies. It will tell you what stage they are at, whether they are at the growth stage or looking to scale up.

“It will also tell you what their investment needs are and how innovative and mature their technologies are. Also, what their aspirations and vision are going forward, among others.”

When published, the playbook can be used to educate the public on finance and technology. For instance, the information on local fintech start-ups and companies can be consolidated and visualised before it is presented to the public via the association’s website or a mobile application, says Mohammad Ridzuan.

“If we print a book, very few will bother reading it. It has to be on our website or an app. If we can promote the playbook successfully, it will be a source of reference for those who want to know about the industry and its key figures,” he adds.

The general public will have access to this information at their fingertips while investors — be it retail or institutional, local or foreign — who are interested in the fintech space can easily obtain a snapshot of the industry.

More importantly, Mohammad Ridzuan wants to turn the information into simple teaching materials that are palatable to primary and secondary school students. He wants to engage with the Ministry of Education to introduce the subject to government school students so they can increase their awareness of fintech and improve their financial literacy.

“We want to approach the ministry and say, ‘Hey, let us help you build the syllabus for such a subject.’ We want to let them know that this is not a crazy idea,” he says.

“When the playbook is done, we will have gathered all the necessary information, including samples of fintech start-ups and companies and use cases of their products and services. We can make it a co-curricular subject and talk to them about financial literacy and fintech. Ideally, the subject should be introduced in primary school.”

Will this be considered too complex for primary school students? Mohammad Ridzuan says the content can be made simpler for primary school pupils such as discussing the importance of saving and managing cash flow to achieve a goal. “These things can also be taught using board games, such as the one called Nest Egg, which is available in the market.”

More complex knowledge can be introduced in secondary school or university, he adds. “In addition to improving financial literacy, the playbook can help increase the visibility of local fintech start-ups and companies.”

 

Currently securing funding, engaging industry players

Mohammad Ridzuan says the association has made some progress in producing the playbook, but it is still in the early stages and more needs to be done. For instance, the association has already received Bank Negara’s approval to set up a fintech database, which will serve as the basis for the playbook.

“This is a good thing. When I approached industry players like TM One [the enterprise and public sector business solutions arm of Telekom Malaysia Bhd], Hong Leong Group, Malayan Banking Bhd and CIMB Bank Bhd, I was able to show them the mandate and convince them to be part of this,” he says.

Mohammad Ridzuan has also engaged with other industry stakeholders to help the association achieve its goal of producing the playbook. These include government ministries and related agencies, private and public universities and fintech associations in other Southeast Asian countries.

“We approached the Ministry of Finance, Ministry of Energy, Science, Technology, Environment and Climate Change and Ministry of Communications and Multimedia. We also talked to government-related agencies such as Malaysia Digital Economy Corporation (MDEC), Malaysian Global Innovation & Creativity Centre (MaGIC). Fintech associations in other Southeast Asian countries such as Thailand, Indonesia and Singapore are also in touch with us,” he says.

Mohammad Ridzuan is currently trying to secure financing from corporates to kick-start the programme. But so far, FAOM is mainly funded by its members, which include a number of fintech start-ups, companies and individuals involved in the fintech industry or are interested in it.

To come out with the playbook, the association will have to hire some full-time employees to engage with stakeholders and gather, consolidate and update information. It will also need funding to develop and maintain the playbook’s mobile app, says Mohammad Ridzuan.

He points out that fintech associations in countries such as Singapore, Thailand, the Philippines and South Korea are funded by their governments and regulators. They also have full-time employees to run and develop the associations.

 

Striving to be better and more influential

Going forward, FAOM will continue to serve as a one-stop centre that helps fintech start-ups and companies secure the necessary resources for their business operations and expansion, says Mohammad Ridzuan.

In addition to being president of FAOM, he also serves on the international advisory panel of Labuan Financial Services Authority (FSA). Hence, he can help fintech start-ups and companies link with the mid-shore financial centre, especially those that want to receive foreign direct investment in a foreign currency.

“Let’s say, you are a big fintech start-up like Grab and a foreign investor wants to invest US$25 million in your company. It is not easy for the money to enter Malaysia because of Bank Negara’s Foreign Exchange Administration Requirements,” says Mohammad Ridzuan.

“If you are a non-resident and you want to transfer a certain sum of money to a resident, you need to go through a local bank and the bank needs to report it to Bank Negara for approval. The process takes two to three weeks on average.

“To a start-up founder, all these processes take too long. Some founders may feel frustrated and want to move their businesses elsewhere.

“This is where Labuan plays a role. As long as the investment does not come into Malaysia [onshore] and does not involve transactions in ringgit, it can enter within 24 hours. By doing this, the start-ups can be based in Malaysia and still move fast.”

He adds that the association has established formal ties with Labuan FSA, Labuan International Business and Financial Centre and other key stakeholders in the jurisdiction’s financial ecosystem. “We are always looking for partners to collaborate with to improve the industry.”

Mohammad Ridzuan says FAOM can also link fintech start-ups and companies with suitable parties if they need legal advice or services. It can also assist in finding the right talent or facilitating conversations with government ministries and related agencies.

“We are trying to play a more active and influential role in the fintech industry. We have been organising events. However, these events were more short term in nature and less impactful. We are trying to do something long term and more meaningful for the industry,” he adds.

 

 

Extensive experience in the financial industry

Now 48, Mohammad Ridzuan Abdul Aziz had had extensive experience in the financial sector before assuming the role of president of the FinTech Association of Malaysia (FAOM).

Early in his career, he was an internal auditor at Malayan United Industries Bhd (MUI Group) and personal assistant to its founder, Tan Sri Khoo Kay Peng. He helped Khoo look after the group’s myriad businesses, which included stockbroking firms, hotels, chocolate factories, construction companies and retail stores.

Mohammad Ridzuan joined the Kuala Lumpur Stock Exchange (now known as Bursa Malaysia Bhd) as a senior team lead in 1998. He was involved in several investigations into stockbroking firms that went under during the Asian financial crisis.

He travelled across the country to visit these firms and ensure that their accounts had been adequately audited and investor money was protected. The firms included Taiping Securities Sdn Bhd, Smith Zain Securities Sdn Bhd, Phileo Allied Securities Sdn Bhd, Innosabah Securities Bhd and Sarawak Securities Sdn Bhd.

“Most of the firms I went to are gone now. I went deep into stockbroking back then, especially in the secondary market trading area. I was exposed to all the manipulation that took place in the market,” he says.

“One of the more interesting cases I did was with Sarawak Securities, which had lost a huge amount of money. I, together with a few people, was tasked to trace how things had gone wrong. We discovered weaknesses in the Central Depository System and that a huge amount of money had been taken out from the trust account within a particular period. It was done through collusion between the people at the front-end and those at the back-end. Those were interesting times for me.”

From 2001 to 2005, Mohammad Ridzuan served as a senior market examiner at the Securities Commission Malaysia (SC) and was tasked to conduct several investigations. One of them was to look into the trading activities of the private debt securities market, which involved several parties including banks, fund management companies and government agencies.

“The investigation was kept internal by the SC and I reported directly to the chairman. I learnt a lot about the intricacies of the market and also the issuance activities and manipulations that could happen back then.”

Later, Mohammad Ridzuan would join Macquarie Capital Securities Sdn Bhd and then Nomura Securities Malaysia Sdn Bhd as head of compliance. In 2013, he and a friend decided to start RHT Compliance Solutions Sdn Bhd to provide compliance services to financial institutions and financial technology (fintech) firms. They sold the business in 2017.  

Mohammad Ridzuan subsequently became CEO of Sedania As-Salam Capital Sdn Bhd, an Islamic finance company, before moving on to become country director and head of Asean at WorldRemit, an online-only international remittance company headquartered in London.

Today, he owns several businesses, including N-Com Sdn Bhd (a broadcasting engineering company), MarketingInAsia.com (a digital media company) and MyFinB (a robo-advisor that uses proprietary technology to assess companies and predict how their businesses will perform).

While Mohammad Ridzuan does not think his achievements are worth shouting about, his track record does stand him in good stead. It has helped him to gain the trust and respect of those in the fintech industry.

“A lot of innovators out there are good at developing products and solutions. But to develop a business, you need more than that,” he says.

“However, there is always resistance [when someone gives them advice]. This is probably when my experience comes in handy. The sharing between us helps to enhance the value that we provide each other.”