Fintech startups: Less like disruptors, more like innovative partners

• Many fintechs startups have moved from a B2C model to B2B2C
• The bigger threat are established tech companies

THE conventional idea usually given is that of young, nimble fintech upstarts that disrupt conventional, slower, established bank, "(but) the reality hasn't really transferred into that," said CIMB group chief strategy & design officer Gurdip Singh Sidhu (pic).

Although areas such as retail and payments have seen a lot of changes prompted by the entry of startups that undercut existing fees, the bigger picture is that startups are looking to partner with the larger, more traditional institutions. "That gives them the distribution, the scale, and in many cases, the street cred," explained Gurdip, clarifying that fintechs have gone from a B2C strategy to a B2B2C one.

This was shared recently at a roundtable titled “Innovating Financial Services in Malaysia” during the Perdana CEO Forum in Kuala Lumpur.

"What has turned out to be the more prevalent threat to traditional institutions are the big tech platforms who have pivoted to financial services," he countered.

"They will cause the biggest destruction to global financial services, and we've seen that clearly in China," he concluded, alluding to platforms like WeChat that had ably pivoted to offering payment services.

According to Gurdip, regulators in China had underestimated the rise of such entities. "At first they were too small for (the regulators) to bother and before you know it they were too big for them to disrupt."

Innovation is a neutral force for the financial system

"That innovation is actually a lifeline for the financial system," said Suhaimi Ali, Bank Negara Malaysia director of Financial Development and Innovation. While admitting that innovation has the potential be "destructive", Suhaimi also clarified "it is actually a neutral force within the financial system", and that there is "robust innovation" coming out of both the new fintech players, and the more established incumbents.

The question is what are they doing with that innovation, and how is it benefiting the country.

Covering uses as diverse as as e-remittence, e-KYC security, on-demand insurance and digital banks, Suhaimi explained that innovation was being driven by the ABCD of fintech: Artificial Intelligence, Blockchain, Cloud and Data.

Gurdip also explained that banks know about the oncoming digital wave, and have done so for the last decade and a half. "(Digitising) is essentially a continuation of what banks have started doing in the last 10-15 years, but just at a much faster pace and a much more comprehensive way of leveraging on the ABCD."

"Many banks including ourselves are responding pretty quickly now and I think the regulatory environment has been supportive of the need to get this going."

Embracing risk and giving space

Suhaimi agreed with this sentiment. "The approach from the central bank is to not shy away from all this risk," he emphasised, "but to embrace them for what they are and give space for the fintech players to experiment."

Among the initiatives that Bank Negara has in this area include running the regulatory sandbox to test out innovative business models and technologies, coordinating with other regulatory agencies such as the Securities Commission and MDEC, and performing outreach and workshops for fintech companies to better understand the regulatory and legal boundaries.

To date, of the estimated 240 fintech players in Malaysia, Bank Negara has interacted with 80 of them through workshops and other networking sessions, resulting in fifteen being considered for the Financial Technology Regulatory Sandbox.

Ultimately, according to Suhaimi, Bank Negara is open to adapting regulations to accommodate new players and practices. “If those are genuine innovations that are good for the system we will tweak our regulations to cater for these innovations," underlined Suhaimi.