Malaysia’s central bank adopts agile mindset to fintech wave

Malaysia’s central bank adopts agile mindset to fintech wave : Page 2 of 2

By Karamjit Singh May 19, 2017

Banks “optimistically cautious” about fintech

Malaysia’s central bank adopts agile mindset to fintech wave : Page 2 of 2

And while it is popular notion to think that financial institutions are being defensive about the fintech wave and digital disruption, Aznan feels that banks are actually looking at the fintech wave through optimistic lenses. Sorry, make that “optimistically cautious”.

“You can see this from the manner in which they are already engaging with startups and with the more aggressive ones launching or partnering with accelerators. And we even have one bank already participating in our sandbox with their own take on innovative services,” says Aznan.

And while it is an enticing notion to entertain thoughts that banks could be torn asunder by the fintech wave, Aznan does not see this happening anytime soon – for two reasons.

“Banking is a heavily regulated business. As a result, banks have the advantage and know-how and the systems to help them navigate through complex regulations,” he says.

Second is the big issue around trust. “That is a key element when you are managing public money. You won’t want to place your savings in a startup.” Yet, while banks have these two things going for them, they lack the agility and new ideas of startups, notes Aznan. “That's why you see the current trend of the two sides working together and why we have adopted an agile mindset in facing the fintech wave.”

He recognises however that most regulators are also concerned about people being displaced or companies being disrupted to such an extent that they go out of business. “But where Malaysia is concerned our players are quite resilient. For instance, when we opened the market to foreign banks, there was quite the concern about local banks competing with them. But you can see that they managed well.”

Different approach from other central banks

Bank Negara hasn’t just adopted an agile mindset, it is also taking a slightly different role as compared to how regulators in the region are approaching fintech. While Aznan notes that some regulators “are throwing a lot of money at startups”, Bank Negara wants to create a conducive ecosystem for the private sector to play the funding role.

“We are regulators, and risk averse. We’re not entrepreneurs. Let’s leave the investment decisions to the private sector which knows that part of the business better than us,” he says emphasising Bank Negara’s focus in creating a conducive environment for the private sector to fill the funding role.

And with over 20 applications received to be part of its sandbox, with six approved for live testing over a one year to 18-month period, there should be a healthy pipeline of startups that come out of the sandbox with their business models and value propositions tested and ready for investors to take a bet on them.

Investors can bet on the startups knowing that they have also cleared the regulatory hurdles thanks to the active monitoring of Bank Negara on the startups who are supposed to share the KPIs they wish to achieve while in the sandbox testing their product.

“Within the monitoring period, we are able to help the startups address any risks we see emerging, and this helps eliminate uncertainties around your product meeting regulatory requirements,” says Aznan.