MALAYSIA FINTECH REPORT 2021

1 MALAYSIA FINTECH REPORT 2021In partnership with:Produced by Content01 MALAYSIA at a Glance02 MALAYSIA s FINTECH Landscape03 Payments Landscape04 Digital Banking05 Digital Capital Market06 Key Regulations in 2020/202107 Key Developments in 2020/2021 ForewordVincent Fong, Chief Editor, FINTECH News ,allofMalaysia sfintechfounderscouldprobablyfitasmallro omandI , ,thesesamefoundersarenowraisingSeriesAan dSeriesBrounds,securingimportantpartners hips, simportanttocontinueourFintechReportMala ysia,astheindustrygrowsitbecomesmorediff iculttokeeptrackofthekeydevelopmentsthat arehappening, reoptimistictheindustryispoisedforfurthe rgrowth, realsothankfulforthesupportofoursponsors BigPay,GHL,pitchIN,CapBay,Payfo, ,FintechNewsMalaysiaForewordSalim Dhanani, Chief Executive Officer and Co-Founder, BigPayOnthebackofapandemicthathastouched everypersonontheplanetandthathasfundamen tallychangedthewayweliveandwork, , ,consumers, ,it , ,todigitalidentityframeworks, , ,BigPay , ,andwe.

2 SalimChiefExecutiveOfficerandCo-Founder, BigPayForewordSean Hesh, Group CEO, GHL TheCOVID-19pandemichasacceleratedthedigi taladoptioninwaysweneverimaginedwaspossi ble wearelookingatnearlyfiveyears ,provingthatGHL , , , ,thegapbetweenanintegrateddigitalinfrast ructureandthedigitalintellectualityitsel fneedstobeaddressedbeforehand, , ,pairedwithourvastrangeofproductsandourr egionalnetwork, !SeanHeshGroupCEO,GHLM alaysia FINTECH REPORT 2021 SponsorsThis 2021 MALAYSIA FINTECH REPORT was made possible thanks to the support of our generous sponsors below MALAYSIA in NumbersNote:* Network Readiness Index (NRI) 2020by Portulans InstituteSource: Department of Statistics MALAYSIA , Bank Negara MalaysiaFollowing the global movement restraint order and border closures during the pandemic, MALAYSIA s overall GDP contracted by 2020. The implementation of the Movement Control Order (MCO) had affected the labour market activity. However, COVID-19 has accelerated the growth of digital economy.

3 The digital economy s contribution to GDP reached 20% in 2020, increasing from or RM289 billion in 2019. The country s increasingly digitalised economy helped to boost the presence of startups as well as draw in investors with support from the government and regulators. 27 Number of Banks01 MALAYSIA at a GlanceMalaysia s flourishing FINTECH ecosystem34 Network Readiness Index 2020* World RankMYR799 billion Private Consumption (2020) million Population (2020) million Labour million B40 Households20%Digital Economy Contribution to GDP (2020)RM1,389 billionGDP (2020) Growth (2020)Source: Global Findex Database, Bank Negara MALAYSIA 01 MALAYSIA at a GlanceDigital commerce, banking and social media became a part of Malaysians everyday lives81%Of Population (Feb 2021)40%Of Population (Feb 2021)18%Of Population (Feb 2021) Users(Jan 2021) Connections(Jan 2021) Banking Penetration (2020) Banking Penetration (2020) Bank Branches Per 10,000 Adults (2020) ATMs Per 10,000 Adults (2020)95%Banked Population(2018)86%Social Media Users(Jan 2021)Social Network52%Insured Population(2018)143%Debit CardOwnership (2020)30%Credit CardOwnership (2020)Internet banking in MALAYSIA has quadrupled in the last decade, showing an increase of over 100% usage rate in 2020.

4 Mobile banking is also booming, supported by near-universal 4G network coverage and affordable data with 5G connection in the works. The World Economic Forum ranked MALAYSIA high among 139 countries and first among countries in emerging and developing Asia in Malaysians continue to adapt their everyday lifestyles to fit the new normal during the pandemic, the spike in e-wallet usage became an inevitable trend. Payment20%E-Wallet15%Lending14%Insurtech 9%Wealthtech9%Remittance6%Blockchain/ Crypto6%KYC/ Regtech4%Islamic Fintech4%Crowdfunding4%AI/ Data3%Marketplace3%Proptech3%Source: FINTECH News MALAYSIA 02 MALAYSIA s FINTECH LandscapeDigital payments and e-wallets are leading the Malaysian FINTECH space (% of Total Number of Companies)Insurtech (22)Crowdfunding (10)Blockchain/ Cryptocurrency (15)Wealthtech(22)AI/ Data (8)KYC/ Regtech (11)Marketplace (8)Lending (37)Islamic FINTECH (11)Proptech(6)Payment (50)Remittance (16)E-wallet (38)Note: Some companies appear in more than 1 category to better reflect the nature of their businesses, but they still count asone towards the total02 MALAYSIA s FINTECH LandscapeMalaysia FINTECH Map 2021 Total: 233 FINTECH CompaniesIn 2020, E-money accounted for the largest transaction volume, contributing 29% to the total payment transaction and lead ahead of mobile and internet banking.

5 Whereas internet banking remains the biggest channel in transaction value, in which corporate transactions made up 88% of the transaction value. Source: Bank Negara Malaysia01,0002,0003,0004,0005,0006,0007 ,00020162017201820192020 Volume (million)Internet BankingMobile BankingATM Cash WithdrawalsATM Payment TransactionFPX and Direct DebitInterbank GIROE-moneyDebit CardCredit Card03 Payments LandscapeInternet banking remains most prominent digital payments method02,0004,0006,0008,00010,00012,0002 0162017201820192020 Value (billion)2020: 1,8332020: 9362020: 1,1622020: 8,8582020: 1,184 Transaction VolumeTransaction ValueMobile banking transactions surged more than double to MYR460 billion in 2020 from MYR200 billion in 2019. The surge in transactions was supported by a 3 million increase in mobile banking service subscribers in 2020 to million, from 2019 s million. While mobile financial services were rising before the pandemic, MCO* was the catalyst that spurred Malaysians to adopt a digital/ mobile-first mindset for their banking needs.

6 Besides banking, MALAYSIA has 47 non-bank e-money issuers, and the e-money transaction value hit MYR29 million in 2020. The big jump showed that both consumers and merchants had quickly adjusted to the new normal, adopting cashless payment options. Note: *MCO refers to Movement Control Order implemented by the government as a COVID-19 preventive measure Source: Bank Negara Malaysia03 Payments LandscapeMobile banking and e-money recorded the fastest growth pace 64%40%98%104%125%01002003004005002016201 7201820192020 MYR billionMobile Banking Transaction Value and Growth Rate28%18%21%66%61%020406080100201620172 01820192020 MYR billionE-money Transaction Value and Growth Rate03 Payments LandscapeE-payments grew in 2020 driven by online and contactless transactionsOn average, a person in MALAYSIA made 170e-payment transactions as compared to 150 in 2019 Source: Bank Negara bankingtransaction volume+49% transaction volume+131%293k773k20192020 Merchant registrations for QR code acceptance+164%03 Payments LandscapeGreater e-remittance adoption as number of remittance providers grew significantlyIn 2020, the lower cost of e-remittance services and convenience of electronic on-boarding process (e-KYC) that provided a more seamless user experience contributed to greater adoption.

7 The offering of e-remittance services supported the industry s swift recovery from the impact of the pandemic, registering billion in total outward remittances, up by 12% from 2019. Source: Bank Negara MalaysiaE-remittance shareGrowth in the value of e-remittance transactionsE-remittance costOf total outward remittance transactions (2019: 14%)(2019: 27%)Compared to overall remittance cost of (2019: )25%106% Payments LandscapeBNM evaluates MALAYSIA s need for a Central Bank Digital Currency (CBDC) sannualreportillustratestheregulator of fiat currency, e-money and digital assetsIssued and backedby a sovereign bodyPrivately issued and backed by assetsPrivately issued and not backed by assetsFiat notes and Bank Digital Currency (CBDC)Electronic money (E-money)Digital assetsStablecoin ( , Tether, USD coin) tokens ( , Bitcoin, Ethereum) tokensValue is backed by a sovereign body ( , Government, central bank)Value is backedby fiat currencyValue is backed byassets ( , fiat currency,commodity)No formal backing for its value and subject to market forces Widely used as a means ofpayments Some countries are exploring the feasibility of issuing CBDC (digital form of fiat currency)

8 Widely used as a means of paymentMay potentially be usedas a means of paymentsubject to effectivenessof value stabilisation mechanismNot widely used as a means of payment due to various limitations ( , high price volatility, vulnerability to cyber threats, scalability issue)Widely used for pricing of goodsand servicesDenominated infiat currencyMay be denominatedin fiat currency (for stablecoins backed by fiat currency)Not widely used for pricing of goods and servicesSource: Bank Negara MalaysiaInstrumentStore of ValueMedium of ExchangeUnit of AccountPlayersOwned byNo. of Users (end 2020)No. of Merchants (2020)Ant GroupTouch n Go Group (Subsidiary of CIMB Bank)Over 15 million300,000 Axiata DigitalGreat Eastern Life million231,100 GrabUndisclosed*Over 163, million**Approx. 530, million**Approx. 800,000**03 Payments LandscapeE-wallet players in numbersSource:Directlyfromthee-walletbra ndsunlessstatedotherwise*Grabhaschosenno ttodiscloseusernumbersandweareunabletofi ndreliabledatapublicly**Basedonearlierpr essstatementbyMaybank,theyhavedeclinedto sharenumbersoftheusernumbers** **800,000(approx.)

9 ArebasedonVisa/Mastercardpaymentacceptan cepointsasBigPayleveragesVisa/Mastercard smerchantbase04 Digital BankingBank Negara MALAYSIA to issue up to 5 digital banking licenses in 2022On 31 December 2020, Bank Negara MALAYSIA (BNM) issued its Licensing Framework for Digital Banks and stated that it may issueupto five digital banking licenses. The licensing Framework seeks innovative business models to support MALAYSIA s underserved and unserved marketsegments. To apply for a digital banking license, banks and new participants can submit their applications to BNM no later than 30 June licenses will be granted by 1Q 2022. Digital Banks: Applications CriteriaCommit to drive financial inclusionEnsuring meaningful access and responsible usage of financial services for the underserved and unserved market segmentsComply with regulationsA simplified regulatory requirements apply to digital banks during foundation phase. They must comply with Financial Services Act 2013 (FSA) or Islamic Financial Services Act 2013 (IFSA), as well as AML/CFTD emonstrate viability and sound operationsMaintain an asset threshold of no more than RM3 billion in the first 3-5 years during foundation phaseSafeguard the integrity and stability of the financial systemMaintain a capital funds of RM100 million throughout foundation phase and achieve RM300 million, unimpaired by losses, by the end of 5th year of operationStrong value propositionsDemonstrate sound business plan in fulfilling financial inclusion through adoption of digital innovations and address cybersecurity and IT governance 13452 Source.

10 Bank Negara MALAYSIA , EY MalaysiaDEEP AND ROBUST CUSTOMER ANALYTICSU tilised to improve and expand access to and responsible usage of financial servicesAPPLICATION OF TRANSFORMATIVE TECHNOLOGYIn the development and delivery of financial services such as scalable and agile technology stack built on microservices architecture04 Digital BankingBNM s considerations in assessing applicants12 ROBUST RISK MANAGEMENT AND COMPLIANCE CAPABILITIESD emonstrate a track record of operating in a regulated environment34 FINANCIAL STRENGTHA bility to continuously serve as a source of financial strength to the proposed licensed digital bank5 Shariah expertiseThe requisite Shariah expertise is required for proposed Islamic digital banks to effectively carry out Islamic digital banking businessSource: Bank Negara MALAYSIA , EY Malaysia04 Digital BankingStrong Interest from Industry Players for MALAYSIA s digital banking license ApplicantsIndustriesCompetitive CharacteristicsTelco, Financial Services, E-wallet Rich consumer data on telecommunications and e-money transactions Access to digital-first consumers Rumoured to be in talks with a major financial institution to bid for a licenseTransport, E-wallet, Financial Services Rich consumer data on transportation and e-money transactions Largest e-wallet service in MALAYSIA , backed by CIMB Group s subsidiary, Touch n Go Open to form consortium to bid for the digital banking licenseRide-sharing, Food Delivery, E-wallet, Financial Services Strong super app ecosystem Rich consumer data on consumer digital habits Regional tech giant that serves 630 million users in Southeast Asia FINTECH , remittance, digital payments.