Bank Negara Malaysia Plans Next Great Leap Forward for E-Payments as Russia’s Sberbank Pioneers PayZakat Start-up and Dubai’s Addenda Blockchain Platform Targets Takaful and Insuretech Firms

The fit between Islamic finance and the wider global ESG/SRI, FinTech and Digitisation sectors continues at a measured pace, with a recognized and on-going need for the further development of investor appetite and market education.  

Malaysia’s approach to the above sectors is highly structured with the requisite consultation, guidelines, regulatory and legal frameworks and enforcement. Both the government and the regulatory authorities are highly proactive in supporting the digitisation of the Malaysian economy and the ESG/SRI sectors.

The latest policy initiative is in payment service provision, especially faster transformation of the economy including government services into e-payments including in the conventional and Islamic sectors.

“Malaysia’s progress in migrating to e-payments,” stressed Adnan Zaylani Mohamad Zahid, Assistant Governor of Bank Negara Malaysia, the central bank, in a speech to the industry at end July, “has been promising. In less than a decade since 2011, we have reduced cheque usage by half to 101 million in 2018. E-payment acceptance points such as point-of-sale (POS) terminals have more than doubled to 16 terminals per thousand inhabitants in 2018. More merchants are also accepting QR payments with over 400,000 registrations recorded to-date. Meanwhile, e-payment transactions have almost tripled to 125 transactions per capita in 2018.”

At the same time, new business models are emerging. BNM estimates that 40% of FinTechs in Malaysia are in payments or payment-related services – making it the largest segment. The e-wallet space has been particularly vibrant, contributing to rapid growth in mobile payments. From 2017 to 2018, mobile payment transaction volume had increased twenty-fold from just below two million transactions to over 34 million transactions within a year.

However, BNM has three broad priorities in taking Malaysia’s payments journey to greater heights. These comprise:

  1. a) Greater scope to enhance inclusivity and quality of e-payment adoption; significantly expand merchant acceptance, with a focus on lower-tier merchants; and accelerating the digitisation of the value chain for both users and merchants to include digitising salary payments, and payments to suppliers, wholesalers and distributors;
  2. b) Strengthening public confidence. Some segments of the population may still lack awareness and confidence in e-payments, despite fraud levels being relatively low in Malaysia. Payment service providers must rethink their strategies to remain relevant and be sustainable in the long run.
  3. c) More inclusive payment systems in the future that are able to accommodate the speed of change for implementing new solutions at scale.

BNM is also promoting interoperability which can enhance competition and drive greater efficiency through wider network reach and economies of scale, standardisation, which can improve efficiency and foster the development of new services, and flexibility and openness, which can pave the way for businesses to scale and offer value-added products and services.

“To enhance the value proposition to end-users, Bank Negara Malaysia has also focused its efforts on evolving our regulations to facilitate new business models. The ongoing work on the digital banking framework is one example, amid growing interest among traditional and non-traditional players to enter this segment,” stressed Zahid.

To promote payment ecosystem resilience, BNM had recently issued its policy on Risk Management in Technology (RMIT), which sets out baseline standards for financial institutions, and addresses key fundamentals of technology resilience including governance, cybersecurity risk management as well as capacity-building.

In the Islamic finance space, halal payments platforms are flourishing, with Malaysia-based Souqa Fintech Sdn Bhd PayHalal, established by former CEO of CIMB Islamic, Badlisyah Abdul Ghani, setting the pace. PayHalal, which operates an online payment system as part of its ongoing efforts to offer end-to-end Sharia’a-compliant solutions to its customers, signed an agreement with Zurich Takaful Malaysia Bhd in May for the latter to use the Souqa Fintech PayHalal online payment system.

An interesting development is the 25 per cent equity state acquired in July by Russian state-owned bank, Sberbank, in the PayZakat platform that allows its users to calculate their contribution amount, and channel it to the charity of their choice.

Zakat is an obligatory tithe incumbent on all those who can afford to pay it and is one of the five pillars of Islam. Global Zakat collections are estimated at US$500 billion a year, although this figure may be understated.

PayZakat is a start-up that won Sberbank’s first SberUp corporate accelerator competition for its own employees, and the bank sees global and universal potential for the platform.

Elsewhere there have been new initiatives in Islamic finance applications in blockchain and crowdfunding. Three takaful companies, Aman (Dubai Islamic Insurance & Reinsurance Company), Noor Takaful and National Takaful Company join Al Wathba Insurance and Oriental Insurance in using a new Dubai-based blockchain platform on the DIFC-based Addenda blockchain, which is built on the Hyperledger Fabric blockchain framework and allows insurance companies to settle outstanding claims and payments among each other.

Another Dubai-based initiative is the Falcon Network, a group of emerging markets-based angel investors, which in August successfully concluded their inaugural round with the completion of six investments in high-growth and impact-focused start-up enterprises.

In total, the Network’s members invested over USD 450,000 in

– Aion Sigma, a Finland-based fintech platform with sizeable presence in Africa that provides financial inclusion and empowerment of individuals;

– Caravan, a value-added aggregator of privately-operated buses in the UAE with the mission of helping employees find the best private bus for their work commute;

– Saaya Health, a tech company providing emotional/mental health solutions to organisations and corporations;

– Teacherly, a UK-based collaborative planning and peer to peer edtech platform with growing presence in the Middle East;

– Virtual i, a DIFC based insurtech platform that provides fast, affordable and reliable risk engineering services to insurers and insured and brings visibility to insurance transactions; and

– WorkAround, which provides a scalable data tagging and verification platform for artificial intelligence / machine learning applications, delivered by skilled displaced people.

In Saudi Arabia, Raqamyah, the Kingdom’s Peer to Peer funding platform, appointed Shariyah Review Bureau to manage the Sharia’a compliance affairs of its crowd-funding technology.

Ammar Bakheet, Founding Partner and Chief Executive Officer of Raqamyah, said in a statement: “It is high-time for the Kingdom’s financial sector to explore opportunities offered by fin-tech firms to serve the SME’s segment. At Raqamyah we are proactively looking to augment our capabilities in developing faster ways of connecting funders with SME’s and also enact the spectrum of SAMA’s regulations in the Kingdom. For us, Sharia’a compliance is instrumental in achieving success. This proposition can help enhance Islamic values by challenging the way a financial transaction is formulated and providing Sharia’a assurance to our stakeholders.”

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