Malaysia’s fintech and VC sectors are heating up

AND in a blink of an eye, we are going into the third quarter of 2024. Time flies. But there’s some interesting moves happening in Malaysia that’s worth highlighting, despite the chaos making the headlines of local newspapers.

Here are four tech trends that have been shaping up over the past six months:

Corporate VCs eye semiconductor-fuelled hype

More corporate VCs are expected to throw their hats into the tech ring, but many of them will be eyeing the semiconductor space. There’s already one VC firm in this industry: Penang-based BlueChip VC.

This is a mysterious one, as BlueChip popped out of nowhere. But from what we can gather, it’s led by Lai Pin Yong, an 80-year-old former Intel engineer.

Lai comes with serious credentials as an engineer. But he does not have VC experience.

He claims that BlueChip VC has a startup capital of RM120 million (S$34.5 million) and was founded in 2023 in Penang.

He told business publication The Edge in an interview earlier this year that the firm is aiming for an annual return of more than 20 per cent from investments in semiconductor-related startups, with the aim of listing them on the Bursa Malaysia.

BlueChip has garnered the attention of the Malaysian government, with Prime Minister Anwar Ibrahim roping Lai into the country’s semiconductor roadmap.

During the recent KL20 Summit, the government announced that BlueChip will be teaming up with sovereign wealth fund Khazanah Nasional and civil servants’ pension fund Kumpulan Wang Persaraan (KWAP) to jointly invest in a RM3 billion fund.

Some of Malaysia’s semiconductor giants are also priming themselves to invest in deeptech startups, especially those specialising in either semiconductor-related fields or artificial intelligence (AI). A number of them have already begun planning out accelerators, but these are confined to firms in Penang – a state located in the northwest coast of Peninsular Malaysia – for now.

Malaysia’s richest state, Selangor, is also planning to ride on the semiconductor hype. The state will host the Selangor IC Design Park, a collaboration between the state government, Malaysia’s federal government, and international semiconductor firms as well as venture capitalists.

Greater VC wave

At the KL20 Summit, 10 VC firms made commitments to open offices in Malaysia, namely: Nordstar, GP Bullhound, K3 Ventures, Hopu, Lever VC, Intrinsic Venture Capital, Mundi Venture Capital, Openspace Ventures, NRL Capital, and M Ventures.

Two other investors also made commitments to launch a fund in the country at an unspecified date: The Hive Climate AI and China Galaxy Securities (CGS). Both firms already have a presence in Malaysia.

The Hive partnered with state-owned fund-of-funds Penjana Kapital, while CGS runs a brokerage out of Kuala Lumpur.

Taiwan-based VC firm and accelerator AppWorks also agreed to expand its operations to Malaysia, reported DealStreetAsia.

More importantly, Malaysia’s state-owned financiers have been deployed to source out startup deals. Khazanah has been tasked to set up a RM1 billion fund-of-funds for tech startup investing. Other entities such as KWAP have also launched their own funds.

Unlike previous attempts, this government is putting the burden of building a startup ecosystem on Khazanah. Previously it was a toss up between a number of government agencies.

For startups and investors, this may be a good thing since there’s now a focal point of reference.

Fintech heats up as digital banks go live

The last major fintech wave happened a decade ago, with household names such as Jirnexu and iMoney going on about being a one-stop shop for personal finance. They were essentially aggregators where users could compare interest rates on loans or deposits and proceed to apply for one.

A decade or so later, there’s the digital banks. Three out of the five consortia have launched theirs, according to Malaysia’s central bank data: GXBank, Aeon, and Boost Bank.

GXBank is owned by a consortium led by Grab, Singtel, and Malaysian conglomerate Kuok Brothers. Japanese conglomerate Aeon owns its eponymous digital bank, and Boost Bank is owned by Axiata’s digital arm Boost and Malaysia’s fourth-largest bank RHB.

The two others in the pipeline – which should be unveiled soon – are Sea-YTL and KAF.

At the moment, the race is on for net deposits. GXBank is offering daily interest on current accounts, while Aeon is offering monthly interest on deposits.

There’s a huge debate on the UI/UX aspects of each digital bank on social media. But the proof in the pudding is whether they will be able to meet the central bank’s milestones.

The other side to the story is that these digital banks have been looking to collaborate with newer fintech startups such as Swipey – a digital and accounting management platform – to provide more solutions for their customers, especially those running SMEs.

Another development is companies such as TNG Digital offering embedded financial services. This includes registering for a unit trust programme where everything, including the know your customer process, is done on the app itself.

This in turn raises possibilities of mergers and acquisitions as the country’s digital banks race for a dominant market share. It could also lead to traditional banks acquiring startups to compete with their younger and nimbler digital counterparts.

BNPL under watch

The buy now, pay later (BNPL) scene is expected to come under tighter regulations. The Malaysian government is working on a consumer credit act that will ensure non-bank entities comply with regulations and practices of credit provisions.

There are currently 2.9 million active BNPL users in Malaysia, according to publicly available data on the Consumer Credit Oversight Board (CCOB) website.

According to the CCOB, the unpaid BNPL transactions amounted to RM900 million, while credit card debt in Malaysia stood at RM40.3 billion.

While BNPL debt pales in comparison to credit card debt, the Malaysian government plans to nip this issue in the bud.

Still, there are opportunities, especially in the SME space. This is what Shopee is targeting with its SPayLater service, where buyers are offered 0 per cent processing fee when they check out of SPayLater.

As Malaysia continues to finetune its startup ambitions, one thing remains clear: there’s a consistent push coming from different segments, including the government. The only question is whether the push will translate into substantive change for the tech industry. TECH IN ASIA

Dan Lain-Lain (Malay for “and others”) is a weekly column by TIA journalist Emmanuel Samarathisa that dissects the goings-on in the Malaysia tech scene, but with a heavy mix of current affairs, policy and politics.