This series is produced in collaboration with the Fintech Association of Malaysia (FAOM), a national platform that supports Malaysia in becoming the leading hub for fintech innovation and investment in the region.
The tale of fintech, like that of the wider technology industry, is often one told of daring entrepreneurs, burgeoning startups, and long-shot bets by venture capitalists. Yet, little attention is paid to the infrastructure builders of tech, the sinews that link the private and public sector, that act as nervous systems that make it possible for frictionless payments to take place.
With such systems in mind, I spoke to Khairuan Abdul Rahman, the Director of Retail Payments Services at PayNet, the national payments network for Malaysia’s financial markets, to garner his thoughts about the state of the payments industry, the role of agencies like his, as well as the increasingly dynamic future of digital finance.
PayNet is the coordinator and mediator between many interests: national and local, public and private. It has an unenviable task of navigating bureaucracy to achieve its goals.
“We have a clear objective, which is to aid Malaysia’s transition to a sustainable digital economy. We act as a catalyst for innovation, to provide a system that is more data-rich than its previous iteration, and to bridge that gap between cash, check, and payment.
“It’s more than just services, there’s a lot of communication and coordination involved. Building a national infrastructure requires public-private cooperation, as well as an all-of-government approach. We bring in the ecosystem,” said Rahman.
The role of government in paving the path
In Silicon Valley and the US, there has been a long history of private actors moving first, building the infrastructure before the government. Such was the case for railways when tycoons like Cornelius Vanderbilt went ahead to construct train tracks via private money; the parallel today is Tesla which took on the gargantuan task of expanding EV charging networks before any federal body regulated them.
Also Read: The future of fintech: The latest trends in the industry
Even then, we are beginning to see the limits of purely private plays, especially in the payments space, where we saw Meta attempt to create its own ecosystem via Libra, only to be met with a tepid response from customers and hostility from regulators.
In our part of the world, however, it is often necessary for the government to put in a significant effort in developing infrastructure before private actors are willing to enter the space. In this context, entities like PayNet are crucial to creating an environment where fintech can survive and thrive.
According to a report recently published by ACI Worldwide, Malaysia is the fifth fastest-growing real-time payments market globally, with a CAGR of 26.9 per cent. It’s not an exaggeration to say that PayNet has been at the forefront of enabling such an environment, having provided essential services such as account-to-account credit transfers, national bill payments, Malaysia’s domestic debit card scheme, and more recently, DuitNow QR, the national QR standard.
How PayNet is enabling innovation
The pandemic has been a massive catalyst for the industry, giving PayNet an increasingly important role. “During the first year of the pandemic, we saw more than 100 per cent growth in e-payment volumes, and even in this endemic phase, we’ve seen a huge uptick for QR payments. It has clearly changed consumer behaviour, not just for e-commerce, but even for face-to-face transactions,” said Rahman.
Despite the immense strides in digital payments, there have also been growing concerns that digitisation has not benefited everyone. A 2020 report by Khazanah Research Institute raised issues of digital inequality, where the urban poor and rural with less access to the internet are falling behind, cut off from the payments revolution. That’s where agencies like PayNet come in, bridging the divide, especially in areas where there is little commercial incentive for profit-maximising firms.
Rahman lights up upon mention of this. “Based on observation, participants tend to go after big cities first due to the larger market and tech savviness of the population, and then secondary cities after that. So we need to create alternative avenues. For instance, we recently worked with Bank Islam to onboard the traders at Pasar Siti Khadijah in Kota Bharu (the capital of the state Kelantan) to accept DuitNow QR.”
“We take a holistic approach to these matters. We’ve also cooperated with universities, ministries, and telcos to set up internet infrastructure. After all, you can’t have digital payments without internet access. At the end of the day, it’s about building the foundations; it will take its time, but it will not be overnight. When we do these programmes, it’s not just about having a glamorous launch today, but about continuous education resulting in long-term changes in consumer behaviour.”
Also Read: How this startup is leveraging fintech, HR tech and service tech for changing the FDW industry
To this end, PayNet, in collaboration with the Fintech Association of Malaysia (FAOM), launched its Fintech ePayment Accelerator Programme in February earlier this year to support innovative solutions that can cater to the underserved population and encourage digital adoption.
Thus far, PayNet has received 25 proposals from a diverse array of use cases, including property, accounting and inventory management; the successful applicants will receive up to MYR500,000 in grant funding and access to PayNet’s extensive network.
“One of the core problems we identified for startups was a lack of funding, weak connections to the financial industry, and a lack of understanding of the current services available in the payments infrastructure. We wanted to provide not just a grant, but also an opportunity to work with PayNet’s ecosystem and platform.”
“It’s incredibly important for fintech to understand the real-time payments platform. What is unique about this is we allow non-banks direct access to it, which is rare in the region. This gives fintech opportunities for much richer customer data and superior integration. Of course, we have to manage the risks and processes, but it is part of our strategy to open this up to non-banks as well.”
This strategy of closer integrations, seamless transactions and a tightly intertwined global system is the heart of the payments industry. Yet, recent geopolitical rifts, whether it be Russia’s exile from the global financial infrastructure or the US-China trade war, have raised concerns that the trend towards frictionless payments is not inevitable.
Rahman provides a measured response, “As a national entity, we have to mitigate that risk. We have to emphasise the local switch and data sovereignty, continuously think of backups and work on building resilience. But all these developments don’t change our goal. In the end, it’s about creating as robust a national payments infrastructure as possible.”
–
Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic
Join our e27 Telegram group, FB community, or like the e27 Facebook page
Image credit: jippu2498
The post How payment networks are crucial to the rising fintech movement appeared first on e27.