THE wave of fintech start-ups sprouting up across the globe is good news.
Essentially, they promise faster, cheaper, safer and more convenience in financial transactions. But the financial sector is a highly regulated space and rightly so. The movement of monies needs to be always monitored to prevent its use in corruption, illegal investment schemes, gangsterism and terrorism, among others. This is why all licensed financial institutions have to have strict reporting lines with financial regulators and have alerts built into their systems to detect questionable transactions.
Then, there is the KYC concept or “know your customer” rule, where the identity of participants in financial transactions is made clear. Central banks the world over are creating new rules for fintechs to follow, acknowledging that some existing rules cannot be applied to fintech due to their innovative business models. But the key point is that most of the fintechs that are setting out to do amazing things such as lowering your money exchange and cross-border remittance fees, are in the space of regulated finance. In other words, they need to be licensed and regulated by the central bank of each country they operate in. Such unlicensed fintechs are akin to the illegal loan sharks operating on street corners. Avoid using them. Consumers who lose their money using such fintech services will not have any recourse to protection from the authorities.
One local media recently highlighted the amazing work of CherryPay, a peer-to-peer money transfer matching platform launched last October. While this start-up must be doing great work, its name does not appear on the list of fintechs in that space that Bank Negara approved to operate within its “regulatory sandbox”. That is not to say that firms like CherryPay or other local start-ups such as SwapIt are not in the process of getting licensed (SwapIt which is not live yet, describes itself also as a peer-to-peer platform for currency exchange). The point is that users should first verify if the fintech services they are about to use are being offered by licensed operators. The four fintechs allowed to operate in Bank Negara’s sandbox are GoBear Ltd and GetCover Sdn Bhd, which are financial advisers and insurance aggregators, and WorldRemit Ltd and MoneyMatch Sdn Bhd, which are allowed to conduct remittance services while the latter is also enabled to provide money changing services. Do note that even these players are only allowed to operate their services within the limits imposed by the Bank Negara sandbox.
PanPages aims high
LOSS-MAKING PanPages Bhd looks to be moulding itself after the great tech companies of today.
For one, it associates itself with China-based e-commerce colossus Alibaba – PanPages helps customers publish business content on a number of platforms, including that of Alibaba’s global trade portal. More recently, PanPages forked out RM10.75mil for a 30% stake in the grocery unit of Lay Hong Bhd called G-Mart. PanPages says the move is to help G-Mart build up its online presence. Recall that one of the biggest global M&A exercises going on today is that of online retail giant Amazon making a bid for US supermarket chain Whole Foods. So, does PanPages also see itself as a little Amazon in the making?
To be fair, PanPages is looking to help Lay Hong’s G-Mart embrace the e-commerce wave hitting traditional grocers. But there are some questions. For one, the valuation of G-Mart: the deal values G-Mart at close to RM36mil. But G-Mart made a loss of RM234,692 in its financial year ended March 31, 2016 (FY16), which ballooned to a loss of RM1.3mil in FY17. So, why is it valued so high? PanPages says the valuation is based on the value of the assets of the supermarket chain.
There are other negatives - PanPages does not get control with only 30% of the supermarket. Furthermore, PanPages isn’t entirely in the best of financial health to be able to fork out that hefty RM10.75mil. Wouldn’t it have been better for PanPages to merely ink a deal to build up G-Mart’s online grocery business? That would have saved it from carrying much risk in the deal. As at its first quarter ended March 31, 2017, PanPages reported a loss of RM3.2mil, was in a negative cash-flow position, had RM4.8mil in cash (most of that from an earlier placement exercise) and RM2.35mil in debt.
Speculation is rife that a new party is emerging in PanPages following the crossing of major blocks of shares and the exit of Tan Tian Sin as a major shareholder. One wonders what is the new shareholder’s take on the G-Mart deal.
Important to have savings
ACCORDING to CNNMoney, Americans between the ages of 18 and 26 and households with income brackets of US$30,000 to US$50,000 are more likely to have six months of savings now compared to before the global financial crisis of 2008/2009.
The report said the percentage of those with adequate savings that can cover at least six months of expenses has jumped to 31% from 28% last year and 22% in 2015. This is a big deal because Americans have traditionally been not known to be big savers when compared with the rest of the world.
Which brings the discussion back to Malaysians. Do we save enough?
Evidently not. The Statistics Department’s latest available data on savings for the period between 2006 and 2013 showed that Malaysian household savings averaged 1.6% in this period. For 2013, Malaysian households saved 1.4% compared to American households, which saved 5% of adjusted disposable income. The data includes savings from the Employees Provident Fund (EPF) and also withdrawals.
According to Khazanah Research Institute’s (Kris) State of Households 2 report that came out last August, Malaysian households have one of the lowest savings rates among a basket of countries for which data is available. That pretty much debunks the myth of Malaysians being savers.
A Bank Negara survey on financial literacy that was conducted in 2015 but only revealed recently also showed that three out of four Malaysians will find it hard to raise even RM1,000 in the event of an emergency. In fact, the 2016 Kris report noted how vulnerable urban households were to financial shocks, with only 10.8% able to withstand one.
The report showed that more than a fifth of these households would only be able to survive for less than three months if their incomes were cut off, while more than half the households surveyed did not have any savings. Another report by Bank Negara also showed that only 6% of Malaysians can survive more than six months and 18% up to three months after losing their main source of income.
Why are Malaysians not able to save more? Buying on impulse is one reason. But the real reason is productivity. Because productivity is low, the pace of wage growth is slow. Coupled with rising inflation, the average wage-earner will not be able to save more for a rainy day or even for retirement since many will not make enough for their EPF contributions to be meaningful.