The big data game has been set alight in Malaysia. Quietly, a number of mergers and acquisitions (M&As) have been taking place in the sector, indicating a growing competitive business landscape that holds much future growth potential.
At the centre of this are credit reporting agencies (CRAs) - essentially companies that are able to scrape as much data about individuals and companies to rate or score them in some way. These ratings are then sold to financial institutions or other firms keen to do business with such parties.
Another aspect of CRAs is that they offer products directly to consumers to help them better understand their ratings and improve them.
This week, CTOS Data Systems Sdn Bhd, Malaysia’s largest CRA, acquired CIBI Information Inc in the Philippines. The purchase of CIBI, which is one of Philippines’ most established players, marks CTOS’ first foray outside of Malaysia.
CTOS itself was the subject of a significant M&A when in 2014 private equity firm Creador forked out RM215mil to acquire a 70% stake.
Creador has been actively involved in growing the CTOS business and industry sources indicate that the PE firm is currently valuing CTOS at around RM1bil.
More M&A deals have taken place.
Perhaps the most significant one was that which involved a fight for control over a CRA called RAM Credit Information Sdn Bhd (RAMCI).
Late last year, RAM Holdings Bhd decided to sell its 33.15% holding in RAMCI, which was founded in 2000.
Industry players say RAM decided to divest as they were not hands-on in this business and also after realising the stake could fetch a tidy sum.
A sales process was called and it is understood that one of the front runners was CTOS.
CTOS already had a 16% stake in RAMCI which it bought in July 2019 for RM27mil from Main Market-listed Omesti Bhd, yet another player in the scene. But a surprising bidder emerged as winner, namely Ireland-based Experian, a global information services company that’s been boosting its presence in the region.
The figure paid by Experian for the controlling stake in RAMCI, while undisclosed, is said to be a new record in the valuations of CRAs in Malaysia. Experian, which had been a long-time shareholder of RAMCI, says the purchase of RAM’s controlling stake is strategic as it extended Experian’s position in Asia-Pacific.
“We added a fourth credit bureau, besides India, Australia and Singapore, to our operations in the region, ” Experian Credit & Information Services Malaysia chief executive office Dawn Lai tells StarBizweek. Following this corporate exercise, Experian has upped its stake in RAMCI to 74%, buying out other shareholders. CTOS also raised its stake to 26% at present. With CTOS and RAMCI (since renamed Experian), the main two players competing in the credit reporting space in Malaysia, it remains an odd situation that CTOS remains a minority shareholder in the latter. When asked on this, Creador’s founder and chief executive officer Brahmal Vasudevan says “we lost the bid for RAM’s controlling stake (in RAMCI) last September to Experian. So we need to decide what to do.”
Since then, there have been more developments taking place that make this credit information space an interesting one to watch. Just two months ago, Sunway group, a conglomerate involved in traditional businesses from real estate to construction, education and medical services, surprisingly said it was buying a 51% stake in Credit Bureau Malaysia (CBM), said to be the third largest CRA in the country.
But why? The deal revealed a hitherto little-known ambition of the Sunway group to get into the financial technology (fintech) space in a big way. In fact, Sunway reckons that owning CBM, which focuses on financial inclusion of the SME sector, puts it in a good position to become a licensed digital bank in Malaysia. The other shareholder of CBM is Credit Guarantee Corp Malaysia Bhd - an organisation that aims to assist micro, small and medium size enterprises with inadequate or without collateral and track record to obtain credit facilities from financial institutions by providing guarantee cover on such facilities.
However, CBM is said to be one of the smaller players in the CRA game and Sunway will need to figure out a strategy that would make their investment into CBM worthwhile.
Sunway declined to comment for this article.
Meanwhile, Omesti, which sold off its minority RAMCI stake last year to CTOS, has announced plans to re-enter the space. It has teamed up with CRIF, an Italy-based credit information company to venture into credit reporting. Both Experian and CRIF have been seeking to grow their global footprint. Outside the country, one of the oldest companies in the business, Dun & Bradstreet Holdings Inc, whose origins can be traced to 1841, has recently filed for an IPO in the US to raise US$1.4bil.
Clearly, the sector of credit information seems to be a burgeoning one. CTOS group chief executive officer Dennis Martin notes that there are eight CRA licenses that have been issued in Malaysia.
However, a number of these businesses are focused on specific niche areas and do not offer credit scoring to all segments of the country.
Where awareness is concerned, Malaysia is in the early stages of credit score understanding compared with other countries. But Martin observes that awareness has been picking up pace on the importance of the industry, which was once perceived in a negative light.
For starters, the demand for understanding credit risk and the ability to identify good paymasters is certainly increasing across the board from SMEs that provide payment terms to non-bank lenders and of course banks, who are now taking a more holistic approach to their customers. “For SMEs the ability to understand the risk of establishing credit terms is more relevant now more than ever as they need the certainty of cashflow to keep their own business afloat in these difficult times, ” says Martin.
The digitisation of Malaysia, shopping from home, and the Covid-19 pandemic are also driving different needs in credit reporting services.
“People now need and want to apply for facilities in the comfort and security of their own home. And they want the decisions fast and the best offering available, ” he says, pointing out that many organisations are now adopting the the agency’s eKYC solution that allows for remote on-boarding of customers.
The big jump in digital activity, while providing the convenience, has also led to a potential rise in fraud and scams. This is where CRAs can use their insights and capabilities to protect consumers and business, adds Martin.
In terms of financial performance, CTOS has grown from a RM50mil outfit to one chalking up a revenue of over RM130mil following the entry of Creador in 2014. According to Brahmal, the agency’s staff strength stood at 475 people from 100 before.
On market talk that CTOS is being valued at about RM1bil, Brahmal says no valuation exercise has been conducted at this stage. He says the PE firm has no plans to exit the company at present, but one possibility is to consider a Malaysian IPO in the future.
“We are now looking to regionalise the company. Our first investment is in Philippines but we are also looking seriously at neighbouring Asean countries, ” says Brahmal.
Experian’s Lai says that with about half of the world’s unbanked/underbanked population being in Asia, this provides opportunities for the establishment of formalised credit identities. “The percentage of adults that own a bank account in the Asia-Pacific stand between 46% to 54% only. In Malaysia too, there is a significant proportion who are underbanked, having little to no access to traditional financial ecosystems.
“This often perpetuates a cycle of poverty that strips opportunity and upward mobility from millions, ” she says. She believes that by combining technology with non-traditional data – which can cover telco, rental, e-commerce, behavioural, and other data partnerships – new insights can be created. This can then be used for credit decisioning processes and reliable risk assessment and allow more people to have a fairer access to credit.
With eight players for the size of the industry in Malaysia, it has made the market competitive, according to Suresh Menon, who was chairman of CBM until recently. This scenario has led to the slashing of product prices, undercutting and staff pinching.
“The industry is very crowded and given the volume, it’s difficult to make a decent dollar from this product, ” says Suresh, who had played a key role in the development of Malaysia’s credit rating services through RAM Holdings in the 1990s. At the same time, the costs of sourcing information do not come cheap. The industry is also highly regulated, which means there are significant compliance requirements because of the confidential nature of the information it holds.
This requires significant and ongoing investment in security and compliance, say players.
Competition and changes in the sector are, however, compelling these companies to innovate and value-add services.
Dun & Bradstreet’s former Asia Pacific director, Edmund Yong explains that CRAs rely on the public credit registry (PCR) operated by Bank Negara known as the Central Credit Reference Information System (CCRIS). “Basically, they all drink from the same trough. Even though the respective CRAs enrich their reports with different datasets (e.g. legal records, registered identity, trade references), the most fundamental source of credit information is still CCRIS.”
In 2018, in a move towards greater credit empowerment, financial literacy and transparency, the central bank has availed an online version of CCRIS to the public for free.
This means that the public can refer directly to Bank Negara as a credit bureau and bypass private CRAs, says Yong. “So CRAs will need to create much more value-add to the end user if they are to charge money for what is essentially the user’s own data.
Also, business users are able to pull reports directly from information portals like MyData SSM and My E.G., usually for lesser fees, ” points out Yong.
He sees more headroom for growth in new areas such as governance, risk and compliance or through the adoption of new technologies for delivery like blockchain and AI-as-a-service. That said, players in the game do see areas of potential.
For Omesti, which was instrumental in the digitisation of the court filing system a few year ago, it is in the SME market.
“Many business owners are refused loans these days by criteria that do not necessarily explain how the business is doing. Reliable credit reporting and access to verified business information are therefore critical components of successful trade, especially when it comes to cross-border transactions and potential trading partners need to have confidence in each other before entering into business, ” its executive director Mah Xian-Zhen tells StarBizweek. According to her, this is becoming more vital as regional economies push to recover post Covid-19 and strive to attract new investments.
Omesti also has ambitions to grow its footprint beyond Malaysia, via the joint venture with Italy’s CRIF in which it holds a 30% stake.
“CRIF is an established international organisation with wide coverage across South-East Asia and beyond. As such, the JV has provided us with an important platform to expand our footprint across the region, ” says Mah, adding that the company plans to take its proprietary solutions for digital courts technology, business registry management and royalties management to those markets.
On the disposal of the RAMCI stake, Mah explains that the group had wanted to increase its stake in the agency for some time. However, due to its shareholder structure and the interest by other parties in RAMCI, it had proved to be not feasible. So as a small shareholder, it decided to sell the stake and realise capital for other key initiatives.
Back to the big picture, industry players do not rule out more M&As with CTOS needing to decide on its stake in rival Experian at some point.
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