Fintech platform MoneyLion Inc, co-founded by Malaysian Foong Chee Mun, for instance, has seen its stock crash more than 80% since its debut on the New York Stock Exchange in September 2001.
FINANCIAL technology or fintech, has been around for some time now.
And yet it is not easy to find a successful global story amongst them, more so a listed one.
Last year was a particularly tough year for these companies, which ironically underperformed most companies including pure financial and tech companies.
In the United States particularly, fintech companies – which are essentially companies which use high-end technology to provide financial services – were badly hit in 2022.
A Wall Street Journal article puts it well when it says, “a vulnerability to higher interest rates, the disappearance of many pandemic-era catalysts and a more general reckoning for companies that followed growth-at-all-costs playbooks contributed to many fintech firms’ fall from grace.”
It also points out that the Global X Fintech ETF fell more than 50% in 2022, much more than the 12% fall in the Financial Select Sector SPDR Fund, which tracks the financial sector of the S&P 500, and the 33% drop in the Nasdaq Composite Index.
Fintech platform MoneyLion Inc which was co-founded by Malaysian Foong Chee Mun, for instance, has seen its stock crash more than 80% since its debut on the New York Stock Exchange (NYSE) back in September 2001.
Foong had created history of sorts when he became the first Malaysian fintech founder to find himself on the NYSE.
He has since left the company to pursue other interests.
However, MoneyLion remains one of the companies that has successfully obtained a digital banking licence in Malaysia and together with its partners, is expected to launch its services earliest by this year.
Meanwhile, it doesn’t help that crypto, a fintech-linked investment alternative, got so much bad press last year, no thanks to the spectacular downfall of FTX, one of the largest cryptocurrency exchanges in the world.
In the fintech job space, even work has become more scarce than before.
Big players like Meta Platforms Inc and Google LLC, affected by the turn in economic conditions have had to cut costs and jobs to ensure that their funders see profit.
Nearer to home, Grab Holdings, one of the largest tech companies in South-East Asia recently again said it was cutting costs given economic uncertainty and some of these measures include a hiring and salary freeze for senior managers, and cuts in travel and other expense budgets.
Former investment banker turned private investor Ian Yoong Kah Yin says that the focus has now simply changed to, “how long will it take to reach profitability”.
“Venture capital funds and institutional investors have turned off the taps to fund fintechs for some time already.
“This focus on profitability and working capital has resulted in numerous downsizing exercises by fintechs over the past few months,” Yoong says.
Citing data from market intelligence platform CB Insights, he says 29% of startups fail because they run out of money.
“The stock prices of many fintechs crashed because they had burnt through a large portion of the cash raised in initial public offering or de-special-purpose acquisition company exercises,” he adds.
In the same vein, digital banks, which are somewhat part of fintech, are also facing challenges.
Digital banking woes
In Malaysia, these banks – five consortiums in all – are set to come onboard as early as this year.
Says Yoong: “There will undoubtedly be unsuccessful banks among the five digital banks.
“There is little information on the capitalisation and funding of the digital banks. It is patently clear that the digital banks in Malaysia will have to be adequately capitalised for the long journey to profitability.”
He names UK digital banks Monzo and Starling as digital lenders which are expected to report pre-tax profits in 2023 after about eight years of operations.
“It is likely that a few of the digital banks in Malaysia will be profitable in the same time frame. The less successful digital banks will have to eventually merge with large commercial banks.”
Yoong points out that the benefit of owning a digital bank is that “it could be a gold mine.”
“Think about it. Traditional commercial banks have been in existence for decades but yet four out of 10 Malaysians are deemed underbanked,” he says.
“The biggest challenge for digital banks will be signing on the unbanked and to a certain extent, the underserved or underbanked.
“It is interesting that Bank Negara is silent on the metrics of success in achieving customer acquisition in target sectors of unbanked and under banked or underserved.”
Yoong cites a study by Bain & Company and Singapore’s Temasek Holdings that revealed 15% of the total adult population in Malaysia were unbanked in 2019, and 40% were underbanked.
“Digital banks in Malaysia will have to overcome tough competition from traditional commercial banks which have strong branding, established online banking systems and strong balance sheets.
“There will be tremendous inertia in getting prospective customers to switch banks and the unbanked and underbanked to open accounts with them. Digital banks will have to spend a lot of money to market their products,” he adds
