Financial management was different before Malaysia gained independence in 1957. How did the financial landscape transform and affect us today in 2020? We look at 8 ways of how Malaysians managed their money during pre-Merdeka days and now.
Rewind to more than six decades ago, pre-Merdeka times, and money management and personal finance were starkly different to what many Malaysians are so accustomed to today.
Back then, even the most basic of financial transactions required a lot of labour - with people going beyond their means for what can be done with little effort today thanks to automation and technology.
With National Day and with Malaysia Day looming ahead, we decided to take a look back at how money management and personal finance have evolved through the years, especially with the rise of the internet and the proliferation of fintech, all of which have profoundly changed how we manage our finances.
1. Opening a bank account has never been easier
The history of banking in Malaysia began as early as the 19th century when British colonialism emerged along the Straits Settlement surrounding Penang, Malacca and Singapore in 1867.
Due to all the merchant activities being carried out at strategic locations and in port facilities, the government decided to establish financial institutions to aid these activities.
These institutions would later become the first few banks in Malaysia such as Chartered Bank and Hong Kong Bank, both located in Beach Street, Penang.
The HSBC Building at Downing Street, George Town (right) was built in 1948, replacing the original HSBC Building that was destroyed during the Second World War. (Image source: Penang Fandom)
Fast forward to today and gone are the days where we would need to endure long, packed lines just to open a basic savings account.
Today, applicants can create their bank accounts online in under just a few minutes for most banks in Malaysia.
Most banks just require your identification, a copy for your bill to verify your address and a minimal initial deposit to activate an account.
Most banks in Malaysia offer services online.
On top of that, the impending introduction of digital banks in Malaysia means we may no longer need to physically be at banks to enjoy all its services, an idea that was almost impossible six decades ago.
Often misunderstood for online or mobile banking, digital banks are more sophisticated because they leverage technology in every banking activity, process and stage, in turn, eliminating the need to be at a physical location.
Bank Negara Malaysia (BNM) announced this year that it is set to issue up to five licenses to successful applicants to establish digital banks that conduct either a conventional or Islamic banking business.
What makes digital banks unique from traditional banks is that they operate via straight through processing – an automated electronic payment process used to speed up financial transactions from initiation to final settlement.
Digital banks also aim to promote financial inclusion by reaching out to the remaining unserved and unbanked population in the country – a large part of which comprise foreign workers and their families some of whom are undocumented workers, according to the World Bank report. Research reports say that about 8% of the country’s population still remains unbanked.
2. Managing finances digitally - just a swipe away
The advent of cloud technology has allowed bookkeeping data and information to be stored online.
Remember how using a physical ledger to track and record expenses and deposits to your bank accounts was a common practice?
Technology has eased this process - today, most transactions can be recorded online or via a mobile application. Cloud technology has also made saving data and records easier, and makes retrieving such documents easier.
From expenses to commitments to income, each transaction can all be parked in an integrated mobile application.
Some popular apps to consider include MyTabung by Bank Negara Malaysia. Developed by Bank Negara Malaysia, it allows users to create a personal/household budget, record and monitor income, savings and expenses. The app also comes with financial advice and tips on how to manage finances prudently.
Fast Budget is available on both Google Play and the Apple Store, and it lets you manage your personal finances and track your money, expenses and budget.
Going online and cutting down on paper usage can also help save the earth from waste and pollution - a little goes a long way.
3. Cheques are slowly becoming a thing of the past
If you owe someone money six decades ago, the common way of paying them back was via cash if they were near you or maybe through cheque if they lived in a different state.
But thanks to digitalization, we can now easily send and receive money from literally anyone in the world.
Money transfers can be done via online banking like Maybank2u, or via online money transfer apps like Venmo, PayPal or TransferWise. You could also transfer money via e-wallets like Boost and GrabPay. These transactions can be done under a few minutes and would usually take 2-3 days to process.
These technologies also extend to online shopping - you can easily complete a payment by logging into your online bank account or via e-wallet.
Malaysians are clearly aware of the ease provided by online money transfers, as it is currently the most-used e-commerce payment method in Malaysia, accounting for almost half (46%) of all transactions or RM7.5 billion in 2017, and is expected to grow to 48% by 2021, according to JP Morgan.
At this point, cash only makes up 7% of e-commerce transactions, and is expected to be overtaken by digital wallets by 2021, especially with the prevalence of cash-on-delivery providers throughout Malaysia.
The rise of digital payments is one of the reasons behind Malaysia’s booming RM16.6 billion e-commerce market which has seen annual sales expand significantly since 2015, jumping 47.8% in 2017 alone.
As part of the country’s migration to electronic payments (e-payments), the country is aiming to reduce cheque usage by more than half from 207 million to 100 million.
To do this, the Malaysian government is facilitating wider outreach of e-payments infrastructure via point-of-sale terminals and mobile phone banking. This initiative gained so much traction that even Maybank came up with the Cheque Reduction Campaign 2018 to discourage cheque issuance.
4. Almost all banks have their own mobile applications
Out of all industrial sectors, banks had to make the most adjustments caused by digital disruption.
Though physical banks still exist, many of their regular services can now be carried out via online banking or via one’s mobile.
With just the swipe of your finger, you can send and receive money, buy plane tickets, pay bills, among other things, through your mobile. Most of these apps promote safe, personalized and secure banking.
The rise of mobile banking apps in Malaysia is in tandem with the increase in smartphones users across Malaysia. Data from the Malaysian Communications and Multimedia Commission (MCMC) revealed that smartphone penetration rates grew from 75.9% in 2017 to 78.0% in 2018 and that mobile cellular penetration rates in Malaysia was 135.4% in Q4 in 2019.
Maybank’s MAE or My Absolute e-Wallet is the only e-wallet that is integrated with a banking application. Besides sending and requesting money and paying bills, users can also book flights and movie tickets on a whim. (Image source: Maybank)
Some key features of Maybank2u include instant transfers like paying bills, quick login via touch and combined balances.
The app also boasts a cardless ATM withdrawal feature, and is safely guarded by three biometric features: face ID, voice ID, and of course, quick touch.
b) CIMB Clicks
To maximize security, funds transfers to favourite and open recipients require TAC verification with CIMB Clicks. (Image source: CIMB Clicks)
CIMB Clicks consists of features such as Transfer Money, Pay Bills, Pay Loans and Cards, JomPay, Top Up, and Apply FD. Other selling points are its quick home screen, and the QR Pay, DuitNow and Deals shortcuts.
Thanks to Quick Payment, users can make transactions (of less than RM250) with just their fingerprint/Face ID.
c) RHB Now
The app comes with auto alerts and notification on upcoming payments and due dates, links to key banking and RHB lifestyle offers. (Image source: RHB)
RHB Now’s tight security is evident by three of its safety features: Face ID, biometric and PIN.
Besides the usual transactions, another key feature is its one-touch payment, which allows users to send money to eight specified recipients with no full login for payments up to RM500.
Its enhanced integration capabilities eliminates the need for SMS One Time Password (OTP) to authorize transactions without compromising account security.
5. We’re going cashless
Cash may be king, but the ascent of technology is giving rise to digital currency, and many countries are taking active efforts to integrate digital money into their system.
We may soon see money being replaced with digital currency, despite traditional currency still being a relatively new concept - it has only been part of human history for the last 3,000 years. Before that, historians say that a system of bartering was used.
Emerging Asia is expected to take over North America in the number of cashless transactions in 2020. (Image source: digipay.guru)
It may be crazy to imagine a monetary system without cash, but it’s not impossible. In Sweden, a pioneer of the cashless society, 900 out of Sweden’s 1600 bank branches don’t accept cash deposits.
Though Malaysia is nowhere near a cashless society - as of yet - largely due to the spending habits of Malaysians who still prefer to use cash for payments, we are starting to see a lot of progress through the birth of various alternative financial platforms.
According to Nielsen, 67% of Malaysian consumers have used some form of cashless payment, with debit cards and online banking being the most preferred non-cash channels. Additionally, approximately one in four Malaysians use a credit card, mainly those between the ages of 35 and 64.
On a macro-level, the push for innovation is part of the government’s initiative to position Malaysia at the forefront of financial technology (fintech) in Asia, and to bring the country closer to its ambition of becoming a cashless society.
Besides that, these financial innovations also aim to offer Malaysians more diverse purchasing options when paying for goods, while also establishing a more solid and hands off approach for people to manage their finances through automation, artificial intelligence and machine learning.
Debit cards and online banking are the most popular non-cash payment methods. (Image source: Nielsen)
So what are Malaysians’ preferred form of payment other than cash?
Well it depends on the type of expense. Regular expenses, which Nielsen classifies as utility bills, phone and internet, insurance premiums, rent, car installments - and which make up close to half of Malaysians’ expenditure - is largely ruled by online banking.
|Phone and internet bills||53%|
|Car loan installments||38%|
When it comes to settling regular expenses, Malaysians prefer to do it online for convenience.
This makes sense considering how users would appreciate the convenience that comes with conducting transactions online rather than having to complete it physically at the post office.
Most Malaysians prefer to use cash for everyday expenses. (Image source: Nielsen)
For every day-to-day expenses, cash still strongly holds the fort as the favourable form of payment as consumers can avoid going out of their way to complete these transactions.
Nielsen classifies day-to-day expenses as eating out, food delivery, clothes shopping, grocery shopping, petrol, public transport, taxis or ride hailing.
In the meantime, debit cards are mostly used for ad-hoc offline and online purchases such as shopping for clothes at retail outlets (32%), online shopping (31%) and dining out (28%), according to Nielsen.
Credit card penetration per capita is still lagging behind debit cards. (Image source: JP Morgan)
So what financial innovations are categorized as “cashless payment”? Let’s take a mini detour:
Credit cards, debit cards, and Automatic Teller Machine (ATM) first landed on Malaysian shores in the 1970-1980s.
Back then, credit cards were considered life-changing because they reinvented spending and made conducting transactions faster and easier.
But did you know that before the ease of paywave and swiping terminals, using credit cards was not as straightforward because of its complex processing system? That’s right, in the olden days, credit cards would rely on a credit card imprinter to function.
The device is essentially a non-electronic, manually operated machine that makes an imprint of the surface of your credit card and then transfers into a double receipt. Then you’ll need to sign the imprint, and later the proprietor will keep the original (top) copy and you’ll take the imprinted (bottom) copy.
And despite being in existence for some time now, credit card usage in Malaysia is still relatively low at 0.3 cards per capita, according to JP Morgan. The flipside, interestingly, shows that the number of circulated principal credit cards have actually increased from 7.2 million in January 2015 to 9.1 million in January this year, according to Bank Negara.
Gone are the days of inconvenient, bulky wallets or purses.
Thanks to e-wallets, you can pay for food, items and services etc. (click here to see what’s covered) with your digital wallet. All you need to have is a smartphone with a relatively good network coverage.
Malaysia’s high smartphone penetration and mobile data usage rates also help build a solid foundation for mobile wallets to thrive, on top of its high awareness among Malaysians (88%).
To date, there are a total of 53 e-wallets in the country, with the industry occupying 19% of Malaysia’s fintech space, according to a 2019 report by Fintech Malaysia.
Some of the top wallets include Boost, GrabPay, and Touch ‘n Go eWallet. BNM even established a blueprint emphasizing their aim to increase the number of per capita e-payment transactions from 44 to 200 transactions.
Existing mobile wallet users, Nielsen says, cite convenience as the biggest driver of mobile wallet usage; the research firm is forecasting an increase in adoption as there’s increasing popularity of app-based online shops, ride hailing services, online gaming and cinema ticket booking.
The biggest barrier to faster adoption of e-wallets in Malaysia, Nielsen says, are concerns on security and fraud. (Image source: Nielsen)
Undeniably there are also concerns over overspending when using mobile wallets -- a similar concern that many consumers have with credit cards. This reason is why many Malaysians prefer to use cash as they believe they have better control of their expenses.
6. Investments have gone digital
Unlike many other established countries, investing is still a relatively new concept in Malaysia. In fact, Bursa Malaysia was only established in 1964. The Kuala Lumpur Composite Index was established in 1986.
So it wouldn’t be surprising if Malaysia is only starting to get exposed to digital platforms when it comes to investing.
Traditionally, we have been accustomed to investing through stocks, bonds and gold. But technology has paved the way for new forms of investment platforms like crypto and robo advisors.
Since its introduction, the cryptocurrency industry has taken the world by storm, with the crypto market soaring over $US200 billion (RM836 billion).
A cryptocurrency is a form of digital asset or virtual currency. One way to imagine cryptocurrencies is to think of them as improved versions of commonly used assets such as cash and gold.
The difference, however, is that cryptocurrencies don’t have a standardized physical representation – instead, they exist only in digital form, not visible to the human eye.
Like gold, the value of cryptocurrencies comes from the fact that it cannot be created arbitrarily, and requires work to be “extracted.” Similar to how gold must be mined out of the ground, Bitcoin, a type of cryptocurrency for example, must be “mined” via computational means.
The country is home to world-class crypto exchanges, Etherscan and CoinGecko, both operate in the crypto ecosystem, and are widely known by investors worldwide.(Image source: CoinGecko)
To date, there are currently three fully licensed market operators or digital asset exchanges operating under the Securities Commission of Malaysia (SC): Luno Malaysia Sdn Bhd, SINEGY Technologies (M) Sdn Bhd, and Tokenize Technology (M) Sdn Bhd.
Considered a high-risk investment, investors who would like to try their hand in crypto should make a checklist before getting into it.
Another by-product of fintech disruption, robo advisors both innovate and democratize investments for the masses. The word robo simply indicates that the platform utilizes automated methods to allocate investments.
Robo advisors use algorithms-based artificial-intelligence to create, diversify and rebalance an investor’s portfolio, largely through exchange-traded funds (ETFs).
Besides being more straightforward and seamless via iPhone or Android Smartphones, robo advisors are also more affordable thanks to its lower minimum investment and cheaper fees.
Traditional investors are usually associated with high fee structures ranging from RM1,000 to RM20,000 a year depending on asset size. In contrast, robo-advisors are way cheaper with an annual management fee that costs less than 1%.
You can also invest for a minimum of only RM100 -- a stark contrast to many traditional mutual funds which require a minimum portfolio value ranging from RM500 to RM10,000.
Unlike most traditional financial managers, robo advisors do not charge for withdrawals or account closures (Image source: StashAway)
Robo advisor platforms also allow local investors to get exposure to external markets by investing in overseas stock markets such as the New York Stock Exchange, Dow Jones, S&P500, Tokyo Stock Exchange, among others.
In Malaysia, there are three fully approved platforms that have Capital Market Services License for Fund Management under the Securities Commission's Digital Investment Management framework, namely StashAway, Wahed Invest and MyTHEO.
Raiz’ methodology: optimizes 6 diversified portfolios and implements the Modern Portfolio Theory (MPT) - the same methodology used by most other robo advisors. (Image source: Raiz)
Malaysians who want to invest their small amounts of money or changes can consider using micro-investing platform Raiz.
Raiz allows users to automatically invest their loose change from everyday purchases in unit trusts via its app.
All in all, robo advisors are seen as better alternatives to a regular savings account or even fixed deposits because of their higher returns.
7. Insurtech - slowly but surely brewing?
The insurance industry in Malaysia began in the18th century, but only really took off in the 1950s in a market that was initially controlled by British and American firms.
It was only after independence in 1957 that domestic companies were starting to improve their offerings, buoyed by encouraging nationalistic policies.
Today, there are currently two Takaful and 18 life insurers operating in Malaysia. Out of the 18 life insurers, 14 are domestic and 4 are constituted outside Malaysia.
Though we have not witnessed a lot of change in our insurance ecosystem over the years, many Malaysian insurance companies are finding ways to digitize their products in an effort to create more highly-tailored policies and social insurance, as well as leverage on data to improve insurance premiums.
According to PwC, several large global insurers including AXA, Allianz, AIG and MetLife - most with presence in Malaysia - have established their own in-house venture capital funds to explore further ways disrupt this industry. Total funding for Insurtech start-ups has exceeded RM4.1 billion in the first half of 2016, according to CB Insights.
8. Equity crowdfunding (ECF) and peer-to-peer financing (P2P)
Historically, structural impediments have limited many private businesses and individuals from getting access to financing, excluding them from the capital market.
Back then, if you had a business idea, some of the possible ways to raise capital were either by bootstrapping or getting a bank loan. ECFs and P2P platforms were created to address these limitations.
Today, thanks to technology, more businesses and individuals are able to raise capital by pooling funds from large crowds.
Interestingly, Malaysia is at the forefront of this technology - it was the first country in ASEAN to regulate crowdfunding in 2015 followed by P2P financing rules in 2016.
Today, the country has 10 ECF and 11 P2P registered platforms. Over the years, almost RM444 million in financing from both platforms have been disbursed to micro, small and medium enterprises (MSMEs) - a significant increase from RM196 million raised in 2018.
Similar to other financial innovations, crowdfunding was created with the goal of allowing underserved businesses to obtain capital and attract a new generation of digitally-savvy investors.
Experts widely say that the process of raising equity capital through crowdfunding makes it more democratic and accessible to the masses, particularly for early and growth-stage companies.
Through crowdfunding, individual retail investors can invest in projects they are passionate about for a small sum.
Some notable ECFs in Malaysia include MyStartr, which claims to be Malaysia's largest crowdfunding platform and pitchIN. More established international platforms available in the country include GoFundMe and Kickstarter.
If you’re super passionate about education, you can now help fund education projects. (Image source: Kickstarter)
One popular campaign, for instance, was a RM25 Maker Arduino, launched on Kickstarter in March 2018 by Penang’s Cytron Technologies.
While their funding goal was a modest US$3,500 (RM14,516) the campaign gained so much traction that it received a grand total of US$63,875 (RM263,995) by the end of the campaign, making it the #1 most-funded Malaysian project on Kickstarter.
Money management is getting more complex but so is inflation
It would only be fitting to end this article with this very jarring point.
Despite the rise of technology, inflation -- the process of prolonged increase in the prices of most goods and services in a country -- continues to grow in Malaysia, a big concern for us because inflation may lead to distortions and problems in our economy.
In the context of money management, we commit ourselves to good personal finance practices in order to build up our savings and grow our money, but the rising cost of living and increasing inflation rates, coupled by stagnated wages have severely cut our purchasing power and affected how much value we can actually get from our savings on the long-term.
Essentially, if your savings don’t grow at the same rate as inflation, you will effectively lose money because even if you have gained more money, you have still lost buying power.
Stepping into this time capsule has certainty opened up our eyes to the great progress we have made as a nation - investments are more accessible, financial processes are more integrated and seamless, and more and more people are now involved in our country’s financial processes. In other words, these achievements are something we should be proud of.
But it’s also important to realize that we, as a society, still have a lot of work to do to overcome other long-term and critical issues like inflation.
On another note, in case you missed it, here are some interesting promos you can get this Merdeka month. Have fun and Selamat Hari Merdeka in advance!