IR4.0 technologies are an enabler and should be maximised and utilised accordingly.
IR4.0 and Malaysia 5.0
The term Industrial Revolution (IR)4.0 was first introduced sometime in 2011 as the follow-through to the industrial revolutionary stages of 1, 2 and 3; economic era’s which span from the 18th century until early into the 21st century. These earlier stages had their primary focus on production mechanisms and the manufacturing process. IR1.0, which preceded electricity was predominantly focused on the introduction of mechanical production via water and steam power. IR2.0 was revolutionised by the introduction of electricity which leads ultimately to the introduction of mass production. IR3.0, which started in the 1970s and lasted until about 2010, was an era where rapid improvements in electronics, robotics and IT; lead to complete automation of production lines.
Consequently, Malaysia 5.0 seeks to maximise the potential and tools of IR4.0 such as fintech, blockchain and artificial intelligence to drive financial inclusion in the socio-economy of the country.
Individuals should have access to financial products and services that meet their needs in a sustainable way.
The Peer-to-Peer Economy & Financial Inclusion
Despite the digitisation and digitalisation of the economy, achieving full financial inclusion remains a challenge. Digitisation, which refers to creating a digital representation of physical objects or attributes, has been ongoing for more than two decades in Malaysia; and for financial services, has essentially focused on providing online banking, mobile banking and payment services rather than addressing financial inclusion for obvious reasons. This reality has presented policymakers with a continuous dilemma of trying to drive financial inclusion at the same time protecting the banking system.
“Financial Inclusion” is seen as the delivery of banking services at an affordable cost to vast sections of the disadvantaged and low-income groups. Recognising that perhaps the current financial sector may not be the best structured or positioned to deliver effectively on this, Bank Negara has introduced initiatives such as the Fintech Regulatory Sandbox and the Fintech Enable Group (“FTEG”) to encourage innovation in the financial sector.
Globally, we have seen fintech giants such as the Ant Group and Revolut with minimal reverence to traditional banking models, take a different approach – focusing their business models upon ancillary licenses such as payment, e-wallet, crowdfunding, insurance and micro-lending to provide various financial services that enable low-cost access and disintermediation.
With the relentless march towards the Peer-to-Peer Economy and the elimination or reduced role of intermediaries, consumers are getting direct access to service providers with the dual benefits of lower prices and better service – all enabled through technology. Not many sectors are being spared, from travel to hotels to taxis to insurance to investing to education, all are seeing disruption at a speed and scale far beyond anything in previous industrial eras.
The financial service sector is definitely not being spared either by this irreversible trend. For several years now parts of traditional banking services such as remittances, payments and even insurance, have been under attack from the digitally enabled light and nimble Fintech entities. With e-wallet and third-party digital payment options, millennials are no longer seeing a benefit to saving in banks and their bill and payments are faster and cheaper via mobile phones through the touch of a screen or even mere snap or scan of a QR code.
The advent of blockchain technology, artificial intelligence and big data will lead to the proliferation of customised and personalised financial services and products.
The advent of blockchain technology, artificial intelligence and big data will lead to the proliferation of customised and personalised financial services and products. We have already witnessed the emergence of new classes of assets and investments underpinned by digital technologies, such as equity and peer-to-peer crowdfunding. These services or platforms have begun to address major social issues such as wealth inequality and equality of opportunities in ways unimaginable just a decade ago.
Looking at these developments, financial inclusion may not be something that needs to be centrally planned but perhaps be left to the natural order of the market itself given the digitally empowered consumers demand for personalised services that combine convenience, affordability and 24x7 access.
Disruption of World Banking and Financial System
In traditional economies, banks and the financial services sector have an almost monopoly on providing liquidity and determining who receives that liquidity. The question is then how far can fintech disrupt traditional banking and the world financial system? It is a million-dollar question and with so many variables, almost impossible to answer with confidence today.
Trust, accrued over hundreds of years, has been central to the advantage enjoyed by banks over Fintech companies especially as many fintech services providers originated just a few short years earlier. However, we are seeing the repository of “Trust” evolving as technology pervades. What used to be unpopular when introduced, ATM machines are now the preferred mode of withdrawing, depositing and making payments. Using credit cards to shop online is something taken for granted today but at one time, was viewed with trepidation and reluctance.
Today, fintech service providers are not just classic startups but also large companies with multi-billion dollar capitalisation and profits. One such entity is the Ant Group which itself is part of the enormous Alibaba Group in China. They have made it part of their mission to address inclusion in financial services by providing various innovative services, including ease of credit to individuals and micro-businesses in third-world countries.
The Pandemic has further altered consumers’ “Trust” barometer. We have witnessed a willingness to use new disruptors with new business models at a much faster rate than has been seen before.
A recent survey by McKinsey revealed that in the United States, 40% of consumers used a fintech platform for daily financial activities with a 90% satisfaction level for the experience. Although there has been no similar survey in Malaysia, we can safely assume those usage and satisfaction levels here also.
Much of accrued “TRUST” in our existing banking and financial systems is because of FIAT money being the primary medium of exchange and accepted legal tender, and due to a unique position in its issuance and distribution, the existing banking and financial system will stay. However, being complacent will result in erosion of revenues and business. As such, it is imperative that banks and traditional financial services providers act now to reinvent themselves or possibly find themselves irrelevant in the not too distant future.
The 2008 credit crunch suffered by the banking and financial systems was merely a signal of how over-reliant we are of FIAT money and the monopoly FIAT money currently enjoys is not a given.
Will cryptocurrencies be viable in the financial architecture of the future?
Will Crypto Currency Disrupt the Banking System?
Alternative currencies have always co-existed within a monetary system but in a limited role and capacity such as loyalty points, or air miles and by law they cannot be converted into FIAT. Cryptocurrencies, however, are a completely different matter and any discussion on them invariably raises the spectre of Bitcoin and whether Bitcoin is, or ever could be, a viable currency or if its value is more like gold, meaning a digital hedge against the excesses or deficiencies of FIAT monetary policies.
Bitcoin owes its existence to the power of the underlying blockchain technology, a distributed ledger technology that timestamps transactions and links all previous records from origination in a secured manner by allowing consensus on those transactions by the community.
Bitcoin became the first digital token to solve the double-spending problem without requiring a trusted administrator, such as banks; and this “Trust Protocol” has been the inspiration for many additional applications that have since been developed using blockchain technology.
Cryptocurrencies are here to stay given the extent that many are sceptical of global monetary policies and FIAT currencies, and the sketchy record FIAT has had with currency collapses caused predominantly by folding debts and resulting lack of faith in that currency.
However, today, Bitcoin or other cryptocurrencies are not used primarily as currencies nor do they behave like one. So long as their value is tagged with FIAT currencies, they will always be subjected to a derivatives driven system and hence exposed to speculation and volatility thus diminishing their appeal as a currency.
Bitcoin’s main appeal today is more as a Digital asset or possibly a hedge, (many have termed it digital gold). Many have lamented that it cannot do much in the real world. It is not a real or tangible asset such as a property, or art, nor is it a commodity. But it does enjoy scarcity and a community of believers and that might, in the end, be enough to see it evolve into something that might carve out its own space in the financial architecture of the future.
Summary
In summary, financial inclusion is a natural evolution if we want to have a more equitable and sustainable world. With disruptive technologies such as blockchain, artificial intelligence, IoT, and big data, we can match the needs of the digitally empowered consumer for just-in-time frictionless financial services that are also personalised, affordable, and accessible. This will further the momentum towards the Peer-to-Peer Economy, which will mean eliminating or reducing the role and functions of intermediaries such as Banks. All intermediaries will need to re-examine their roles in the future.
About the Author
Elain Lockman, CEO of Ata Plus, has extensive experience in government-linked organisations and start-up businesses, specifically in the areas of management & operations (business strategy, business development, stakeholders relationship management [government, corporates & influencers], branding, marketing and corporate communications).
