KUALA LUMPUR: Regulatory changes in key markets such as the United States and the European Union impact fintech expansion, particularly in cross-border payments, crypto, and digital banking. Hence, domestic companies must stay compliant to retain market access, making regulatory adaptability a vital investment factor.
Kairous Capital managing partner Joseph Lee said the geopolitical landscape, including US-China fintech restrictions, affects the capital flow and tech partnerships in emerging markets such as Malaysia.
“Investors must gauge how fintech startups tackle regulations while seizing regional opportunities.
“At Kairous Capital, we assess their regulatory resilience and scalability across markets, leveraging our Southeast Asia-China network to help them navigate complexities, form key partnerships, and refine expansion strategies,“ he told SunBiz.
Lee said fintech is transforming payments with real-time settlements, application programming interface integrations and digital wallets, making transactions faster and more secure.
Artificial intelligence-driven fraud detection, encryption, and tokenisation enhance security, making digital payments safer than cash, he said, adding, however, that integrating these innovations with legacy systems is costly and complex.
“Fintech firms must also keep up with evolving regulations and cyber threats. From January to October 2024, Malaysia saw RM1.22 billion in cybercrime losses, prompting the government to review banking laws for stricter accountability. Banks and fintechs alike must invest in infrastructure and talent to balance innovation with security,“ Lee said.
Fintech plays a crucial role in expanding access to financial services by significantly lowering the barriers to entry, he noted.
One key aspect is the transformation of traditional banking through digital platforms.
Mobile banking apps, digital wallets, and online payments reduce costs and make it affordable for underserved populations to open and maintain accounts. This digital shift has allowed millions, especially in developing regions, to manage money and transact without needing physical branches.
Lee said another important role is fintech’s innovative approach to credit scoring.
By utilising alternative data – such as utility payments, rental histories, behavioural metrics, or even social circles – fintech firms can assess the creditworthiness of individuals lacking formal credit histories.
This, he said, opens the door for micro-loans and other financial products to those previously excluded by traditional lenders.
“For example, most digital wallets in Malaysia offer micro-financing products for their users. Given the small loan size and cost of delivering this service to a large user base, banks have historically been unable to do so. Together, these advancements democratise financial services and drive economic empowerment and growth by integrating more people into the formal financial ecosystem.”
On fintech’s role in healthcare payments, Lee said digital platforms enhance efficiency by automating billing, claim verification, and fraud detection.
“A notable case we can examine is fintech companies working on digital-enabled medical coverage and digital third-party administrators. By integrating mobile wallet solutions and potentially blockchain-based claim processing in future, they can reduce billing turnaround times and slash administrative costs by more than 30%.
“However, challenges like integrating these solutions with legacy systems, ensuring robust cybersecurity to protect sensitive patient data and complying with evolving healthcare regulations.”
Lee said fintech is also revolutionising sectors like manufacturing, agriculture, and supply chain logistics by unlocking new avenues for working capital and streamlining payments through data-driven digital platforms.
“Overall, we see these innovations lowering the transaction costs and accelerating fund disbursement, enabling a more agile, inclusive financing ecosystem that drives growth and competitiveness in traditionally capital-intensive sectors.
“We strongly believe investors should scrutinise how these firms deploy technology: cost-effective AI and automation should enable rapid scaling without excessive capital outlay.
“A successful fintech should balance tech investment with tangible outcomes, ensuring innovation leads to improved customer retention and sustainable income rather than higher tech spending.
“When these elements are in place, investments in inclusive fintech diversify portfolios and offer potential for long-term stable returns as they tap into expanding underserved markets,“ Lee said.
Lee says the geopolitical landscape, including US-China fintech restrictions, affects the capital flow and tech partnerships in emerging markets such as Malaysia.
