PETALING JAYA: More than four-fifths of local financial institutions see financial technology (fintech) as a threat to their business.

Meanwhile, 59% of these financial institutions say their engagement with fintech firms are either through joint ventures, acquisition of fintech companies, setting up venture funds or start-up programmes, launching their own fintech subsidiaries or rebranding purchased services.

Fintech refers to the close corraboration or fusing of financial services together with various technology platforms.

This corraboration, which has become pervasive in recent years, has grown and evolved, according to a report published by PricewaterhouseCoopers Malaysia and the Asian Institute of Chartered Bankers entitled “Catching the fintech wave”.

The report revealed that areas in traditional financial services that are most likely to be disrupted by the emergence of fintech include fund transfers and payments, consumer banking as well as general insurance.

The report, which drew its insights from one survey of 84 respondents as well as face-to-face and written interviews this year, showed that a significant 22% of financial institutions believe that fintech companies can potentially seize more than 20% of their revenues.

This proportion was even higher among banking respondents at 33%.

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This indicates that competition in the financial services industry will be stronger, with opportunity cost being a key concern.

A total of 63% of the survey respondents pointed to regulatory uncertainty as the number one top threat arising from the fintech disruption, while pressure on margins is said to be the second top threat by 62% of the respondents.

Information security marginally outranked loss of market share, making for a close third and fourth place with 56% and 54% of the respondents’ votes, respectively.

Notably, Bank Negara has issued the Financial Technology Regulatory Sandbox Framework for financial institutions and fintech players to experiment with new solutions in a production or live environment.

This is to provide a conducive and safe environment for fintech to innovate and grow. The framework came into effect on Oct 18, 2016.

“However, those surveyed are likely concerned about how regulators are going to move from a highly-regulated financial services environment to a less regulated one for fintech, putting the regulatory uncertainty to be rated as the top threat,” the report said.