Beware of the financial technology fraudsters / fintech scams in Malaysia

FINTECH or financial technology is all the craze now.

Hundreds of millions of dollars in funding are going into the sector. Traditional banks have been forced to buck up or lose customers to fintechs. And Governments are seeking to use fintech as a means to give their countries some level of competitive advantage. But amid all this action, fraudsters are surely also studying ways in which to exploit fintech in order to refine their scams.

That fintech is being sought to be used by fraudsters should not be surprising.

As with any new technology innovation, one can view fintech as a blade. If used by the right hands, it can bring value to customers by reducing unnecessarily high fee structures that exist in the financial system. In the wrong hands, fintech can be used for fraudulent activities.

Precautions need to be put in place and are being done so by regulators. More importantly, the fear of fraud should not stifle the growth of technology breakthroughs. What makes fintech particularly attractive to fraudsters is the fact that it covers the area of investment and, in particular, targets the man on the street.

One of fintech’s most appealing feature is its ability to provide financial services to the masses who have been unserved. These are services such as loans to individuals and consumers who aren’t typically served by financial institutions and cheaper cross-border money transfers, especially for foreign workers sending their hard-earned monies to their home countries. There’s also cheaper insurance products, cheaper stock trades and personal financial advice using the concept of the robo adviser.

In many of these cases, the fintech firm is targeting an individual who is not rich or savvy enough to afford financial services from a traditional financial institution. Many of these individuals, though, are connected to the Internet via their mobile devices and this is going to be the network from which fintechs will use to serve their customer base.

The onerous fintechs will couple their services with financial education and literacy so as to ensure their customer base is aware of the risks of the financial services they are buying.

The outright dubious ones are likely to lay claim to using the best-of-breed financial technologies to make their pitch appealing. For example, a company can lay claim to be using blockchain technology and smart contracts to offer an underlying investment product such as silver or gold that usually appeals to the masses.

By themselves, blockchain and smartcontracts are designed to weed out fraud. Blockchain transactions are recorded on a single unified ledger, with copies of that ledger being maintained by computers belonging to all players in that network.

So this way, it is almost impossible to commit fraud, as every single transaction needs to be verified by other players in the system. Blockchain is being trialled by financial institutions and start-ups for payments, cross-border remittances, trade finance and the clearing and settlement processes of stock exchanges. And smart contracts can be described as a verifiable piece of software that enforces the obligations that might be described in a traditional contract. By automating the performance of contract terms, the software can lower transaction costs.

The question is, how can the consumer know for sure if it’s really blockchain that is being deployed and whether the smart contract is a legitimate one?

The last thing that we need to see is a new-age ponzi scheme jumping on the bandwagon of the fintech hype. In this regard, the regulators are playing their role. Both the Securities Commission (SC) and Bank Negara are dedicating resources to regulate the industry as much as possible. The SC has decided to regulate crowdfunding operators, while Bank Negara is embarking on sandboxing some fintech offerings.

The message to investors is simple: don’t put your money into any fintech-related investment scheme without trying to verify their legitimacy. And because of the speed at which fintech innovations are hitting the market, the regulators also have to up their game by ensuring that the dodgy fintechs are weeded out of the system before it’s too late.

Source: The Star Online