This article first appeared in Wealth, The Edge Malaysia Weekly on October 31, 2022 - November 6, 2022

As an investor, imagine walking into a digital mall where every aisle displays a variety of wealth products. Local and foreign shares, bonds, unit trust funds, exchange-traded funds, robo-advisory services, cryptocurrency, peer-to-peer (P2P) financing, insurance, e-wallet and more. When you buy into one of these products, you get reward points that give you a discount for future purchases.

This is exactly what Datuk Chay Wai ­Leong, group managing director of Kenanga Investment Bank Bhd (KIBB), envisages its wealth super app will do. 

The super app, which is expected to be launched in the first quarter of next year, is being developed in partnership with the Ant Group’s digital technology unit. It will be the first of its kind locally and one of the very few worldwide, says Chay.

The idea for the super app was conceived by Chay and KIBB’s board of directors in 2019, two years after it launched Rakuten Trade, a fully online trading platform. A slew of investment activities and partnerships soon occurred in the following years.

In 2020, KIBB entered into a joint venture with P2P financing platform Capital Bay to launch the country’s first Islamic supply chain finance start-up and acquired a 4.99% stake in e-money service provider Merchantrade Asia Sdn Bhd. In 2021, it 

acquired Islamic exchange-traded fund (ETF) provider i-VCAP and bought a 19% stake in licensed digital asset exchange Tokenize Malaysia. Kenanga Digital Investing (KDI), an internally developed robo-advisory platform, was launched in early 2022.

The super app aims to combine all these investments on a common platform and make them accessible to investors through smartphones. “Our business model is predicated on the philosophy that we want to provide A to Z to our clients to help them invest and manage their wealth,” Chay tells Wealth.

As comprehensive as its offering may seem, KIBB is not stopping there. Chay says it is scouting for deals to acquire a stake in a licensed initial exchange offering (IEO), a platform that allows investors to invest in blockchain start-ups and smaller businesses through the issuance of digital tokens. It also plans to register as a digital asset custodian to hold cryptocurrencies on behalf of its clients.

While the bank does not manufacture insurance products, it plans to partner with Tune Protect Group Bhd to offer its clients travel insurance policies on its super app.

With the help of data analytics, the super app could also benefit investors in other ways. For instance, it could inform users of the performance of each investment asset class and their overall portfolio. Investors can then compare the annualised return of their investments with the benchmark rates to measure how well they have done in the past. 

The super app can even allow its users to perform cross-collateralisation, which means using various investments to secure a loan. Digital tokens and assets can be part of the equation. “If you have funds or digital tokens with us, we can give you a loan. This is a benefit of the super app,” says Chay.

Just how much money KIBB has poured into the plan? Chay says the development of the super app alone cost RM10 million to RM15 million, but the actual amount to lay the foundation for it is more. 

According to news reports, the bank invested RM15 million to launch Rakuten Trade, and burned about RM47 million in its first three years of operation. A report by the Companies Commission of Malaysia (CCM) shows, however, that the firm generated a profit after tax of RM17.61 million and RM14.5 million in 2020 and 2021 respectively.

The actual amount spent on acquiring i-VCAP and a 19% stake in Tokenize Malaysia has not been publicly disclosed; neither has the money invested in Merchantrade Asia and KDI.

While some figures are not available to the public, Chay says all those investments were made with internal funds, which are profits generated by the company over the years, at reasonable cost. The firm has not raised external funding to finance those ventures.

“A lot of tech companies seek Series A, B and C rounds of funding, but we haven’t raised a single sen [from investors]. We didn’t have any [private] placement or rights issuance. Those investments are made with money generated internally,” he says.

KIBB has been profitable and growing healthily in recent financial years, adds Chay. According to its annual report, its operating revenue grew 37.53% to RM891.49 million in financial year 2021 (FY2021), from RM648.24 million in FY2017. Profit after tax hit RM118.39 million, up 389% in the corresponding period. As at December 2021, KIBB had capital adequacy ratios of 28.3% and 29.8% at the group and company levels, respectively, in excess of Bank Negara Malaysia’s minimum regulatory requirement of 10.5%. 

Investing a sizeable amount of money in technology while remaining profitable to pay dividends is one of the key challenges that Chay has faced in recent years.

“We are a public-listed company. We can’t say, ‘Okay, let’s build this company for the next 10 years; let’s forget about the P&L [profit and loss] and do Series A, Series B, Series C funding like a start-up.’ We have to make money, pay dividends and grow at the same time. That, to me, is the hardest part in developing the super app.”

The other challenge included laying the foundation for the super app, which includes scouting for deals, making decisions in-between acquisitions and in-house development, and negotiating with different parties on stakes and valuations. Regulatory approvals are required by the Securities Commission Malaysia (SC) and Bank Negara Malaysia. Yet, Chay and his team have managed to overcome all this in three years. 

The next major hurdle would be the combination of all the investments and apps under one platform. Some doubt whether KIBB, which lacks prior experience in the integration of apps, can succeed in such an endeavour. This is where the Ant Group comes in.

“Some people might be sceptical of our ability to do it. But with Ant on board, we hope to allay some of these doubts.” 

If everything goes well next year, Chay has more plans up his sleeve, including introducing the “Wealth as a Service” solution, which means allowing third parties to list their products and services on the super app, thus providing more variety to its users.

KIBB is working with Carnegie Mellon University, a university in the US best known for its computer science programme, to develop a share price prediction model using artificial intelligence, which would then be available to investors.

The key is about driving synergy, says Chay. “My common denominator is the digital customer base. If they need an e-wallet, they can use ours. If they want to use it to buy shares, or crypto, we build on that. And, let’s say I have about 300,000 customers under Rakuten; can these customers also be the customers of Tokenize? Can. They are all digital customers. Will all of them be Tokenize customers? No. But if there is 10% [conversion], Tokenize would start off with 30,000 customers. This is the synergy part of it.” 

Asked whether the super app plan is a bold move, Chay says it is. But the conviction comes from extensive discussion with the board of directors and past experience.

He says KIBB’s venture into the super app space is partly due to its business model, which is unlike most of its peers. While most other larger banks generate income mainly by lending out money deposited with them by the general public, KIBB derives the bulk of its income from facilitating share trading activities and investment advice.

According to its 2021 annual report, KIBB generated RM86.4 million in profit before tax through its stockbroking business, which is the highest amount among its five core businesses. This was followed by asset and wealth management (RM34.9 million), investment banking (RM20.6 million), money lending and financing (RM1.6 million) and futures broking (lost RM1.8 million).

This partly explains why KIBB is investing in an investment and wealth-focused super app when others are moving more slowly into this space.

“Players in the financial industry are too focused on the lending business. Then, there has been talk about BNPL [buy now, pay later] in recent years. Even e-wallet players are going into the lending business. But, for years now, Bank Negara has mentioned that the household debt level was already rather high. We think there is a disproportionate number of resources being placed in this area. How do we lend more [to generate income] when the debt level is already high? 

“We recognised a long time ago that our business was on the other side of the spectrum. We advocate investing and saving for the future. And the future, to us, is that you have to do things more digitally. So, that’s how the whole concept came about.”

Chay had been observing the developed markets closely; he noticed that online brokers were doing very well and they were not the incumbents, such as Goldman Sachs. Instead, they were names like Interactive Brokers, E-Trade, TD Ameritrade and Robinhood.

The same was true in Japan. That was how Rakuten Trade was launched. Despite suffering three years of losses, it started to generate healthy profits in the past two years, thanks partly to the pandemic. As at September, Rakuten Trade had garnered about 280,000 digital customers, with only 4,000 of them being existing KIBB customers. Among them, 55% had no stock trading experience at all, says Chay.

Meanwhile, he adds, its internally deve­loped robo-advisory platform KDI has garnered about 12,000 customers with about RM270 million of assets under management.

As for the start-ups KIBB invested in, Tokenize Malaysia has garnered about 30% of local market share in recent months, despite a slump in the prices of cryptocurrencies. Last year, Capital Bay raised RM213.9 million, the second highest among the 10 P2P financing players, and without experiencing any default, as at August this year. 

In terms of profitability, CCM reports show that Tokenize and Bay Group Holdings Sdn Bhd — one of the bank’s partners and the holding company of Capital Bay — are not yet profitable. Merchantrade Asia was profitable in two of the five financial years from 2017 to 2021. 

According to Chay, there were concerns of “cannibalisation” when Rakuten Trade was first launched, which meant attracting KIBB’s existing customers to its online platform, causing a loss to its overall stockbroking business. With a separate management team and an experienced external partner, however, the start-up opened up a new market segment instead. The success of Rakuten Trade has strengthened Chay’s conviction in pursuing the digital path of the bank’s business. And the wealth super app idea was born later on. 

As the CEO of a traditional bank, Chay is not only a strong believer in technology, but has invested aggressively in it as well. Does he consider himself a contrarian in this case? 

“This is our vision of the future … as Tencent and Alibaba had done in China what we are trying to do. Outside of China, I don’t think there’s anybody else. Even the digital banks or neobanks in Europe are more into the deposit and lending business. A Singaporean bank is quite [similar] to us. They have almost the full spectrum [of investment asset classes], but don’t have a super app yet,” he says. 

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