This article first appeared in Wealth, The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

Max Azaham, senior vice-president and head of the digital business division at Malaysian Industrial Development Finance (MIDF) Bhd, isn’t your everyday investment banker who is always on the lookout for the next big corporate deal in town.

Equally adept at computer programming and coding, he and another friend created Locum Legalis, a mobile application that was used by one in five lawyers in Malaysia at its peak.

Max developed two other mobile apps in 2012 that tracked the valuation and performance of the Dow Jones Industrial Index’s component stocks. It was only a passion project, but he used them to apply for a master’s degree at Stanford University and briefly crossed paths with Vlad Tenev, co-founder of the publicly listed financial technology (fintech) company, Robinhood.

The thought that he could have founded another unicorn fintech start-up like Robinhood still crosses his mind occasionally. He has some of the right skills and knowledge after all.

Yet, Max also knows that building a start-up from scratch and scaling it into such an enormous size requires hunger, determination and commitment, which he may have somewhat lacked.

“I didn’t talk to the Robinhood guys back then, but had heard of them at business school. They had brown bag lunches (combined learning/eating events that take place over lunchtime, where training can occur in an informal setting) in which they came and spoke to a number of my classmates to pitch their ideas. They were just doing research on the user interface.

“When I saw it, I thought that was really great. You know, stock investing apps used to be like scientific calculators. Robinhood made it so simple and elegant. I used other fancy apps. But in the end, I used Robinhood too.

“The thought of me launching another Robinhood app does come to my mind sometimes. In Stanford, they have this saying that you have to be ‘desperate’ enough to be successful. I was already in my late 30s back then. Would I have put in everything to build a start-up?

“Probably not. I had come to a point in life where the opportunity cost to do so was too expensive. I wasn’t yet married, but I was looking to move back to Malaysia with a steady job to reunite with my bigger family. I was probably also not talented enough [to become a tech billionaire],” says Max humbly.  

Still, he co-founded Tegris LLC, a financial advisory firm based in New York in 2007 and exited the business two years later.

In 2012, Max once again struck out on his own to kick-start another new entity in New York called Semanggi (“clover” in English), which provided financial and technological consultancy services to several start-ups for more than four years. This time, he was truly running the business on his own.  

“I was just being out in the wild and on my own as an entrepreneur. And I realised how [hard] it was for people to make money. It’s easy when you are in an organisation. Business and money come your way.

“But suddenly you’re on your own, you must figure out, ‘How do I get projects? How do I get people to pay me?’ That was quite a challenge. But I did and still do get people to pay me,” Max quips.

His work led him to take on several roles, including corporate financial planner and analysis manager at Unity Technology, which is today a New York Stock Exchange-listed company that does video game software development; and vice-president in charge of finance at Square Panda, a company that provides multisensory learning solutions to help kids learn better.

While he thoroughly enjoyed his life in the US, Max missed his family. He was eager to reunite with them, especially his parents.    

Hence, his decision to take on the role in MIDF. Under his purview, MIDF reassembled a lean team of slightly more than 10 staff to oversee MIDF Invest, a proprietary stock trading app that was launched in July 2021. The digital business division is also in charge of several other digital projects.

“There were certain issues with MIDF Invest when I joined, which I would describe as ‘technical debt’. My initial focus was on product development and building a team. That was followed by coming up with a pricing strategy and a new marketing campaign.

“We relaunched the app on Aug 21 this year with new technology supporting the app and greatly reduced its prices,” he says.  

Following the acquisition of Malaysia Building Society Bhd (MBSB) by MIDF from Permodalan Nasional Bhd for RM1.01 billion announced on Oct 2, Max believes MIDF Invest can be effortlessly embedded into MBSB’s mobile banking app and provide its users easy access to the stock market.

As at end-September, MIDF Invest had garnered over 60,000 downloads and this number is increasing, says Max.

However, with several digital-only stock trading apps — such as Rakuten Trade and M+ Online by Malacca Securities — readily available in the market, why would investors need MIDF Invest?

Among its value propositions, says Max, is that it has the widest US stock coverage in the market, allowing investors to trade over 10,000 stocks listed in the world’s largest economy.

“We didn’t restrict the number of shares we offer to our investors so that we can be more profitable. We just thought, you know what, we would open it up to everybody. And that’s the reason why some customers came to us,” he says.

He adds that the app is looking to offer users the ability to trade Hong Kong and China stocks.

Max says MIDF Invest charges one of the lowest brokerage fees in town, as low as US$1.99 (RM9.34) and 0.12% per trade — pretty close to the best price one can get in the local market. 

“We emphasise that there are no hidden costs with us. Our fee also covers the custodian fee.”

The app allows users to convert their desired amount of ringgit into US dollars at a good rate and trade US stocks from there, instead of converting those currencies every time they make a trade, which would add to their trading cost.

MIDF Invest’s trading cost has gone down by 75% since it was launched two years ago, Max claims. A lot of this hinges on how the app is designed, as it connects the MIDF Invest platform seamlessly with that of its partners. Each process is digitalised and automated as much as possible.

“Our tech stack is premised on so-called ‘composable architecture’ based on the cloud and API (application programming interface) first principle. Behind the app, it is like building blocks. We have the capability to incorporate a particular software for customer onboarding, and use another software provider such as FPX for transactions. They are all stitched together with our software code,” he explains.

MIDF Invest’s partner is Saxo Bank, a Danish investment bank that specialises in online trading and investment. It executes the trade orders of MIDF Invest users.

Saxo Bank uses its technology, known as smart order routing, to help MIDF Invest users fill up their trade orders with the best possible price by scanning through multiple trading venues globally.

“They built this technology for institutional investors. And we are now offering it to our retail investors. Malaysians who want to use Saxo Bank’s solution on their own, would have to go to Singapore to open an account with a Singaporean entity and put a few thousand dollars in it,” Max explains.   

An interesting fact about MIDF Invest is that about 70% of its user accounts are shariah accounts, which means most of its customers are Malay investors. For comparison, about 70% of Bursa Malaysia’s investors are non-Malay.

He adds that it could be due to MIDF Invest’s value proposition of offering a fully shariah-compliant stock investing solution. 

“We designed the product to be shariah-compliant right from the beginning. It makes us unique among our competitors. We are shariah-compliant from the point of onboarding, account funding and conversion of currencies to stock investing. 

“Several of our competitors merely provide a screener but are not fully shariah-compliant,” he says.

However, Max and his team aren’t just targeting Malay investors, but investors from all races who are professionals in their mid-30s and mid-40s. They believe the app can be attractive to anyone as long as it is accessible and affordable.

As with other local players, MIDF Invest faces very stiff competition from foreign players, such as Moomoo, which charges investors zero brokerage fees to trade shares.

An industry veteran shares with Wealth that the challenge foreign players pose to the local players is indeed huge. Unlike brokerage firms that evolve over time by gradually incorporating technology into their business operations, these foreign players were technology companies first before branching out into the brokerage business.

“Their technology, such as ­Moomoo, is easily 10 to 15 years more advanced than ours. They can scan through various stock markets across the globe in a very short period of time and show stock prices in real time, which we couldn’t.”

The veteran also says local brokerage firms in general are looking for a niche to survive, such as offering discretionary trading solutions to investors by charging them a fee. Others could be looking at providing corporate advisory services.

To put it simply, discretionary trading services are regulated by Bursa Malaysia guidelines where brokerage firms are authorised by their clients to invest clients’ money with specific investment strategies.

These foreign players also offer investors zero fee services as they adopt a business model known as payment for order flow (PFOF), says the veteran.

Instead of sending trade orders directly to a centralised exchange to be matched and executed at the best price for investors, brokers with a PFOF business model direct these orders to other venues, mainly market makers, to be executed.

With better visibility on the bid and ask prices in the markets, the market makers are then able to make better profits from their market making activities, and share parts of these profits with the brokers that routed them the orders.

In the case of the US, all trade orders made with the brokers flow to the main exchanges where prices are aggregated into a listing known as the National Best Bid and Offer (NBBO). The stock price of a company shown in a brokerage app is actually the price generated from NBBO.

When Company A has a bid price of US$9 and the ask price is US$10, the spread is US$1. An investor might want to buy Company A’s shares at the mid-point at US$9.50 and place an order. That order goes to the brokerage firm before it gets rerouted to a market maker.

The market maker then sells the shares to the investors at US$9.50, but not before it purchases those same shares at US$9.40, perhaps with a high frequency trading strategy. The market maker makes a profit of 10 cents per share, and shares part of the profit with the broker.

According to the US-based news website Vox, which illustrated the example above, investors can buy shares at their desired prices under the PFOF model, but they are not getting the best prices in the markets.

Robinhood is one of the big players that adopted the PFOF business model.

Commenting on competition, Max agrees that it is stiff and MIDF Invest had been approached by several parties to adopt the PFOF business model. But the firm decided against it.

“We did a lot of research on it and decided that we won’t go down that route, as there is a hidden cost to the customers [when they are not buying shares at the best available price in the market].

“Our customers should be the retail investors, not market makers or hedge funds overseas. We want to be transparent,” he says.

There is also regulatory risk surrounding PFOF as various countries, like Singapore, have banned such a business model as brokerage firms are not serving the best interest of their retail clients.

“Our expectation is that if it happens locally and that the Securities Commission takes a look at it, they would react the same way as MAS (the Monetary Authority of Singapore),” says Max.

Instead, Max wants to grow MIDF Invest and its other digital projects through the concept of embedded finance, which means providing financing services to non-financial consumers.

Buy now, pay later (BNPL) is an example of embedded finance where a consumer can opt to take on an instalment plan — its interest is borne by the merchants — when they buy a smartphone from a vendor.

With its cloud and API-first technology, MIDF Invest can easily fit into other mobile apps, whether it is a banking app or even an e-commerce app, and let its users trade the stock markets in the same app.

“MIDF Invest was created in-house with proprietary technology that allows us to do embedded finance. We are having confidential discussions with a few parties,” says Max.

He adds that the traditional stock trading apps of the major financial institutions mostly use third party technology and do not possess the “embedded” feature of MIDF Invest.

Are digital banks among his target customers? Max says yes. “It is a good value proposition for those without an investment banking arm.”

Banks with an investment banking arm might not be keen to adopt MIDF Invest as it would mean transferring their business to a third party, he explains.

However, things could change in the future. After all, investors are constantly looking to trade more conveniently and at a lower cost. If the traditional banks can no longer compete with the likes of MIDF Invest on these fronts, and start losing customers, they would have no choice but to make a decision on developing their own app or to embed one.

“That’s when companies like us grab market share. I think two to three local players will dominate this market in a few years from now,” says Max.

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