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Artificial Intelligence (AI) Adoption:

The Case of the Malaysian Financial Industry

Seng Loong Kok

Manipal GlobalNxt University, Malaysia
[email protected]
ORCID ID: orcid.org/ 0009-0006-0997-7960
(Corresponding Author)

Supaprawat Siripipatthanakul
Manipal GlobalNxt University, Malaysia
[email protected]
ORCID ID: orcid.org/0000-0001-6671-2682

ABSTRACT

Objective: Artificial Intelligence (AI) is regarded as a critical determinant of strategic

planning and the creation of competitive advantage in modern business practices. This study
aims to review the trend, opportunities and challenges of adopting AI in the Malaysian
financial industry, as well as the potential impact of adopting AI in the financial sector.

Methodology: The qualitative research employed narrative synthesis and content analysis to
systematically describe a phenomenon, adapting to organised information.

Results: AI application challenges have emerged in Malaysia's financial industry due to

various disruptive opportunities in the Financial Technology (FinTech) arena. These
challenges also bring forth threats and concerns for incumbent stakeholders in the industry.
Given its indispensable role in managing and analysing vast, intricate datasets to uncover
patterns and insights, AI is considered a critical factor in establishing a competitive edge in
contemporary business practices and strategic planning.

Implications: The study’s results offer valuable insights for policymakers and potential
adopters, enabling them to devise effective strategies. The vital insights for policymakers and
industry stakeholders are to address AI's challenges and confirm the importance and potential
challenges of implementing AI technology in the financial industry in Malaysia.

Keywords: Artificial Intelligence (AI), Financial Industry, Digital Technology, Trends,

Opportunities, Challenges, FinTech, Financial Services

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INTRODUCTION

"(Military) intelligence is the key to war; without it, you cannot win" – Sun Tzu Art of War.

Since ancient days, information has been a vital element in political and economic affairs for
effective and timely decision-making that decides the outcome of wars to firms forging a
competitive advantage against their business rivals. As the world enters the 21st century, also
referred to as "the "Information Age", competition among firms has reached an
unprecedented era, credited to technological advancement. To cope with the intense
competition, AI has gained substantial focus, both commercial and academic studies, due to
its ability to perform complex tasks at an unprecedented efficiency level, potentially creating
a competitive advantage against rivals. In the past two decades, substantial resources have
been invested in AI. This phenomenon is motivated by the consensus of the industries that AI
is emerging as an essential element of the new business landscape. It is driven by the general
belief AI's ability to process the ever-expanding information needs of the Big Data era is a
result of accelerated digitalization of all aspects of life since the late 20th century driven by
the emergence of the internet. This rich information will enable firms to plan and implement
necessary strategies to ensure their survival in the face of competition and value creation.
Because of the 4.0 revolution in the financial sector, big data and AI have created a new
industry called the "Fintech industry", which is rapidly emerging globally. Fintech is
becoming a significant disruptor of the existing banking and finance industry due to
providing the same but more innovative financial services as those provided in the traditional
banking and finance industry, except with lower fee costs and high margins. As AI is critical
in managing and analysing extensive, complex data to discover patterns and insights, AI is
regarded as a vital determinant of strategic planning and creating a competitive advantage in
modern business practices.

This study reviews the trends, opportunities and challenges of adopting AI in the Malaysian
finance industry. The findings from this study will provide meaningful insight to prospective
adopters and policymakers to plan their strategies to capitalise on the benefits and mitigate
the setbacks (Ali et al., 2019; Aly, 2022). The COVID-19 pandemic has increased the
appetite for AI adoption in the financial sector, with key growth areas including customer
relationship and risk management. For instance, banks are exploring leveraging their AI
experience to handle the high volume of loan applications during the pandemic to improve
their underwriting process and fraud detection. Three main advantages of AI are: 1) Reducing
Error (Accuracy), 2 Multitasking (Efficiency), and 3) Working for more extended hours
(Productivity). AI also has proven to be productive uses that affect the everyday life of the
average consumer with face and voice recognition systems, interacting machines with human
voices, data collection and organisation of market information, natural language processing,
financial advisory, fraud and risk assessment, credit management, price setting, applications
leading to Fintech, and integration with other emerging technologies including
cryptocurrencies and blockchain (Milana & Ashta, 2021; Boukherouaa et al., 2021). Thus,
the review article gives insight based on secondary data collection and content analysis

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regarding big data and artificial intelligence (AI), AI in the finance industry, AI in the
Malaysian Finance Industry, Malaysian financial services legal framework, challenges and
concerns, conclusions, and recommendations.

Research Objective

Artificial Intelligence (AI) is regarded as a critical determinant of strategic planning and the
creation of competitive advantage in modern business practices. This study aims to review
the challenges of adopting (AI) in the Malaysian financial industry that are important in
investigating the potential impact of adopting AI in the financial sector.

Practical Implications

While AI provides various disruptive opportunities in the Financial Technology (FinTech)

arena regarding data collection, analysis, safeguarding and streamlining processes, it also
poses threats and concerns to incumbent stakeholders in the industry. This study provides
vital insights for policymakers and industry stakeholders to address AI's challenges.

LITERATURE REVIEW

The articles have been selected from scholarly papers on the databases of Scopus, Google
Scholar, Web of Science, etc., in a total of 33 papers from 2019 (5 papers), 2020 (9 papers),
2021 (6 papers), 2022 (7 papers), and 2023 (6 papers) adopting AI-based existing method
based on the keywords of Artificial Intelligence (AI), Financial Industry, Digital Technology,
Trends, Opportunities, Challenges, FinTech and Financial Services in the year of 2019-2023.

Big Data and Artificial Intelligence (AI)

Big Data and AI have experienced exponential growth in technologies and applications
driven by the continuous improvement and breakthrough of platforms, algorithms and
interaction methods. AI is often regarded as the next general-purpose technology with rapid,
penetrating, and far-reaching use in many industrial sectors. While the term Big Data and AI
has been used broadly and interchangeably in various academic studies and business
contexts, it is essential to clarify its differences (Czarnitzki et al., 2023).

A consensual definition of Big Data is "the Information asset characterised by such a High
Volume, Velocity and Variety to require specific Technology and Analytical Methods for its
transformation into Value." An essential feature of Big Data is that it is an information good,
and information goods tend to be non-rival (i.e., not depleted by use) and produced under
increasing returns to scale. Big Data is also associated with the massive computational
resources needed to cope with the increasing volume and complexity of data from many
sources, such as the internet and remote sensor networks, which embrace "cyber-physical
systems, cloud computing, and the Internet of Things (IoT)", also known as Industry 4.0
(Mihet & Philippon, 2019).

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There is no one universal definition of AI due to the difference in theoretical and practical
values; AI is commonly defined as a machine (or process) that responds to environmental
stimuli (or new data) and then modifies its operation to maximise a performance index, which
its learning process is implemented using mathematics, statistics, logic, and computer
programming that enables the AI model to be trained on data in an iterative procedure with
parameter adjustment by trial and error using reinforcement rules. In a more general context,
in a more general definition described AI as "a system's ability to interpret external data
correctly, to learn from such data, and to use those learnings to achieve specific goals and
tasks through flexible adaptation" (Wang, 2019; Kaplan & Haenlein, 2019). AI is the
cornerstone of Industry 4.0 after automation, electrification and "informatization". AI adopts
advanced machine learning, pattern recognition and data mining techniques to build AI
models for information pre-processing, processing, refining and value-added services, which
is widely used in the context of Industry 4.0, the Internet of Things and big data. AI strongly
supports people's work and life and more effectively promotes the "informatization" and
automation of an intelligent society (Lu, 2021). Hence, Big Data can be assumed to require
massive data processing systems that often involve significant levels of process automation.
Considering the features of Big Data and AI, Big Data is most apparent when viewed as a
database for AI. As such, the focus on Big Data is commonly associated with AI.

Artificial Intelligence (AI) in the Finance Industry

In general, it is widely recognized that the financial industry has benefited from stimulus
developments due to the application prospects of AI through a gradual adoption process. The
application of AI in the financial sector is not only an analysis of financial data but is
evidenced by the creation of various financial digital services. Within the framework of Big
Data and AI, financial data is more diversified and robust, which are multiple models,
structures and real-time changes that traditional systems cannot offer (Wang et al., 2020).
AI-related literature on finance and financial markets studies generally can be categorised
into six areas of interest, namely 1) Financial Management, 2) Financial Markets, 3) Banking,
4) Financial technology (Fintech), 5) Financial advisory services and price setting and 6) AI,
Blockchain, and Bitcoin bonanza, which focuses on its functions as forecasting,
decision-making, bankruptcy prediction, credit-scoring, and accounting and fraud issues as
the critical application areas (Milana & Ashta, 2021).

AI applications often cover the entire value chain of the organisation, improve business
processes, make them more efficient and less costly, and improve the reactivity of the
organisation (Wamba-Taguimdje et al., 2020). Implementing AI-embedded big data analytics
in Finance has many benefits, such as improving decision-making processes, enhancing
accounting processes and compliance, boosting marketing campaigns, and providing better
credit risk assessment procedures (Siew & Farouk, 2023) and fraud detection. Regarding AI
adoptions, one cannot ignore the "elephant in the room" – the idea of machines replacing
humans. On AI's impact on human resources and jobs, the World Economic Forum, 2018
predicted that AI technologies will significantly affect employment, especially in emerging

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economies, due to the greater scope for technological change within the manufacturing sector.
In comparison, AI may potentially put many people out of jobs. AI technologies are also
predicted to drive innovation and economic growth, leading to new employment (Dwivedi et
al., 2021). As such, Big Data and AI undeniably impact jobs as they enable systems within
organisations to expand rapidly, transforming business and manufacturing productivity and
extending their reach into conventionally human-intensive aspects (Daugherty & Wilson,
2018; Miller, 2018). A positive relationship exists between the digital transformation index
and economic development, labour productivity and job employment. AI directly affects job
performance, and the bank's focus on AI improves productivity (Ramli & Wahab, 2023; Aly,
2022; Younnus, 2022).

Artificial Intelligence (AI) in the Malaysian Finance Industry

Many AI-related studies in Malaysia have been published in recent years. The impact of AI
application can be a strategic and significant one; for instance, at the national level, studies
suggest the efficacy of AI adoption in predicting GDP by comparing the neural network
forecasting method and the government's estimation. It has been shown that the neural
network method gives a smaller mean error value than traditional methods, which suggests
the superior accuracy of forecasting GDP growth in Malaysia. The National Industrial
Revolution 4.0 (4IR) Policy is estimated to increase the country's output by 30% across all
sectors by the end of 2030, with AI playing a substantial role in attaining that target (Sanusi
et al., 2020; Cheong, 2022).

From the Industry 4.0 in Finance perspective, AI strongly influences digital financial
inclusion in areas related to risk detection, measurement and management, addressing the
problem of information asymmetry, and availing customer support and helpdesk through
chatbots, fraud detection, and cybersecurity. In Malaysian banking services, AI reduces costs,
mitigates risk, detects fraud and increases customer satisfaction and loyalty. It further
suggests that digital smart contracts can effectively replace traditional paper contracts,
facilitating a more credible transaction without jeopardising authenticity and credibility. AI
applications for predicting customer loyalty will provide a better understanding of Islamic
banking related to customer loyalty and offer a platform that helps bank management
improve customer loyalty within Malaysian Islamic banks. Driven by these factors, AI in
finance studies attracts widespread interest, particularly in association with FinTech and
Islamic Finance (Mhlanga, 2020; Kochhar et al., 2019; Rahman et al., 2021).

Fintech has a tremendous potential impact on conventional and Islamic finance industries.
This potential impact on the potential of introducing new business models can bring more
transparency and efficiency to the products. It can provide more customer-friendly Islamic
financial products and services. The integration of FinTech solutions in the business models
took place with the Investment Account Platform (IAP) launch in 2015, the first multi-bank
online platform that combines Islamic banks' credit evaluation expertise and the power of
technology to allocate funds from investors to economic ventures. More than 300 Fintech
start-ups have emerged in the South East Asia region, providing solutions in payments, micro

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and peer-to-peer lending, and wealth management, which embed AI technologies into their
products will make them formidable competitors that create value for customers (Zain et al.,
2020; Ali et al., 2019).

AI and machine learning are essential for treasury management. Machine learning prediction
models can help predict cash flow. Accuracy in prediction through these machine learning
models can protect organisations from various crises and risks. In the banking sector,
machine learning predictive models can help to ascertain the borrower's repayment capability
and loan approval decision-making will be helpful to the bank in utilising the cash in a way
that can be profitable (Donepudi et al., 2020). With the normalisation of smartphones as the
primary communication device, mobile banking, a technology-based financial service, has
become the new norm of modern banking, which enables banks to offer AI-enabled mobile
banking, a mobile banking service using AI and interaction-based algorithms. The banking
service is gaining popularity among bank clients, especially young customers such as
millennials. Service quality, attitude towards AI and trust are determinants important for
millennial loyalty towards AI-enabled mobile banking and further highlight the significant
role of religiosity on millennial loyalty towards mobile banking services in Islamic nations
(Owusu Kwateng et al., 2019; Suhartanto et al., 2022).

Malaysia is well-known for its leading banking framework in Islamic Finance. The Islamic
finance industry's acceptance of AI technology investment is crucial for Islamic financial
growth in Malaysia. It is further suggested the positive impact of Text Mining, Algorithmic
Trading, Stock Pick, and Robo in Islamic investment systems based on the application of AI
in Islamic investment to help consumers make better decisions in Shariah-compliant stocks
investment as AI can provide a high-quality service in the investment system. Malaysia is
known for its pioneer in the Sukuk market as the alternative to the conventional bond market.
AI application on the Sukuk market has given rise to an issue of the availability and accuracy
of some of Suku issuance's ratings. Neural network methods (AI) obtain the highest accuracy
rate when predicting the actual rating in the market, which suggest AI application is
beneficial to the rating agencies, Sukuk issuer companies, corporate managers, private and
institutional investor to support their investment decision-making (Gazali et al., 2020)

Parallel to the industrial technology movement, technology adoption is apparent among

Malaysian Zakat institutions. Zakat is one of the Islamic pillars. The aim is to solve an
economic problem in society through wealth sharing between the rich and the poor according
to rules set in the Quran and also guidelines prepared by Muslims, which is under the
purview of the State Islamic Religious Council. It is highlighted that the majority of the
institutions are lacking in technology adoption, which has been widely adopted throughout
the world, especially in the utilisation of mobile technology platforms to reach the public,
both the zakat contributor and the recipients (Salleh & Chowdhury, 2020).

Money laundering is a criminal activity used to disguise the source of illegally obtained
money and make it appear legitimate in the system (Kute et al., 2021). Despite the increased
number of reported money laundering cases in Malaysia, investigation outcomes, either in

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prosecution, conviction, or confiscation, remain low and ineffective in deterring money

laundering activities (Zolkaflil, 2021). While AI applications support the commercial aspect
of the finance industry, it is also relevant in the battle against money laundering.

However, identifying suspicious money laundering transactions remains challenging

primarily due to the continuously changing canvas of fraud, technology and regulations,
being a multi-step classification problem, the challenges around the data for research and
barriers to the adoption of AI by industry. Law enforcement and regulatory bodies nowadays
employ a robust end-to-end framework utilising AI, which accurately detects suspicious
money laundering transactions by reducing the false positives and generating a human
interpretable explanation for the decisions made by AI (Kute et al., 2021).

Malaysian Financial Services Legal Framework

At the point of this study, the financial services legal framework is based on Bank Negara
Malaysia (BNM) is the regulatory body that governs the financial service industry and
regulates the application of FinTech in Islamic Finance in Malaysia under the law provision
of the Central Bank of Malaysia Act 2009 (CBMA), the Anti Money Laundering,
Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATF) and the
Islamic Financial Services Act 2013 (IFSA).

The Financial Technology (FinTech) Regulatory Sandbox Framework is introduced to

facilitate Fintech innovation to be deployed and tested in a live environment within specified
parameters and timeframes, which applies to financial institutions and a FinTech company
which collaborates with a financial institution which its business registered under Financial
Services Act (FSA) or Islamic Financial Services Act (IFSA) 2013 or a money services
business as defined in the Money Services Business Act 2011 (MBSA).

Under the provision of FSA and IFSA, BNM has occasionally issued guidelines to banking
and financial institutions to enhance and strengthen security measures undertaken by all
participating institutions. Minimum Guidelines on the Provisions of Internet Banking
Services by Licensed Banking Institutions issued by the BNM sets the minimum guidelines
that licensed institutions in Malaysia should observe in providing Internet banking, and it
further provides that banking institutions are free to adopt more stringent measures and are
expected to keep up-to-date with technological developments and needs of the customers.

Even though digital currencies are not recognized as legal tender in Malaysia, the
Anti-Money Laundering and Counter Financing of Terrorism Policy (AML/CFT) – Digital
Currencies (Sector 6) states the minimum requirements and standards that a reporting
institution must observe to increase the transparency of activities relating to digital currencies
and ensure effective AML/CFT control measures are put in place to mitigate risks that
reporting institutions may be used as conduits for illegal activities. While the Anti-Money
Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001
(AMLATF) remain silent on its application to FinTech, the provisions relating to

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non-compliance are relevant to regulate FinTech-based activities in the Islamic finance

industry in Malaysia on reporting obligations of reporting institutions, the penalties of
committing the offence and the enforcement authority over any volitation and offences.

Personal Data Protection (PDPA) 2010 aims to regulate the processing of personal data in
commercial transactions. It requires entities within eleven industries, including banking and
financial institutions, to register with the Personal Data Protection Commissioner. An
essential element in discussing the applicability of PDPA is that the provision only applies to
processing personal data in respect of commercial transactions, which exempts any personal
data processed for non-commercial or private use from this legislation. It also excludes credit
reporting under the purview of the Credit Rating Agency Act 2010. BNM is exercising its
powers under the Central Bank of Malaysia Act 2009 and other relevant legislation. They are
closely monitoring the financial sector's operations in Malaysia to maintain the confidence of
the public and investors that the law protects their data and privacy.

The Digital Signature Act 1997 (DSA) outlines the regulatory structure for entities creating
digital signatures and legalising private and public key cryptography. The DSA allows
individuals and businesses to use digital signatures in commercial transactions. It provides for
the licensing and regulations of Certification Authorities, which issue digital signatures and
certify the identities of the signatories by issuing a certificate. Digital signature technology
offers data security, which encryption algorithms and protocols ensure. Encryption scrambles
the data, so it is practically impossible to decipher it without knowing the decryption key.
VISA and MasterCard have introduced a standard known as Secure Electronic Transaction
(SET) for sending online credit card numbers to purchase goods or services in a safe and
secure environment.

The Computer Crimes Act 1997 (CCA) deals with offences relating to the misuse of
computers and provides that the commission of the crimes is extra-territorial. The Act also
includes an offence involving fraud or dishonesty or which causes injury as defined in the
Penal Code, causes unauthorised modification of the contents of any computer and
communicates directly or indirectly a number, code, password or other means of access to a
computer to any person other than a person to whom he is duly authorised to communicate. It
sets out a framework that defines essential terms such as proper illegal access, interception
and computer use, outlines the standard for service providers and imposes potential penalties
for infringement.

METHODOLOGY

The qualitative method is chosen for this study due to the appropriate process of collecting
the data to identify and analyse the issue or problem under the analysis. The qualitative
research methodology includes four steps: developing a research plan, acquiring data,
analysing data, and producing reports. This comprehensive evaluation of the pertinent
literature consists of a narrative synthesis. Via academic writing, narrative synthesis aims to
summarise and clarify the synthesis results. Content analysis is a qualitative technique that

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employs verbal, visual, or written data to systematically and objectively describe a given
phenomenon (Jaipong et al., 2023). Content analysis facilitates the development of credible
findings. In addition, it is a flexible data analysis technique that can be applied to systematic
qualitative reviews. When conducting periodic qualitative evaluations, content analysis
methods must be modified or adapted to be compatible with highly organised and
contextualised information to locate knowledge and theory. In conclusion, qualitative content
analysis was utilised in the current study (Limna et al., 2022; Limna & Kraiwanit, 2022).

RESULTS

Challenges and Concerns

As AI forms one of the critical elements in Industry 4.0, Malaysia has reported a sluggish
adoption rate of Industry 4.0, with only 15% to 20% of businesses embracing it (Cheong,
2022). While the benefits and motivations for adopting AI are well-documented,
implementing AI technologies can present significant challenges for government and
organisations as the scope and depth of potential applications increases and the use of AI
becomes more mainstream in Malaysia's context - Institutional, Economic and Social.

Institutional Challenges

An institutional challenge, perhaps, is one of the biggest challenges in AI adoption, given the
rapid growth and technological evolution. Data challenges of using AI are validating the
benefits of AI solutions and obtaining statistically significant outcome data on transparency
and reproducibility in the context of acceptability relating to public perception. The current
position on standards and data structures can hinder AI applications regarding data use and
integrity (Wamba-Taguimdje et al., 2020; Sun & Medaglia, 2019). The challenges of
implementing AI from an institutional perspective require a more holistic understanding of
the range and impact of AI-based applications and the concept of AI law and regulations for
proper governance, including autonomous intelligence systems, responsibility and
accountability, as well as privacy/safety (Wachter & Mittelstadt, 2019; Gupta & Kumari,
2017; Zatarain, 2017).

Despite the legal framework's existence, Malaysia's general public exhibits a lack of trust and
concern, given the rising situation of several data breaches and scandals regarding AI
adoption in recent years. Issues relating to the ethical dimensions of AI systems and their use
of shared data remain unclear regarding ethical and legal concerns, especially around the
responsibility and analysis of AI-based systems' decisions (Sun & Medaglia, 2019).

The absence of adequate regulatory requirements, data privacy and security, and lack of
relevant skills and IT infrastructure are significant challenges to AI adoption (Rahman et al.,
2021). A complete framework of policies, regulations and ethical guidance to prevent the
misuse of AI is critical to be developed and enforced by regulators (Duan et al., 2019).
AI-based systems may exhibit levels of discrimination even though the decisions do not

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involve humans in the loop, highlighting the criticality of AI algorithm transparency

(Bostrom & Yudkowsky, 2011).

Cyber, physical and political threats arise with the growth in AI. From a banking perspective,
precautions should be taken while implementing it, as there is always a threat of leakage of
data, which could incur a massive loss to the banks as complete transparency while venturing
into new AI projects could lead to leakage of data and misuse of the information (Kochhar et
al., 2019). Cybercriminals use technology to launch more sophisticated attacks on
organisations. Hence, AI is becoming increasingly crucial in cybersecurity as AI-based
products detect risks and secure systems and data. Data protection and privacy issues arise
using AI technology (Kamaruddin et al., 2023). For instance, the financial services industry
has been reported to have one of the highest rates of insider data breaches despite typically
having practical workforce training on cybersecurity best practices (Birruntha, 2023). Due to
their dealings with large amounts of sensitive data and personally identifiable information,
they are prime targets for attackers. Banks and other financial institutions, ranging from
brokerages and investment management firms to credit unions and credit card processors,
faced significant security, operational and compliance challenges.

Issues

Despite the Personal Data Protection Act 2010, Malaysia continues to experience profound
personal data breach incidents in recent years. In 2022, Communications and Digital Minister
Fahmi Fadzil instructed Cybersecurity Malaysia (CSM) and the Department of Personal Data
Protection (JPDP) to investigate the alleged data leakage involving 13 million Malaysians
that was spread on social media in December 2022, which the leakage was severe as it
involved a large amount of Malaysians' private information such as the username, their full
name, date of birth, address and identity card number.

Economic Challenges

The mass introduction of AI technologies could have a significant economic impact on

organisations and institutions in the context of required investment and changes to working
practices. It is focused on the affordability of technology within the medical field, arguing
that AI will likely require a substantial financial investment (Dwivedi, 2019; Tizhoosh &
Pantanowitz, 2018) While AI advocates productivity improvement, it can also exacerbate
economic inequality that could widen the gap between large and small firms, emerging and
developed markets, and the rich and poor. Big Data and AI technologies commonly require
substantial investment, which implies having scale effects that favour large firms and industry
leaders, given their availability of resources. AI adoption increases productivity, but only for
large firms. Hence, these firms can become so productive that laggards become discouraged
and can never compete ((Mihet & Philippon, 2019; Bughin et al., 2018. Bäck et al., 2022)

AI applications tend to reduce human interaction, which saw its relevance during the
COVID-19 Pandemic social distance phase. The direct interaction between the customer and

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the bank representative reduces customer loyalty. Banks have a particular emotional value
with their customers. With the loss of the human touch and the high implementation of AI in
the banking sector, customers' loyalty towards their particular bank can be reduced (Kochhar
et al., 2019) Malaysian financial institutions have generally embraced AI-embedded Fintech
adoption into the business norm. Nevertheless, the study showed that Islamic financial
institutions still show some passivity in responding to the growth of Fintech despite realising
the potential impact Fintech may have on the Islamic financial industry (Ali et al., 2019).

Social Challenges

Social challenges have been highlighted as one of the main barriers to the further adoption of
AI technologies. The increasing use of AI will likely challenge cultural norms and act as a
potential barrier within specific population sectors. Culture is a crucial barrier to AI adoption,
as people may be reluctant to interact with new technologies and systems. Social challenges
include unrealistic expectations towards AI technology and insufficient knowledge of its
values and advantages of AI technologies (Dwivedi, 2019; Sun & Medaglia, 2019). The
adoption of mobile banking has been sluggish among the senior population in Malaysia. This
study revealed the negative influence of dispositional resistance to change and the positive
impacts of performance expectancy, effort expectancy, social influence, facilitating condition
and hedonic motivation on seniors' intention to adopt mobile banking (Andalib Touchaei &
Hazarina Hashim, 2023) The potential job losses due to AI technologies are another aspect of
social challenges frequently published and debated in the media and forums. AI creates
challenges for humans that can affect the nature of work and potentially influence people's
status as participants in society. Perception and fear of Job security influence the adoption of
AI technologies. People with jobs involving lots of personal interaction are less likely to be
concerned about losing their jobs because of AI adoption (Dwivedi, 2019; Risse, 2019;
Coupe, 2019; Bhargava et al., 2021). In the financial services sector, banks face the risk of
backlash from their employees due to the potential automation of tasks, which can result in
job loss and job reassignments and could lead to possible dissatisfaction among employees,
resulting in resignations or employees being fired due to inefficiency (Kochhar et al., 2019).

DISCUSSIONS

In summary, AI's progression towards becoming the next general-purpose technology in

Malaysia's finance industry is consistent with the global trend. Specific sectors within the
industry have yet to embrace the technology entirely. While reservations remain in certain
quarters of the industry, it is undeniable that its application has significantly impacted the
new social-economic norms, especially during the COVID-19 Pandemic (Boukherouaa et al.,
2021). While AI Adoption in Malaysia's Finance Industry is not yet ready to replace human
interactions, the findings support the general notion that AI adoption in the finance industry
improves productivity, enriches job functions, and enhances the level of services and
customer experience, translating into better performance.

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It also supports Kamaruddin et al. (2023) that because of the significant importance of the
finance industry in the economic system, the institution must examine citizen data protection
and privacy concerns and re-examine its governance, including legal, regulatory and
enforcement mechanisms to see if it conforms to international practice and consider reforms
where is deem necessary given the increasing incidents of data breach.

According to Liu et al. (2021), as AI-based privacy invasion attacks are challenging to defend
against due to the sophisticated capability of state-of-the-art ML methods in extracting
personal information, privacy in some contexts is not apparent and privacy threats from
organisations and government sectors that collect and analyse data on a large scale.

AI adoption in the financial sector supports that given AI's rapid and exponential growth,
measures need to be taken to create a healthy growth environment to harness the benefits of
AI adoptions. At the same time, mitigate the challenges and concerns surrounding it. Both
institutions and implementing stakeholders play an essential role in addressing the
circumstances in view that society generally is yet to fully grasp many of the ethical and
economic considerations associated with AI and big data and its broader impact on human
life, culture, sustainability and technological transformation. Therefore, a governance
framework is required to prevent ML algorithms from automatically mining private
information, intentionally or unintentionally. From the implementing stakeholders, a more
robust security strategy is needed to regulate employees' access to prevent employees from
intentionally or unintentionally facilitating fraudulent activities by unauthorised access or
information to scammers. These measures are vital to restoring public trust and encouraging a
more progressive and sustainable adoption of AI in Malaysia. While AI offers numerous
disruptive opportunities in the Financial Technology (FinTech) industry regarding data
acquisition, analysis, protection, and process streamlining, it also poses threats and concerns
to incumbent industry stakeholders. This study provides policymakers and industry
stakeholders with crucial insights for addressing AI's challenges. It is the first study to
examine the significance and prospective challenges of implementing AI technology in
Malaysia's financial sector.

CONCLUSIONS

The development of AI as a general-purpose technology in Malaysia's financial sector is

consistent with the global trend. However, not all sectors of the industry have entirely
adopted AI yet. The implementation of AI has had a significant impact on socio economic
norms, particularly during the COVID-19 pandemic. While AI adoption is not yet ready to
replace human interactions, it has been found to boost productivity, improve job functions,
and improve consumer experiences in the finance sector. It is necessary to foster a healthy
growth environment to maximise the benefits of AI adoption while mitigating obstacles and
concerns. Institutions and implementing constituents have a role in addressing the ethical,
economic, and societal problems associated with AI and big data. Due to its importance in the
financial system, the finance industry must investigate data protection and privacy concerns,
review governance practices, and consider any necessary reforms to conform to international

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standards. As AI-based privacy invasion assaults are challenging to defend against, a

governance framework is required to prevent unintentional or intentional extraction of
personal data by ML algorithms. Stakeholders should implement robust security strategies to
regulate employee access and prevent unauthorised access or information sharing that could
aid in fraudulent activities. These measures are essential for restoring public confidence and
assuring AI's progressive and long-term adoption in Malaysia's financial sector. This study
proposes future research directions to resolve the institutional framework's limitations on data
privacy and AI adoption in Malaysian SMEs. The institutions should prioritise data privacy
and protection by scrutinising and enhancing their governance frameworks, including legal,
regulatory, and enforcement mechanisms, following international standards. Implementing
robust security measures to regulate employee access and prevent unauthorised activities that
may facilitate fraud is essential. It can help maintain the integrity and credibility of the
financial industry. The public should be educated and aware of artificial intelligence's ethical
and economic implications to promote a more informed and responsible adoption of AI to
ensure a sustainable and equitable approach. Collaboration between industry stakeholders,
policymakers, and academia should be encouraged to establish guidelines, standards, and best
practices for AI adoption in the finance industry. Future research should focus on addressing
the limitations of the institutional framework regarding data privacy and AI adoption in small
and medium-sized enterprises (SMEs) in Malaysia, given the importance of these businesses
to the economy of the country. By implementing these recommendations, Malaysia's finance
industry will be able to navigate the challenges associated with AI adoption, safeguard data
privacy, and foster responsible and sustainable growth in the AI era.

The limitation of this study is that it is a review article. Therefore, the quantitative and
qualitative approaches, such as interviews and questionnaires from respondents, could give
more insight into further research.

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