From large corporates looking to drive innovation, to emerging markets seeking ways to serve the underbanked, there are plenty of opportunities for Asian fintech developers. But will strict governments and regulators stifle their attempts to deliver?
Fintech adoption in Asia is rife. In fact, there are signs that the East will soon eclipse the West in terms of activity and growth.
This is all thanks to the region’s new sense of openness to regulatory innovation, perhaps best exemplified by the Monetary Authority of Singapore, as well as the growth of Open Banking and the increased acceptance and use of application programme interfaces (APIs) – the building blocks of the digital economy.
“The rise of technology, and fintech, in Asia is here to stay,” says Martin Keelagher, CEO of Agile Automations. “The millennial generation especially expects access to resources instantly, and often for free, as we can see through the likes of TikTok and Facebook. And this attitude extends to financial services too.
“A lot of the giant leaps forward in technology and infrastructure that we see in Asia are a direct benefit of not having the legacy systems we have in Europe and the US – they can start from scratch designing systems that truly meet the needs of consumers.”
Despite that, the sector in Asia is not without its challenges. While many of the headline stories focus on the Chinese tech giants such as Alibaba and Tencent, Beijing looks to be toughening its stance on the sector.
The $35bn Hong Kong IPO of China’s fintech poster child Ant Group, part of the Alibaba group, was pulled in November, for example, because of its failure to meet government requirements.
This has slowed the mounting hype surrounding Ant Group and the wider Chinese fintech scene – and it’s unlikely that the strict Chinese administration will ever truly allow a fintech platform to completely bypass its banking system.
Another challenge on the horizon for the sector is how China’s burgeoning payment platforms will interact with China’s upcoming Central Bank Digital Currency (CBDC), currently being piloted by the People’s Bank of China.
Of course, Asia as a region encompasses far more than just China. And while there are issues to be ironed out in China specifically, plenty of other regions continue to thrive – from fast-growing younger economies such as India, which is home to more than 2,100 fintech companies, to the more mature markets such as Japan and the island hub of Singapore.
Japanese financial institutions particularly are beginning to realise the power of fintech and are actively looking for investment and collaboration opportunities.
Sumitomo Mitsui Banking Corporation (SMBC), one of Japan’s leading banks and one of the world’s biggest lenders, has recently announced that it has invested $30m in UK challenger bank OakNorth.
But it’s Singapore in particular that’s vying with the likes of London and San Francisco for the title of the world’s most pre-eminent fintech hub.
A dynamic island hub
Singaporean digital challenger banks have adopted a number of different new business models to increase operations within the wider banking sector.
According to a new report from the Singapore FinTech Association (SFA), collectively they’ve experienced 300% growth in the past five years.
The report’s authors also predict that South East Asia is about to see “the birth of home-grown technology giants and innovative non-financial services firms moving to acquire digital banking licences”.
Keelagher says: “Many of these fintech solutions are geared towards helping small businesses, or micro businesses, to access alternative credit and funding streams.
“Digital payments have seen an incredible rise, well above the average in many western countries. They not only make life more convenient, but also may lay the foundations for more sophisticated financial services.
“However, this will obviously lead to the need to balance the convenience of technology with protections for customer privacy and their right to own their data.”
The GDP of the five largest ASEAN economies – Indonesia, Malaysia, Thailand, the Philippines and Singapore – is expected to reach $4.3trn by 2030. However, a significant segment of the population of this ‘ASEAN 5’ remains underserved by banks, or indeed completely unbanked.
To counter this, Indonesia, among others, has been making large investments in its fintech ecosystem. In October 2020, BRI Ventures, the investment division of Indonesia’s oldest bank, BRI, announced a $250m fund to invest in fintech initiatives to create ‘real value’ for the nation’s residents.
The fund has already made strategic investments in digital wallet provider LinkAja, SME-focused firm PayFazz, and peer-to-peer lender Investree.
“Technology is supporting the inclusion of more and more people in the financial system,” explains Keelagher.
“This is huge. Until recently, roughly half of the estimated two billion unbanked people around the world lived in Asia. The development of fintech solutions and mobile transactions management has opened up new markets for providers, allowing for a more accurate view of national savings that can help to fund future economic growth.”
Indonesia’s financial inclusion rate has reached record highs, hitting 76% last year, according to the country’s Financial Services Authority (OJK).
The nation’s regulators and fintech firms now need to focus on balancing regulations with responsible innovation. As reported in The Jakarta Post, the OJK had to suspend the operations of 2,591 fintech companies between 2018 and 2020.
Providing new rails
Going a step further, some of the region’s brightest fintech minds are creating solutions to link up the plethora of new digital services. Singapore-based start-up Thunes, for example, is developing a cross-border payments network to make financial services more accessible in emerging markets.
“You’d be surprised to hear that the banked population in many emerging markets is around 75%,” says Peter de Caluwe, CEO at Thunes. “But it’s largely in the form of telecom operators providing mobile wallets, because these countries are underserved by the traditional banks.
“Our mission is to build new network rails, acting like a SWIFT for emerging markets by connecting fintechs, telecoms companies, banks and so on – but also going a step further to move and disburse funds, acting as a full settlement house.”
It’s not only Thunes that’s exploring better rails for a digital age. In September 2020, a network for cross-border payments was launched by Microsoft and Nick Ogden, founder of WorldPay and a prominent figure on the Channel Islands fintech scene.
Ogden’s new company, RTGS Global, has collaborated with Microsoft to develop a new system that allows banks of all shapes and sizes to gain complete visibility of liquidity between their counterparties for the first time.
The platform has the capacity to safeguard existing commercial banking relationships while changing the way they work – in many cases moving from cumbersome manual processing to an automated system that improves efficiency, reduces costs and enables a much higher level of customer service.
In a nutshell, RTGS Global is overhauling the tired machinery of correspondent banking.
It’s this level of ambition and innovation that Jersey and Guernsey need to draw upon to compete with the emerging fintech hubs in Asia.
The good news is that fintech is becoming swiftly embedded across the islands’ core sectors, supported and encouraged by initiatives such as Digital Jersey’s Sandbox Journey.
A recent survey by EY revealed that 88% of local businesses viewed fintech as a real opportunity – whether it’s the ability to harness the latest AI developments to offer robo-adviser hybrids that boost efficiency, or tapping into the data available in the Open Banking environment to better assess credit risk and affordability.
Asia is busy consolidating its numerous resources to position itself as a fintech powerhouse. And by drawing on its natural advantages, the Channel Islands should be confident of keeping pace.
• This feature was first published in the Asia Edition of Businesslife in December 2020