FinTech this. FinTech that. When fintech took the world by storm five years ago, no one could have predicted its global impact, or more specifically its effect on countries like the US, UK, Germany and Russia. Since then, we’ve heard about hundreds of new startups, the emergence of tech competitors in finance and banks investing in technology. One thing is for certain, the financial sector has undergone enormous changes since the fintech revolution, with a promising, dynamic and bourgeoning area solely dedicated to creating disruptive businesses.
Asian financial systems, on the other hand, were a bit wary when it came to adopting these new technologies and innovations. Compared to other continents and countries, the Asian banking sector seemed underdeveloped and slower on the uptake of this new and pioneering financial expertise. However, it was just a matter of time before the Asian banking system became bigger and better than its European counterparts, and Asia is now experiencing a strong increase in fintech investment as overseas investors search for opportunities in emerging markets.
Global fintech investment hit US$12 billion in 2014, but Asia accounted for only a little over 6% of that. FinTech had, up until then, been mostly a European and American industry, but investors anticipated that the next fintech wave was about to hit Asia, and the tipping point came about four years ago, when we witnessed a quick growth of new financial innovations.
Then in 2016, EY and DBS, the main Singaporean bank, released a report in which China was declared the ‘undoubted centre of global fintech innovation and adoption’. Moreover, China is not the only Asian country making waves in the finance sector. Many regions in Asia are now developing major technology ecosystems, and the finance sector is a big part of this trend. In 2016, overall fintech investments in the Asia-Pacific region reached $10,5 billion, the highest amount witnessed to date since 2010. And now — in 2018 — every bank in the world has their eyes on Asia. Why the sudden turnaround?
Firstly, four of the largest fintech unicorns are from China and Ant Financial, the financial arm of the tech giant Alibaba, is the largest unicorn in the world, with a value of $150 billion. Secondly, Asia, with its innovative policies and startup-friendly environment, is one step ahead of the rest of the world when it comes to fintech. Thirdly, since its demonetization strategy, India, another major Asian market, has witnessed some exciting improvements and more than 52% of people report to have used fintech there. This lies in sharp contrast to the US and world average, which is a much more modest 33%, according to the Fintech Adoption Index by EY last year. Lastly, the future looks bright as the fintech industry in the Asia-Pacific region is expected to grow at CAGR of 72.5% from 2015 to 2020, reaching an impressive $72 billion.
It’s no secret that many new innovations have already radically transformed the way people shop, pay, perform banking transactions and even purchase insurance. And the ongoing optimistic outlook is typically fueled by growth in digital payments, alongside the new methods of crowdfunding using blockchain. As Asian banks were initially slow and inflexible, inhibiting the adoption of many new payment technologies, smaller players in the sector stepped in and managed to gain a market hold. Just like that, the non-banks and non-financial firms in Asia helped to transform the financial sector, highlighting that bringing new, fresh perspectives to traditional, and often outdated methods, can help reap rewards. Alipay, Tencent and Paytm are just a few names in the Asian market that have entered the financial industry through their payment platforms, and, armed with big data and large user bases, aim to extend to most financial areas from micro-lending to wealth management.
Alibaba was the first one to adopt this kind of strategy, and Alipay was launched back in 2004, looking in part like a Paypal-type service, facilitating transactions on its e-commerce website. Since then, a lot has changed, and now Alibaba – with help from its financial arm – Ant Financial – has managed to enter the loan market, giving credit to drive consumption on its online shopping platform. The numbers are impressive too. Since commencing in 2017, its lending division has already doubled and with a $487 billion market cap, it is one of the world’s largest businesses. Tencent, which is best known for its social media platform WeChat, with almost 890 million active users, is transforming its payments service into a comprehensive financial services platform. Another Alibaba backed mobile payment solution, Paytm, aims to become the world’s largest digital bank. It already has a license to become a Payment Bank, a new concept introduced in India in 2016, that can accept a restricted deposit of up to $1,533 per customer. The Chinese duo – Alibaba and Tencent – are the driving forces behind the importing of large sums of capital and vast business experience into Southeast Asia’s most promising startups. Another startup, Grab, which operates in Southeast Asia, is expanding its digital platform GrabPay into micro-lending and credit services.
However, when writing on fintech there is one particular niche which cannot go unmentioned. Somewhat surprisingly, telecom companies are entering the financial arena now, becoming more and more active in the fintech space. Igor Pesin, a fintech investor and partner at Life.SREDA VC fund, says that the main reason for this is that ‘regarding customer base, they are even bigger than traditional banks, and since their average revenue per user is decreasing due to
mobile internet and all those big trends, they see an opportunity here. They could become a power in finance greater than banks, at least in emerging markets.’
One thing is for certain, the financial industry in Asia is transforming fast, and active support and initiatives by financial regulators like the Monetary Authority of Singapore, Bank Negara Malaysia and Bank Indonesia, have enabled the Asia-Pacific fintech ecosystem to grow significantly in the last year. Additionally, all five banks in China have allied with tech giants and built partnerships, once again highlighting the huge impact brought about from the adoption of fintech.
Tencent started working with the Bank of China — one of China’s largest state-backed lenders — on a new cloud platform, which is expected to provide internet banking and funding solutions for customers. China Construction Bank opened China’s first ‘unmanned bank ‘, which for some might sound, and look like, a scene from a movie. On entering this bank, you are greeted by robots who will answer your questions and offer you a touch-screen to pay your utility bills, alongside many other ski-fi, futuristic activities. Singapore’s largest bank – DBS – has invested an astonishing amount of money – $3,7 billion – in technology alone. It launched “digibank“ (the first mobile-only bank with 82% of requests automated using AI in India) and the world’s largest API developer platform, which consists of 155 API’s in over 20 categories. Over the last 3 years, Visa and PayPal have also launched innovation labs in Singapore and are now working together with the government on various blockchain projects. Additionally, Union Bank positions itself as the Philippines’ first blockchain-enabled bank. Edwin Bautista, Union Banks president and CEO, clarified that while many banks may have clients who deal with blockchain technology, Union Bank is the first bank in the Philippines to implement blockchain into its internal processes. And they are not stopping there. Union Bank is also using blockchain technology in a nationwide project that aims to connect and empower the entire country’s rural banking system.
When discussing fintech it is impossible to avoid talking about cybersecurity as it is one of the most central features of electronic commerce, and without proper protocols in place, online retailers put themselves and their customers at risk of payment fraud. Asian consumers don’t worry about online security as much as Americans and this is another reason why fintech is reaching such impressive heights in Asia. According to a survey by Nielsen, the US population was the most concerned with online security of all the nations surveyed, with 59% saying they would be unwilling to shop online with a smartphone, naming privacy issues as a chief concern. In Asia, on the other hand, the percentage was significantly lower – only 35% of consumers in the Asia-Pacific reported a similar apprehension. This difference in attitude might be for the best when it comes to
fintech in Asia as a lot of Asian banks are starting their own blockchain and virtual currency experiments, bravely going forward with new solutions and inventions. For example, the People’s Bank of China plans to issue their own virtual currency and is actively taking steps towards reducing the traditional distribution of notes, which will, in turn, bring down the high cost of circulation.
Asia continues to progress with the speed of light, certain that such widespread adoption of fintech will continue to do magic things in this continent. It is reshaping the financial services industry, making it more customer-focused than ever before and digitalization is now a new paradigm not only for leading banks and financial institutions, but for many smaller players in the sector as well. Fintech doesn’t necessarily have to be something absolutely new – it just must be a new way of thinking. That’s why this fintech boom — although global — is truly different in Asia.