Today, digital financial services are as necessary as roads and bridges.
The financial technology (fintech) market in Asia-Pacific is witnessing a rapid boom, as the financial sector shifts to a new age of technology and transparency propelled by innovation and financial inclusion.
Fintech has already revolutionized how we raise money for business projects, how we transfer money abroad and how we manage and plan our finances. The emergence of innovative solutions such as next-generation payments, peer-to-peer (P2P) lending, security and biometrics, blockchain, and artificial intelligence (AI) have helped automate and streamline processes and enabled financial inclusion with faster, cheaper, more convenient and secure delivery of financial services.
If used wisely, fintech could potentially provide the glue needed to get finance and the real economy to work efficiently to catalyze sustainable development.
Asia is driving fintech worldwide. Over the past two years, fintech financing in the region has more than doubled from US $ 5.2 billion to US $ 11.2 billion, contributing nearly 43 percent of the US $ 23.2 billion in global fintech investment.
Six of the seven largest fintech companies are from Asia, where the most prominent hubs—Singapore, India and the People’s Republic of China (PRC)—are becoming centres of global fintech innovation and adoption.
The boom in investment also reflects an underserved market demand and faster adoption of technology. It took two years for P2P transaction volume to exceed US $ 5 billion in the PRC, compared to four years for the US. PRC-based Alipay, Lufax and ZhongAn Insurance have become world-famous for their disruptive business models.
Ant Financial is using the Alipay payment application to serve Chinese tourists around the globe and is establishing its presence outside the PRC by buying a share of a local business and putting Ant Financial’s technology into the backend to create an e-wallet, with the domestic partner doing the marketing.
To tap into the enormous opportunity, WhatsApp is foraying into the payment space and Facebook is acquiring eMoney licenses. Alibaba and Tencent are investing in fintech companies all over Asia, while Amazon is looking for new ways to provide financing for the small and medium-sized enterprises (SMEs) who trade on their platforms as well as consumer loans to its customers.
Asian governments supporting fintech
Despite all this investor interest, fintech is still a relatively new concept. It would be wrong to assume that its adoption is occurring uniformly across the Asian region.
Asian policymakers have been quick to recognize the unfolding opportunities and are developing smart policies to drive the fintech revolution. Recent initiatives by several governments in the region have demonstrated their commitment to the sector by supporting fintech investors and innovators in advanced mobile payment technology, alternative lending and AI-driven solutions.
Thailand’s national e-payment system aims to make the country cashless. The Monetary Authority of Singapore has launched the National Research Foundation Fintech Office as a one-stop virtual entity to support all fintech investment. Other countries in the region are trying to catch up with the global trend. On regulation, the popularity of regulatory sandboxes across the region signals an understanding by financial sector supervisors that new technologies often require new regulatory approaches.
Bank Negara Malaysia, the Indonesian Financial Services Authority, the Bank of Thailand and the Bangko Sentral ng Pilipinas have all instituted sandbox initiatives that support innovation and allow regulators to calibrate regulatory, policy and societal impact of new products before broader adoption.
‘Regtech’ is also expected to attract more attention from investors, particularly related to anti-money laundering efforts and digital identity management.
Among fintech start-ups in Asia, there is low level of customer adoption, which clearly shows the product hasn’t been developed involving potential users. Most start-ups are focusing on local problems and not thinking big in terms of scaling their business to a global level.
Governments are willing to provide funding for nascent fintech enterprises to spur innovation. For instance, fintech entrepreneurs in Malaysia can tap into the Cradle Fund for equity financing. In the PRC, more advanced fintech start-ups have received financial support from state-owned enterprises, like Ant Financial obtained from the China Development Bank and China Investment Corporation – the PRC’s sovereign wealth fund.
ADB in early stages of digital investment
The digital space is also increasingly becoming more critical for multilateral banks, traditionally known for infrastructure funding. Today, digital services are as necessary as roads and bridges.
The Asian Development Bank (ADB) is in the early stages of digital investment and is open to piloting cutting-edge technology like AI and virtual reality.
The Mekong Business Initiative, a joint venture between ADB and the Australian government, is working with fintech initiatives in Cambodia, the Lao People’s Democratic Republic, Myanmar and Viet Nam. It has launched Kiu, a new e-commerce platform to help SMEs in the subregion to gain access to developed markets. Kiu represents a game-changing union of technology, private sector ingenuity and overseas development assistance to propel economies forward.
In partnership with Oradian, ADB is also supporting Cantilan Bank to pilot cloud-based core banking technology in the southern Philippines.
These examples demonstrate how digital services can unlock financial opportunities for the unbanked and underserved segments of the population.
The clock is ticking for Asia to assume global leadership in fintech. Collaboration between governments and fintech industry players will be vital to navigate the complex ecosystem of international financial regulations, security protocols and payments infrastructure.
Forward-thinking governments need to use a range of incentives like fast internet, high mobile penetration, relaxed visa rules and tax incentives to attract fintech start-ups to Asia’s unique marketplace and culture.
This could lead to the creation of a Silicon Quadrilateral between Seoul, Beijing, Singapore and New Delhi – a true Asian avatar of Silicon Valley.
(Arup Kumar Chatterjee is Principal Financial Sector Specialist, Sustainable Development and Climate Change Department, the Asian Development Bank)