Why is fintech flourishing in Singapore? Fidor CEO maps out innovation

By Matthias Kröner | 4 December 2017

With all of the talk about how London’s fintech scene is likely to fare after the UK leaves the European Union, you could be fooled into thinking that it was the global capital for this particular tech industry sector. However, some of the most exciting innovations in fintech are actually taking place more than 10,000 kilometers away.

Since it became the Republic of Singapore in August 1965, separating from the Federation of Malaysia, Singapore has enjoyed a fascinating journey into becoming one of the most economically successful countries in Asia.

The nation effectively transitioned from being a third-world economy into a first world economy within a single generation. While much of this was driven by Lee Kuan Yew’s support for entrepreneurship and rapid growth, Singapore’s geography has helped too. The Port of Singapore is the second busiest in the world, and much of the country’s growth has been built on the import of raw materials that are then refined and exported.

According to the World Economic Forum, Singapore’s economy is the most open in the world. Tax rates are low and the workforce is highly skilled. The standard of living is high, and the population are highly aware of new technologies, especially in terms of digital banking, according to McKinsey. It’s also the regional hub for wealth management, and more than 200 banks have operational headquarters in Singapore. So Singapore’s foundations in trade and finance - though not nearly as long-standing as London’s - are solid, which begins to help us answer the question of why fintech is flourishing here.

When you take a closer look, you can see that the conditions here are near perfect for fintech. For a start, Singapore is the top market in Asia where corporate governance is concerned. It beats the competition in corporate governance rules and practices, enforcement, political and regulatory environment, accounting and auditing, and corporate governance culture, according to CLSA's Corporate Governance Watch report of 2016. This makes it a good country to incorporate a business in, even if the company is targeting a neighbouring Asian market rather than Singapore itself.

However, this isn’t likely to be top of the list of priorities for many of Singapore’s fintech startups, as they are largely still in seed or early growth stage. Saying that, though Singapore is home to two-thirds of the most heavily-backed fintech startups in Asia - for instance Fastacash, a social payments platform. Indeed, many Singaporean startups focus on payments and remittances - Instarem, which recently closed a US $13m Series B funding round is another good example. But while the scene is nascent, it is clear that the conditions in the city-state will help it to grow very quickly.

November 2017 will see Singapore’s Fintech Festival take place for just the second time, ensuring that Singapore is able to market itself to the world and brag about its fintech credentials. This event is just part of a government-led initiative to promote fintech, alongside setting up the Looking Glass Innovation Lab, appointing a Chief Fintech Officer and setting up a Fintech & Innovation Group that offers advice to new businesses.

However, one of the most significant moves was the creation of a regulatory ‘sandbox’. The Monetary Authority of Singapore (MAS) - the country’s central bank and financial regulator - was concerned that the complicated regulatory situation could deter fintech startups and innovators, and set up the sandbox to enable both financial and non-financial institutions to experiment with fintech solutions without running into red tape.

This means that fintech platforms can focus their efforts purely on building and testing their concept, getting to the minimum viable product (MVP) stage as early as possible before worrying about complying with local regulations. This makes it the perfect market for experimentation - and if they are thinking about the longer term, these fintech companies will realise that they are also in a geographically advantageous place to tap into many large markets in the APAC region when it comes to expansion.

The government’s willingness to embrace innovation in the financial services industry has to be commended, and other hubs looking to make a mark in fintech should take note. MAS is the only financial regulator that is currently officially backing a fintech accelerator and has committed US $225m to growing the sector over the next five years.

While the MAS is clearly offering a great deal of support to the industry, there are plenty of non-governmental schemes helping the sector to thrive too. Private accelerators such as, OCBC Bank’s Open VaultDBS Accelerator and Startupbootcamp Fintech Singapore play a role not only in the development phase of the startups but also in providing funding for growth and expansion.

But if Singapore is to become, as Deloitte said, "a leading international financial centre and a serious contender for the global number one spot in fintech", it cannot do it alone. Fortunately, MAS has recognised this and more than one year ago it established a scheme with the Financial Conduct Authority to help UK fintech firms and investors expand into Singapore, and at the same time to attract Singapore’s fintech companies and investors to the UK. There have also been efforts made to strengthen ties with the South Korean and Chinese financial industries.

While we haven’t seen a true giant of fintech emerge from Singapore yet, it is only a matter of time. With perfect conditions for establishing and growing a fintech business, Singapore is already being talked about in the same breath as London, New York, Silicon Valley and Hong Kong. But these conditions - the most crucial of which is the supportive government policy - will likely see it rise to another level above the other hubs. Financial regulators around the world should take note.

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