Asian consumers are at the forefront of digital innovation and are embracing digital and mobile solutions across all aspects of their lives. Payments, banking and financial services are no exception. This has translated into a huge appetite for fintech and as a result, customer satisfaction and innovation are booming. A recent KPMG report on fintech in the APAC region shows that venture capital-backed investments in fintech companies reached $1.2 billion in the third quarter of 2016, accounting for approximately half of all such funding globally.
While traditional banks still hold a strong influence across the world, fintech start-ups are developing product offerings that match and could potentially exceed those of the industry’s incumbents. A growing culture of open collaboration is enabling fintech start-ups to take advantage of the trust that traditional banks already possess, while banks can tap into the innovative solutions that fintechs offer. Consumers and businesses alike benefit from such partnerships, rather than subscribing to fragmented services and platforms. Two countries in particular are leading such collaborative initiatives and are quickly becoming fintech hubs for the region.
A tale of two fintech cities
Hong Kong has long enjoyed being one of the financial centres of Asia. Hong Kong's government has recently sought to spur the development of fintech through a HK$2 billion fund to encourage development in technology and innovation in the field. It has also developed a fintech ‘sandbox’ that allows banks to experiment with new financial technologies that do not meet compliance standards. Banks in Hong Kong have been looking to expand their offerings through fintech innovations. An example of this is when HSBC recently launched a fintech R&D lab in the country.
The Singapore government has recently been more optimistic in its efforts, with the country rapidly becoming a global name in fintech. A government-led ‘Committee on the Future Economy’ recently released a report highlighting fintech as one of the key sectors for ensuring continued growth. Banks in Singapore have clearly recognised the value of fintech innovations in improving the customer experience and differentiating them from traditional offerings. DBS recently opened the DBS Asia X innovation facility and also hosts regular API (application programming interface) hackathons involving start-ups, SMEs and social enterprises. Similarly, OCBC and UOB are also pursuing collaborations with fintech start-ups to further improve their own products and services.
The collaborative model of fintech in Asia
There is a clear recognition in Asia of the value of collaboration and innovation, as evidenced by the examples of Hong Kong and Singapore, with other countries starting to follow suit with similar initiatives. Thailand and Malaysia have set up regulatory sandboxes of their own to encourage innovation. The newly appointed Governor of the Central Bank of Malaysia, Dato’ Muhammad Bin Ibrahim, last year called upon financial institutions to embrace the fintech revolution as an opportunity. Maybank, the largest bank in Malaysia, has made moves to tap into the potential of fintech start-ups, with a spokesperson also stating that it aims to be a central member of the fintech community in the region.
Indeed, the spirit of collaboration is not only limited only to partnerships between banks and start-ups, but also is being fostered between Asian countries as well; the Monetary Authority of Singapore (MAS) signed an agreement towards the end of last year with the Korean Financial Services Commission (KFSC) of South Korea to pursue greater cooperation in fintech. Such efforts will continue to be essential for the development of fintech in the region, given the regulatory tangles that can occur in areas such as cross-border payments.
The acceleration of faster payments and open APIs
Expectations for digital payments in Asia are influenced by the lingering popularity of cash payments with its immediacy and minimum of fuss, though cashless systems are starting to see rapid adoption. Asian consumers are also famously mobile-first, turning to their smartphones for everything from shopping to banking services, which means that they are also used to the speed and convenience that mobile solutions usually emphasise.
Singapore is an early adopter of digital and real-time payments. Ravi Menon, Managing Director of MAS, announced the goal to make Singapore an electronic payments society with streamlined regulations to encourage the use of Fast and Secure Transfers (FAST) services, stating they are “grossly under-utilised”. He went on to say that the social costs of using cash and cheques approximated 0.5% of the country’s GDP, or about S$2 billion per year. Figures from MAS show that the use of such immediate payments systems do not cannibalize electronic transactions, but rather increase them overall.
At the same time, another hot topic in Asia is open APIs, which allow banks to integrate the services and capabilities offered by fintech start-ups into their own platform. The creation of open APIs could be the key to developing a single delivery platform for financial services, and is another part of the larger trend towards collaboration and partnerships in the region, as well as the movement towards an open payments culture.
Next on the fintech agenda: Security
These are exciting times for fintech in Asia, with new opportunities opening up for both new and established players. However, as important as it is to work together to foster new innovations and business efficiencies, it is also important that all parties continue to be mindful of new security and fraud management needs.
As payments increasingly converge towards mobile and real-time payment formats, they require flexible payment engines. However, integrating existing legacy systems with newer systems or platforms can be a challenging and costly exercise, with many potential security issues that businesses need to stay on top of. Real-time payments also require institutions to adapt to real-time fraud management.
Similarly, while the use of open APIs can help facilitate collaboration and integration between systems, all parties involved will need to ensure that the protection of customer data remains a top priority.
At the same time, companies are finding that placing too much emphasis on security measures, especially ones that involve cumbersome steps and procedures for customers, can lead to customer experience issues. A fine balance thus needs to be struck between security and ensuring that innovation and customer experience remain unimpeded.
The challenge now is for organisations to evolve with the new, open payments ecosystem while ensuring security measures are sufficient. Banks are able to leverage fintech start-ups for the innovation and improved customer experience they bring to the table, while the banks themselves contribute their vast experience with data, resilience, reliability and customer protection. All in all, this makes the Asian region one to watch in the coming years when it comes to fintech growth.