By Ravi Patel
Ravi Patel is contributing to Daily Fintech as a Guest Author. He is the co-Founder and CEO of YoloPay, a Singapore-based mobile payment company developing payment solutions for families. Prior to this, he was a consultant and business strategist in the financial services industry.
Ed Note: I asked Ravi to cover SIBOS as a reporter as I was busy as a speaker/moderator and connecting with clients for Daily Fintech Advisers.
SIBOS is truly a global Financial Services event with bankers traveling across all corners of the world to connect with banks, payment service providers, technology vendors, ‘FinTechs’, consultancies, regulators and more. This year, with the event being held in Singapore, there was a strong representation from Asian participants and Asian representatives of global organizations. So what is the Asia FinTech story? Is there one?
In this post, I will outline some of the themes, specifically relevant for Asia, that emerged most consistently.
1) Asian markets play catch-up but few are driving local innovation yet
Not many will disagree with the notion that the ‘FinTech’ phenomenon began in the US and Europe after the 2008 Global Financial [banking] Crisis where the significant turn in consumer sentiment propelled a drive for change. (Needless to say, there were many notable ‘FinTech’ innovators before but they were isolated.) However, there has been no such trigger for Asia where the majority of Asian banks, Financial Institutions and their customers were not directly impacted.
This means that there have been no external shocks to drive an urgent response in Asia – often the key ingredient to a significant shift in an industry. I would argue China is the only exception due to the Government siding with the large Tech companies, e.g. Alibaba and TenCent in an urgent attempt to challenge the rampant shadow economy, above working with the slower-moving state banks.
When I started my FinTech in 2013 in Singapore, there was almost zero interest in FinTech. In fact, even the word was unfamiliar to most. However, only after the emergence of the high profile ‘Unicorns’ such as Lending Club, Credit Karma, Square, Transferwise and many others, now banks, investors and entrepreneurs in Asia are starting to pay attention. In 2015, several accelerators were set up such as Startupbootcamp, InspirAsia, Spaze in Singapore and NestVC and FinTech Innovation Labs in Hong Kong and many venture capital firms have announced a new focus in FinTech. Even some governments are responding. The Financial Sector Technology and Innovation (FSTI) scheme that was introduced by the Monetary Authority of Singapore (MAS) in June 2015 with a commitment to invest S$225 million over the next five years.
So these are clearly very early days and there will need to be new large companies having impact before success can be called. It is imperative that suitable local problems are be identified, and not just extrapolations of Western market problems, before we can expect anywhere the near the same impact.
2) Unique consumer opportunity with the ‘Underbanked’ and the ‘Digital Native’
A very unique feature of the Asian opportunity is the demographic and socio-economic profile of the population and the ‘localized’ problems that exist or that are emerging. Two themes spoken about on multiple occasions were the 2.5 billion ‘unbanked’ or ‘underbanked’, a significant chunk being in Asia. Also the leap-frogging digital natives who were born with a mobile device (not literally) who may never see a bank branch in quite the same light as their older western counterparts. Interestingly there is a large overlap between these two segments.
This drives a local demand for new solutions, but again, it seems that the Asian Financial Services community are in the very early stages of identifying a proposition supported by a robust business model in order to target and serve these new segments.
I discussed this in more depth on my #SIBOS Day Two Figuring out how to profitably serve the Underbanked post. I believe the millenials and their younger friends will also have expectations that will demand a new sustainable business model. The early hopefuls seem today to be focused on mobile-only digital banking and payment services, new online credit services using social information and various crowd-funding platforms. The common thread between them is providing easy access to instant services on a mobile platform – minimum expectations for a ‘Millenial’ – just ask any ‘Baby Boomer’ with kids.
3) Real-time payments and remittences
Given the fragmented state of payment systems both domestically and internationally in Asian markets, building a new payment infrastructure supported by mobile wallets and mobile point of sale is extremely important. And extremely valuable. And therefore should be attractive.
Some countries in the region have made large steps forward in creating a domestic real-time payments infrastructure, such as Singapore and Australia. However, the majority are still operating multiple independent payment systems that make the cost and efficiency of money transfer, in many cases, prohibitive. I talked about some of the developments in my post on this SIBOS Day Three Real time payments going mainstream but this certainly remains very high on the agenda for most Asian markets given the status quo.
There are a lot of new local players now competing with the US giants on the merchant acquiring side, e.g. mobile Point-of-sale operators such as 2C2P, Coda Payments, SoftPay. Access to issuing licenses means that independent general-use wallets are more difficult to launch. We can expect much more growth here as these solutions can enable economic growth.
In addition, remittences is also centre stage in Asia. With more communities traveling across the region, more businesses expanding to have regional coverage and with online commerce lowering physical barriers, the opportunity for remittences is large. Given the poor infrastructure that the incumbent banks operate, the cost of moving money is extremely high. While companies like Transferwise and Azimo are making headlines in Europe where they have the scale to grow afforded by large domestic markets in the SEPA (Single European Payments Area), the complexities for Asian cross-border remain challenging, not least the growing regulatory burdens of KYC (Know Your Client) and AML (Anti-money Laundering) on innovating and operating cross-border business operations.
In summary, the Asian FinTech story is very young and only starting to emerge driven by strong local drivers and the ‘disruption’ apparently taking place in the US and Europe.
There are clear indications of the need to build propositions for new customer segments, supported by sustainable business models and also numerous opportunities to improve operational inefficiency for large financial institutions through improvements in process standards and also new technologies altogether. For example, distributed ledger technologies are being heavily explored in Singapore and Australia by both public and private sector initiatives as a means to improve processing capabilities. There is a lot of work to do.
Whether this comes from true disruption, i.e. new players replacing incumbents, or through greater collaboration, the tone of the conversation at SIBOS seemed to suggest collaboration would be the way forward. But that may not be a surprise given that it is a conference by SWIFT for banks. In any case, the Asia FinTech story is only beginning and its trajectory may end up being very different to what we see happening today in the US and Europe.