Htet Tayza comments on reports which suggest that Asian governments are creating the competitive regional marketplace that financial technology (fintech) firms need to thrive.
Asian fintech market
Partners from law firm Simmons & Simmons spoke on this subject recently at a briefing in Hong Kong. They argued that nations such as China, Malaysia, Singapore and Hong Kong are competing against each other to develop lucrative fintech sectors, adding that this will ultimately aid the wider Asian fintech market by promoting innovation. They warned Hong Kong’s government that if it does not adapt to new fintech developments more quickly, it could lose ground to competitors.
A recent study from Accenture, a management consulting services firm, shows that the Asia-Pacific (APAC) is driving global fintech development. APAC fintech investment levels more than quadrupled to a phenomenal US$4.3bn in 2015, before increasing by 517% in the first quarter of 2016. According to Accenture, APAC “is now the second biggest region for fintech investment after North America, accounting for 19% of global financing activity and up from just 6% in 2010.”
Forming lucrative partnerships
The Asian fintech sector holds a lot of potential which Global Trade Review (GTR) argues financial institutions (FI) are now looking to capitalise on. Speaking to a number of senior trade finance bankers, GTR learned that many of these experts are looking to invest in or purchase Asian fintech start-ups to capitalise on this fast growing market.
Explaining, Simmons & Simmons partner Ian Wood said: “If start-ups can collaborate with existing FIs they’re much more likely to succeed. One of the issues is compliance: it’s difficult, expensive and complicated. If you’re a start-up with three or four people, it’s difficult to comply with regulations. If you do that alongside an existing FI, you can rely on their licensing and compliance functions.”
Going further, Wood added: “Existing FIs already have access to the market which can be leveraged by start-ups. Finally, and most importantly, is customer trust. If you’re giving your money to someone, you have to trust someone. What existing FIs do very well is build that trust base. If you’re in fintech and you work with an existing FI, that will help you meet the trust issue.”
Navigating regional markets
Key markets present different challenges for start-ups and FIs. Simmons’ partners suggested that rather than regulating their fintech sectors zealously, Asian governments should look to their key strengths to enable growth throughout their various fintech sector. They pointed to China as a key example, noting that the country’s government is currently compiling regulatory guidelines for Peer-2-Peer lending, which is becoming increasingly popular across the People’s Republic.
On the other hand, they noted, Singapore’s new fintech regulation policy is geared towards creating a regulatory “safe space” for fintech firms to develop the technology needed for the market to thrive. This is a balancing act, as due to the Global Financial Crash of 2007-2008, there is limited public appetite for failure in the financial services industry. The key challenge for Singapore is to create a regulatory environment where fintech businesses can develop creative solutions while minimising the risk of failure and incurring the wrath of the general public.
Woods contrasted these approaches to the way Hong Kong is regulating its fintech sector. Explaining, he pointed out that Hong Kong “has always been paternalistic and is always keen on protecting consumers and therefore is going to move slowly into” the Asian fintech market. However this cautious approach could prove disadvantageous to Hong Kong, allowing it to cede ground to APAC competitors such as Australia and Malaysia which are already rolling out fintech regulations.
Promoting healthy competition
Concluding, Woods said that “this increased competition between governments for their jurisdictions to become fintech hubs is providing a very healthy environment for fintech development in Asia.” Due to its incredible potential, many FIs are looking to team with start-ups to tap into Asia’s increasingly lucrative fintech sector. It will interesting to see how Asian governments create the regulatory framework required to attract emerging fintech investors, especially as various players are taking different approaches.