Asia is developing one of the strongest regional financial technology (fintech) sectors on earth, with investment levels increasing annually. A new report claims that high investment levels have been fuelled by the beneficial fintech regulatory policies adopted by key Asian governments.
Asia is ripe for fintech growth. Data shows that over 50% of citizens in “emerging Asia” (countries such as India, Myanmar and Indonesia which are considered “developing economies”) do not have a bank account. This creates a gap in the market for fintech firms, who are increasingly developing financial services which consumers can access more conveniently, boosting financial inclusion.
This trend has spurred fintech investment in the region to new heights. Asia now accounts for half of global fintech investment. This can be largely attributed to China, the world’s largest growing economy, where appetite for fintech like mobile payment services is huge and expanding daily. But territories such as Singapore and Hong Kong are also becoming global fintech development centres.
A new report from Forrester, a market research firm, sheds light on this phenomenon. Part of the reason, Forrester argued, that fintech is thriving in Asia, is because firms are starting to collaborate with banks, instead of competing with them for customers. The adoption of this strategy, Forrester suggests, has helped incumbents improve their customer experience and operational excellence.
The other reason that Asian fintech is booming, is because governments are creating favourable environments. Singapore’s central bank, the Monetary Authority of Singapore (MAS) has created a sandbox fintech regulatory system, as has Hong Kong’s central bank. This encourages experimentation in a controlled environment, allowing firms to create innovative solutions unburdened by restrictions. This is why, for example, IBM has opened a blockchain research and development centre in Singapore.
Together, these factors have cultivated a successful fintech market. However, Forrester warned that it could also foment a false sense of security in traditional Asian financial institutions. Commenting, the author of the Forrester report, Zhi Ying, said: “When fintech companies take an approach that is more collaborative than disruptive, it risks giving the financial services sector a false sense of security.”
Going on, she noted: “Financial services institutions don’t feel threatened by start-ups that are not out to disrupt but to collaborate, seemingly cementing the financial institution’s position as the undefeated incumbent… Truly disruptive fintech companies, such as Ant Financial and JD Finance, have yet to expand further in Asia Pacific other than China, so financial institutions in the region still have time to accelerate innovation with start-ups to reap the benefits of collaborative fintech.”
Evidence suggests that certain sectors dominate the Asian fintech scene. The majority of venture capital investors, for instance, favour its mobile banking and payment industries. However, an insurance technology (insurtech) market is starting to grow in the region, due to increasing demand for personalised services. The Asian insurtech sector is still in its infancy. But 19 of the 52 firms which presented at Singapore’s Global Fintech Hackelerator (Fintech Festival) and Hong Kong’s FinovateAsia 2016 specialised in security and risk, indicating that this segment is starting to expand rapidly.
It seems, therefore, that by adopting sandbox regulatory systems, where firms can development technologies freely, Asian governments have helped to develop lucrative fintech industries. Administrators may want to keep in mind, however, that modern digital technology is advancing very rapidly. For example, the idea of mobile payment apps such as We Chat, one of the most popular services in Asia, did not even exist five years ago. Governments must constantly look, therefore, to see how they can keep their booming fintech sectors growing and attracting more investment.
It is no surprise that the insurtech segment is starting to develop rapidly in Asia. Security has always been a big problem for financial institutions. However in an age where cyber-criminals can hack financial firms’ databases and steal vital customer information, security is a bigger issue than ever. The insurance market must evolve to address this problem, so it makes sense that insurtech is starting to thrive in Asia. It seems obvious that Asian governments must take a similar regulatory approach to insurtech, as they have done with fintech, to ensure their financial markets keep booming in future.