Asia’s Fintech Race: Trends, Regulations, Lessons For The West
While on the global scale fintech is growing rather rapidly, the industry is absolutely booming in Asia, and particularly in China.
Asian fintech companies continue their growth and overseas expansion. The Chinese fintech firm Ant Financials’ payment arm Alipay has recently started partnering with Finnish mobile payment provider ePassi to launch mobile payments for shopping and services on Finnair’s flights, therefore, marking a significant milestone in the development of mobile payment services in air.
Alexander Yin, chief financial officer of TCG, the parent company of the Finnish mobile payment provider ePassi, said:
"In the fintech and mobile Internet sectors, China is a global leader thanks to business, innovation, market size and population density."
Asia leading global fintech revolution?
Indeed, while on the global scale fintech is growing rather rapidly, the industry is absolutely booming in Asia and particularly in China. Last year was the year fintech became legit in the region, with everyone from banks to governments starting to pay more attention to the industry development.
According to a report by KPMG and the Australian investment firm H2 Ventures, five of the world’s top 10 fintech firms are from China. Moreover, EY reports China being the homeland of fintech unicorns - eight of the world’s 27 fintech startups worth more than $1 bln are from China.
Last year Asia surpassed the US and Europe on fintech investment, with investment volume by the end of the year reaching $1.2 bln versus $900 mln in the US and $200 mln in Europe.
So what is it there in the region that made this happen? Strong startup culture, significant venture capital availability and the need for alternative finance instruments have definitely contributed to its fintech boom. But what are the other factors that drive fintech growth there?
Increasing role of regulators
Regulations play a big part in encouraging the growth of fintech industry in the region. For example, the Singapore government is set on the path ensuring that regulations enable the sector’s continuous growth.
The Monetary Authority of Singapore pledged to create a regulatory sandbox and an innovation lab for fintech startups to test their ideas without compromising their users’ security also ensuring their compliance with local laws.
This example inspired other countries to follow. Malaysia and Indonesia have put forward a series of regulations to make sure that everyone is protected - from the market players to consumers. Thailand has been looking to create regulatory sandboxes of their own.
Japan has advanced in regulating digital currency exchanges, while the Japanese Ministry of Finance and the Bank of Japan have established working groups to unveil the country’sfintech potential.
Positioning itself as the gate between the East and the West, Hong Kong started actively supporting startups from around the world helping them to come there and use it as a launchpad for the rest of the region. It is actually becoming a perfect meeting and partnership point for industry experts not only from Asia but from the rest of the world.
Serving the unbanked
Matthew Dooley, the founder of Connected Thinking, which provides consulting and training services for banks, insurers and large corporations helping them to become aware and take advantage of technology innovations, shared his view on the fintech revolution in Asia during the Next Money meetup in Hong Kong.
“Asia is not like any other region, in the sense that there is a lot of different problems, different lifestyles and different cultures and fintech is actually solving those kinds of problems,” Dooley explains. “There’s a real diverse collection of startups.”
Companies trying to digitize banking services and extend them for the unbanked continue blossoming in the region. Mobile payment services providers are expanding and regulators are being quite proactive in setting up fintech liaison offices. A lot of disruption is going on in terms of creating simple services for the customers.
“Asian economies are mobile first economies,” notes Dooley. “In China, for instance, 72 percent of the population has smartphones, therefore it is obvious that the main intention here would be to address this kind of persuasive, viral behaviors that are sweeping traditional experiences in the whole areas and regions.”
Tapping on the increasing adoption of smart devices in Asia, many companies are offering financial services through the Internet and mobile networks. This enables the unbanked to gain an access to banking services and mobile payments services. This push to access the unbanked through digital channels is believed to continue to rise in the region.
“What Asian fintech companies really nailed here is the Online-to-Offline and Offline-to-Online services, creating this extraordinary wholly connected experience,” Dooley continues. “And this connected customer experience is something that everyone is striving to build at the moment, including traditional financial services providers because the competition from Internet companies is growing.”
New generation of entrepreneurs
The rise of fintech is indeed forcing financial institutions to embrace technology innovation to gain a competitive advantage against startups. Traditional banks are challenged to find a way to remain relevant in this race.
Many banks now focus on innovation anchored around digitization to further enhance processing efficiency, making the customer experience more interactive and intuitive and using structured and unstructured big data analytics to put their customers and the center of their business.
“The thing that often holds them back is the skill set within the organization, the mindset of the individuals and the culture and structure within the organization.The key factor here is reinventing this structure and integrating the customer-centric approach, finding the connection with the customer, finding the passion for understanding their customer and solving their inconveniences in an innovative way. The design thinking is the key.”
What gives a competitive advantage to fintech startup, for example, is that they do not have this conservative thinking, they are proposing innovative solutions based not on the legacy systems because they simply do not have those legacy systems.
New technological advancements accelerated the emergence of a new generation of entrepreneurs looking to reform the existing ecosystems and offer a faster and more convenient customer experience.
Asian fintech companies have big visions and these big visions are much more different from those in the West. What we are seeing in Asia is a strong collaborative approach that goes back to the communist fundamentals.
“They are driven by socialism, they do know how to build communities,” Dooley explains. “And when you look at those communities, they actually do know how to ensure inclusiveness and connect that whole community.”
Looking at the adoption rate of mobile payment services providers like AliPay, which is far beyond anything that has been done in the West, one cannot help but wonder why is it so that China has had such success with these technologies?
What is it about the Asian region in general that makes it so different from others in terms of financial technologies adoption? “Like most of the economies it was a cash-based economy, with a whole bunch of problems that caused a lot of frustration,” Dooley shares his view. “What services like Alipay managed to bring to the table was the simplicity of the experience meaning that anyone could actually use these services.”
“They took other technologies from other parts of Asia – for example, Korea and Japan, that came up with the QR code, a simple technology that was able to link the physical with the virtual,” Dooley concludes. “As a result, we have got this whole connected ecosystem that allows everyone to live their lifestyle without cash.”
Demonetization policies that are being introduced in an attempt to get the cash out of society pursue rather simple intentions – to ensure higher transparency for the governments but also ensure simplicity of the lifestyle for citizens while cutting out the costs for maintaining of money systems.
Lessons for the West
The path of the Asian fintech evolution is perhaps what Western fintech companies should be looking at. Ghela Boskovich, Director of Global Strategic Business Development and Marketing at Zafin says:
“Asia has waited a little bit longer in terms of regulations in the industry. So they are learning lessons, they are taking a much more measured approach and it’s not ‘Let’s try this’, it is actually ‘Let’s sit and strategize and calculate this.”
Perhaps the most interesting thing that differentiates the path of Asia in embracing the fintech revolution is that due to this diversity of cultures, the banks, regulators, emerging businesses and trade industry players are actually approaching this diversity as something really important and they are attempting to ensure inclusiveness in the industry driving it forward.