The Fintech Sun Rises in the East: Asia is the new hotbed

by Mohit Joshi, President, Infosys

The world’s banks are watching Asia interestedly. Any which way you look, Fintech momentum has now shifted to this part of our world. In 2018, global venture capital invested a record $39.57 billion in Fintech. While the United States attracted the maximum investment, this was followed closely by Asia which saw a massive 38 percent increase over the previous year. Asian countries, especially China – home to 4 of the biggest Fintech Unicorns – along with Japan and Korea are leading the world in Fintech innovation. These three nations, plus India and Taipei, accounted for nearly three-fourths of the Fintech patents filed worldwide last year.

There are several factors at work behind the Asian Fintech surge, playing out differently in different markets. Conducive market conditions, such as the presence of a young, digital-savvy population and unfulfilled demand in unbanked pockets, rank near the top. Fintech has found its sweet spot in technology-literate but financially underpenetrated markets. Take Indonesia, where half the country’s substantial population is below 30, and with smartphone penetration expected to touch 50 percent this year, is ready to consume innovative financial products on mobile. In China and India, this phenomenon is already underway, with more than half the adults using Internet or mobile claiming regular use of Fintech services. In Southeast Asia, a sizeable unbanked population that is willing to use Fintech products is creating one of the fastest growing Fintech markets in the world.

On the other hand, Singapore owes its Fintech success in no small measure to an open environment and a highly proactive regulator. The Monetary Authority of Singapore was adjudged “Central Banker of the Year” (for 2018) for its Fintech initiatives and performance on the financial stability and supervision front. The city-state has always been at the vanguard of digital payments, with its nearly 500 Fintech firms offering solutions ranging from peer to peer payments and money lending to cryptocurrency trading and crowdfunding.

Many Asian nations have lighter financial regulations, enabling their Fintech industry to grow without constraints. In some countries the sector has benefited from active regulatory support. In 2018, the Central Bank of the Philippines formulated a policy to increase digital payment adoption twentyfold in quick time – from 1 percent in 2017 to 20 percent by 2020. This created a flurry of payment platforms, alternative finance firms and Blockchain companies. In Vietnam, the push comes from the Government’s intention to make the economy cashless by 2020, and the unbanked consumers’ use of Fintech services to perform financial transactions. Other notable Government-led initiatives include India’s Unified Payments Interface, which has spawned a number of Fintech startups in the digital payments space, and the Hong Kong Government’s sops – funding, tax incentives, incubation facilities and Smart City project – for the Fintech sector.

Financial infrastructure has also contributed to Fintech momentum, albeit in a roundabout way. The absence – rather than existence – of a mature financial infrastructure is sparking a demand for fast and simple alternatives for exchanging money. With no legacy burden, Fintech companies have jumped on this opportunity to bring the latest digital technologies to Asia.

As the industry marches ahead, it is presenting a significant challenge to the incumbent banks. Take China, for example, where Alibaba set up its Alipay payments platform to facilitate online shopping, but quickly diversified into a hugely successful consumer loans business. TenCent (of WeChat lineage) is likewise expanding its payment service into areas such as insurance and microfinance. Banks all over Asia are responding to this phenomenon in different ways. Collaborating with Fintech, and especially BigTech, is one. Many incumbents are also setting up separate digital banking operations – DBS Bank’s digibank in India is a good example – as well as labs to produce their own Fintech-like innovations. In some countries, a group of big banks have come together to create solutions with the latest digital technologies to rival Fintech offerings. The partnership between Emirates NBD and ICICI Bank for a Blockchain-based remittance network, and India Trade Connect, a Blockchain-based trade finance network between 7 large Indian banks, are two examples of this.

Every day, as we go about our business, we work with several Fintechs and large banks of repute. When I am at the Milken Global Conference later this month, I would love to discuss the opportunities that we might have for you, and also together find ways to execute on ideas you might already be exploring. Happy to learn more from you and share thoughts next week at Beverly Hills. I look forward to meeting you there.