The era of super-apps, embedded finance and digital banking is upon us, levelling the playing field for smaller businesses and lower-income consumers

Over the past few years, the digital transformation of the banking and financial services industry has accelerated at an unprecedented pace.

In Asia Pacific, as with the other parts of the world, fintech is rapidly turning the tables on traditional financial service provision through more innovative use of digital technology.

This democratization of financial services has opened up financial opportunities for everyone, including consumers and small businesses, no matter if these services are delivered by banks, fintechs, retail platforms or super-apps.

DigiconAsia had the opportunity to talk to Rohit Narang, Managing Director, APAC, Currencycloud, about fintech trends and innovations in the region in this interview:What are some key trends driving rapid digital transformation in the banking and financial services industry in APAC?

Rohit Narang (RN): Organizations across industries must today, reimagine their digital transformation efforts for greater business resiliency and competitiveness, and BFSIs are no different. Financial services that are strategized for greater operational agility and user relevance tend to be more risk-tolerant, sustainable and resilient in the face of economic volatility. Hence, there is a new wave of digital transformation in financial services that is emerging from the following trends:

    1. Embracing fintech solutions as a competitive advantage. Non-bank financial services providers like fintechs are experts at simplifying complex service processes through digital means. Their banking-as-a-service offerings should be valued by banks as a viable third-party resource that could help them accelerate digital initiatives. This is particularly so in the area of cross-border payments, which is highly regulated and very difficult to navigate. With a ready payments infrastructure that banks, modern enterprises and other fintechs can integrate with, any financial service provider can let its customers make fast and convenient cross-border payments with excellent foreign exchange rates.
    2. Embedded finance as an operational norm. Embedded technology is becoming ubiquitous to some financial service offerings, both in front of and behind the user interface. This has had a far-reaching impact across banks, non-financial enterprises, and the customers they serve. Pre-built embedded solutions can be quickly integrated by financial service providers. This means that any digital enterprise in the future, could technically offer financial services like a digital wallet, insurance or investment, as part of their business strategy, whether to extend their service portfolios, increase revenue streams or provide more options for personalizing customer experiences, in order for businesses to stay competitive amidst current economic uncertainty.
    3. More prolific use of APIs in the fintech sector. API use in financial services has grown exponentially in the past few years, giving rise to a dynamic, innovative environment where bank developers can get creative in solving business problems. Fintechs, being technology specialists, have also been using APIs extensively in their development. In tandem, their efforts have resulted in more service specializations and alternatives becoming available in the banking software supply chain.

      This has given rise to a dynamic, innovative environment where developers can get creative in how they meet business demands to result in more specialization and alternatives becoming available in the software supply chain. In the future, financial institutions will experience lesser instances of developing innovative applications in-house, in favor of customized, supported applications outsourced from third-party solution providers. This will free up their resources for higher value activities, such as creating service differentiation with deep personalization or enhanced customer experience.
    4. More digital banks in the traditional banking and finance space. According to a McKinsey & Company report, consumer use of digital banking in APAC is accelerating, with nearly nine in ten consumers across the emerging and developed markets actively using digital banking. Singapore, which saw the launch of Trust Bank and Ant Financial this year, is expecting these digital banks to transform the customer experience with services that are available 24/7 and allowing the opening of accounts seamlessly and in real-time.

      However, Fitch Ratings reported that many new digital banks in the APAC region will be challenged to achieve financial viability as interest rates increase, economic growth slows, and funding conditions tighten. So, as digital banks continue to work to bridge the gaps of traditional banking, the physical banking institutions in Singapore and other developed countries are delivering new innovations and initiatives to remain relevant and competitive. Together, they are transforming financial services to be more accessible, holistic and convenient.
    5. Top-down push for payment partnerships. Governments are also strategically and tactically partnering and collaborating on payments to reduce the complexity and the friction of cross-border money movement. Singapore’s PayNow, which is already linked to Thailand’s PromptPay, will be soon linked to Malaysia’s Duitnow, and is a government-led project that represents significant progress made in this respect. Such collaborations can expand payments within each market, while facilitating growth from real-time cross-border payments between different markets.

How are fintech innovations helping to supercharge growth for banks in the region?

RN: At Currencycloud, we work extensively with all the participants in the digital finance ecosystem including  fintechs, banks, or other financial services providers, to provide them with real-time wholesale foreign exchange (FX), global and local networks, and virtual accounts that add value to their end customers.

For the thousands of local banks, community banks and credit unions across the APAC region, such offerings can quickly beef up service portfolios and add new capabilities in automation and multi-currency virtual accounts, two of the most impactful solutions that cut costs and time for payment processing, as well as facilitate effective geographic expansion for themselves and their customers.

A case in point is Tonga Development Bank (TDB), which is opening new global trading opportunities for Tonga’s businesses. By partnering with Currencycloud, the bank can access international payment rails and market-leading low FX rates, without the problems associated with developing their own, expensive, infrastructure set-up and the complex regulatory navigation, making exporting and importing of goods and services across the region much safer, quicker, and cheaper for TDB’s business customers.

By choosing to collaborate with embedded finance participants, all banks in the region can enjoy similar agility in launching complementary services to deliver value to their customers. Because fintechs are subjected to the same regulatory obligations as other financial services operators, their solutions are already compliant to relevant regulations, making them an effective and sustainable option to containing infrastructure and operational costs, as well as utilisation of resources.

One major obstacle for some businesses is the unavailability, cost, and/or inconvenience of cross-border payments. How can digital innovations help such businesses?

RN: Previously, only large companies had access to embedded finance products in B2B. Fintech innovations in payment are enabling small companies to migrate to digital B2B commerce for better cross-border payment processes or operations without incurring hefty capital outlay or high operational and maintenance costs. By taking on the payment-related activities for businesses, fintechs such as Currencycloud could lighten the load for them and their payment ecosystem, with efficient and secure cross-border multi-currency actions at speed and scale.

One digital corporate FX solution provider that saw a distinct advantage in this is Wallex, a licensed Major Payment Institution in Singapore that focuses on allowing businesses to pay, receive, hold, or convert funds in multiple currencies over its secure electronic platform. By partnering with Currencycloud, it was able to quickly enable customers in Singapore and Hong Kong to collect funds in USD, GBP and Euro via local payment channels, creating a significant improvement from the previous laborious and expensive routes with regional banks or international payments.

Businesses can now avoid high charges including foreign exchange, conversion and payment charges for facilitating cross-border businesses.

In what ways do digital financial offerings promote greater financial inclusion for the unbanked and underbanked in the region?

RN: Southeast Asian economies are largely driven by micro, small and medium enterprises (MSMEs), and these businesses and their customers need access to capital and other financial services to sustain post-pandemic economic recovery. The vast numbers of unbanked and underbanked sections in the region often do not have access to financial institutions and resort to approaching moneylenders who offer unsecured loans.

On the contrary, digital financial offerings often accommodate small levels of cash flow, allowing the poorer demographics to make transactions easily, preventing the use of informal services that come with high risks. For these excluded sections of society, embedded finance is an alternative that can allow them to digitally store money, make cross-border payments, and possibly even invest, with nothing more than a smartphone and an Internet connection.

How is embedded finance expanding investment choices for consumers? Is the risk to consumers greater, and if so how could that be better managed?

RN: Embedded finance can empower consumer and business users with better control of their financial investments, by providing more investment choices across more sales channels. Investment platforms, for example, offer fractional trading and zero commissions to help enable more people to trade global instruments.

Besides expanding investment choices, such platforms also simplify the investing process to allow customers, mainly Generation Z and Millennials, to grow their wealth more easily.

According to the latest Endowus Wealth Insights Report, over 80% of Singaporeans plan to put more money into investments, despite inflation woes and concerns over rising costs of living.  As long as they do not get carried away and over trade, it is unlikely these investors would experience significant capital loss.

For example, Wombat, a micro-investor in the UK, enhanced its platform with embedded trading, to offer unlimited commission-free trading of fractional shares from the UK and the US, with no additional subscription charges.  In all, embedded finance and digitalization will likely converge to benefit customers with transparency, convenience, lower costs, wider choices, and more flexibility.