When almost three-quarters of SE Asia does not have a bank account, fintech opportunities here are ripe for inroading …
Fintech in Asia has exponentially grown over the years— and it is set to be even more central to the region in the coming years. A 2018 report by Deloitte found that fintech investments in Southeast Asia grew by more than 30%, compared to 2017. This year, a CB Insights report also found that Asia totaled $22.65 billion in venture capital investment, across 516 deals.
At present, Asia is already considered to be a world leader in fintech, in more ways than one. And it is forecast that Asia is going to surpass the United States in fintech investments soon. This is due to various reasons. For one, consumer response to market services is very encouraging. In one survey, in China, four out of five people use fintech services for a wide range of needs, such as mobile money transfer and payments. In India, 47% of respondents said that they have used an ‘insurtech’ product.
Similarly, Google anticipates that the Internet economy in the region will be boosted, and Frost & Sullivan predicts that by 2020, the fintech market will rake in a whopping US$72 billion in revenue.
As such, businesses in the region need to contend with adopting fintech solutions—if they are not already doing it—to fully leverage the power of the technologies and drive growth. There are three trends that are integral to that.
Incorporation of the smartphone in credit-scoring
In 2016, KMPG found that 73% of people in Southeast Asia do not have a bank account. The numbers have improved over the years, but there are still about half a billion unbanked consumers in the region. This lack of a bank account leaves these consumers no readily available ways to measure credit-worthiness and, thus, access to financial services.
Enter the smartphone. The Asian Development Bank said that mobile data can be used in customer profiling, which can enable financial inclusion for those who do not have traditional financial markers, such as a FICO score.
The rise of the Virtual Bank
Traditional banking models will need to step up to challenge the emergence of virtual banks, following Hong Kong’s issuance of virtual banking licenses. Depending on the experience of these licensees, as well as additional investments, the movement may spur a radical change in the current way we do banking.
Additionally, the Monetary Authority of Singapore has announced that they intend to issue five more of these licenses to companies based in Singapore. It is expected that the recipients will be companies that are dedicated to underserved markets, as well as non-banking entities in other sectors, including ride-hailing. Grab and Razer have already expressed an interest in these licenses.
Gone are the days when traditional banks considered fintech startups as threats to their industry. Today, we are seeing a rise in collaborative relationships between banks and startups, which can facilitate many changes in the ASEAN business sphere. Banks can leverage their funds, infrastructure, and license to power startups that can reach more customers and, of course, their data.
Ecosystems are also being revamped to ease collaboration. A good example of this is the Singapore Quick Response Code, which gives banks and startups a unified platform for mobile payments. There is also the Fast and Secure Transfer (FAST) Service, which enables fintech startups to have access to banking transactions.
Indonesia and Malaysia are also employing initiatives that are designed to bridge the gap to potentially disrupt the market for more growth. In Indonesia for instance, banks such as Bank Mandiri and Bank Central Asia have shown interest in venture capital funding and incubation. In Malaysia, a credit reporting agency has already partnered with a startup for data analysis.