“Asia is not going to be civilized after the methods of the West. There is too much Asia and she is too old.” - Rudyard Kipling
The previous edition of these written fintech-perambulations looked at global trends in fintech investment and growth. This instance will focus closer to home — Asia — and consider several of the unique factors that differentiate the growth of fintech in Asia from the rest of the world.
Fintech’s strong global investment growth (once we look past the perturbation from last year’s Ant deal — see Measuring Fintech Investment, September 6, 2019) continues on a particularly active path here in Asia. From China to India to Singapore, new fintech ventures are being launched and are gaining traction at an accelerating rate.
China is of course in the lead, and recognized as the fintech leader not just in Asia but globally. Alibaba’s Ant Financial and Tencent’s WeChat provide the preeminent examples of digital banking and payments. These electronic payment platforms have become so ubiquitous that in many instances they have completely replaced cash.
A story describing that problem hit the newswires last year, as a man in Heilongjiang Province tried to buy some grapes, but was not allowed to as he tried to pay by cash in a cashless supermarket. This story of an older man caught on the wrong side of the digital demographic divide demonstrates exactly how electronic payments have come to the fore in China.
This writer had his own experience of this last year when he was teaching a masters degree course in China and tried to buy dinner for his teaching assistant, only to be told that his paper money would not be accepted. That attempt ended in temporary embarrassment as the TA had to pay, but fortunately for him with a WePay account from the school’s budget. The school had already approved this meal and it uses digital payments for all of its expenses. It is far easier to track, pre-authorize, and manage payments through a centralized system. Imagine a world where you never again have to save receipts, copy them or tape them to sheets of paper, fill our expense forms, etc. That world already exists in China.
On the back of such dominance — digital payments in China last year were in the hundreds of trillions of RMB (yep, that is a ‘T’) — Ant Financial and Tencent’s WeChat Pay provide both operational dominance and aspirational examples to newer fintech ventures in China. Most importantly they have built the pathway to and acceptance of the customer. Customer acquisition is a key challenge for most consumer-focused fintech startups in other parts of the world. In China though there is one straightforward solution to this problem. Build an excellent tool and then be acquired by Ant Financial or WeChat, and watch as your solution is instantly delivered across their platforms to hundreds of millions of customers.
Recent discussions with fintech entrepreneurs in Shenzhen suggest that this is a key consideration in their strategies. As one founder put it during a recent chat, he felt that he had little chance of being able to compete across the breadth of China’s complex market, but if he could build something” new and great” he could sell his startup to one of the powerhouses who already have the client penetration. Ant Financial has already been down this path, with partnerships and investments both across new produce lines in China (Yu-ebao, now the world’s largest money market fund run by Tianhong Asset Management, 51% owned by Ant) and geographically ( for example Paytm in India, and Ascend in Thailand.)
To see exactly how much is anticipated from such startups one simply needs to visit one of the many fintech incubators that have sprung up to host such enterprises. One that this writer visited recently is focused on both hedge funds and fintech firms and has a level of office finishing and technology far beyond anything that the best offices in Hong Kong can offer. Knowing that there are clear and successful delivery channels to consumers gives investors confidence that valuable ideas will be quickly rewarded.
One of several new fintech incubators in Shenzhen — this is the lecture hall. Other rooms feature amazing full glass walls that toggle between transparent and computer display. The writer is the gweilo at the back of the group.
But Asian fintech innovation is advancing outside of China as well. In Singapore, a combination of existing, strong retail-focused financial services and sensible government engagement have moved Singapore into the vanguard of fintech innovation. Singapore saw USD453mln invested in 48 new firms in the first half of this year, which compares to USD2.6bln for the UK. Given that the UK has almost twelve times the population of Singapore it is easy to see that the island city-state is well ahead on a per-capita basis and receiving focused and concentrated fintech investment.
This investment comes against the background of a strong Singapore sandbox environment, thoughtful regulatory engagement, and the forthcoming arrival of virtual banking licenses. What China has achieved with digital payments and direct retail engagement, Singapore is looking to achieve to allow its well-regarded and competitive private banking and asset management industries stay well ahead of the competition.
Across Asia, incumbent financial institutions and new fintech startups are well-positioned to apply new technologies — blockchain, AI, Big Data, etc — to help make consumers happier and wealthier. In many cases, this is due to the lack of an overhang from legacy systems. While 92 of the world’s top 100 banks still run COBOL code on mainframes (as of 2017, but I doubt the number has changed) many of Asia’s financial institutions have much newer IT infrastructure. China’s ICBC, for example, was only founded in 1984. Further, a large swathe of previously unbanked retail customers are now coming to banking for the first time through mobile, IT-driven solutions. While consumers in the west might often yearn for the comfort of a teller, many Asian consumers view banking as something best done through their most trustworthy counterparty — their phone.
As such for those looking at fintech developments, whether it be to better understand developing trends, to identify the latest technology, or for investing in the most exciting opportunities, Asia should clearly be at the center of their attention. While Hex Trust is a relatively young firm its management is made up of experienced (read ‘old’) people who are either Asian themselves or have spent decades here, living along the way in Hong Kong, Singapore, Japan, India, Malaysia, etc. If you have questions about current developments in Asian fintech please do not hesitate to ask.
Hex Trust is the Asian leader in enterprise-grade custody for digital assets. Led by innovators from the institutional financial services space, Hex Trust has built a proprietary platform that delivers a modern custody solution for financial institutions, asset managers, and corporations to safely and efficiently operate in the blockchain ecosystem. ZeroKey(TM), a proprietary technology, enables seamless transacting and fast access to assets stored on multiple blockchains, while maintaining the highest levels of security of cold storage solutions. As a registered Trust Company under the Hong Kong Trust Ordinance and holding a Trust or Company Service Provider (TCSP) license under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Hex Trust offers a truly end-to-end digital asset servicing solution. Visit www.hextrust.com to learn more.
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