Fintech, or financial technology, has been undergoing rapid development in Asia, and particularly in the US and UK. Globally, policy and regulatory changes have allowed more services to be developed, or at least given clear guidelines as to what is possible and what is not allowed. The ‘sandbox’ concept has become increasingly popular, with regulators offering “a license to trial” new services, with a full license only needed when a new service has been tested and attracts more volume. This regulatory trend is now arriving in Asia and will accelerate fintech development in 2017.
The world of fintech
We can divide fintech into two main categories: 1) transaction oriented services, and 2) digital finance solutions and instruments. The first one includes services like mobile payments, international money transfer and enabling services including digital finance back office as a service. They are individual transactions and the success of those services can be measured based on the number of transactions.
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The latter category includes p2p lending, equity crowdfunding, real estate crowd investing, and also finance instruments that are used for co-investments in those services. This category utilizes transactions, but the success of the segment requires a sustainable long-term model. For example, a lending service can achieve a high volume of lending transactions, but the services are sustainable only if the default rate is reasonable and most loans are paid back.
There are now a lot of mobile payment services, but most have only very small market share. Apple Pay, Samsung Pay and Android Pay are the most global solutions. Banks, telcos, startups and retailers have typically developed more local solutions, but it is difficult for local solutions to compete with global alternatives that utilize globally compatible credit and debit cards. The global solutions can offer very competitive pricing. For example, Google doesn’t charge for Android Pay transactions, and plans to expand the service to numerous new countries in the next year and also extend support to Chrome browsers.
There are a few significant global money transfer services, like TransferWise, and more niche services that focus on certain countries or customer segments. The money transfer market can be much more fragmented than the mobile payment market. Consumer money transfer has many different customer segments, and at the same time consumer transfers are only one small segment. There are many other segments such as payments between companies, transfers between and inside financial services and many other niches.
Blockchain - threat or opportunity?
Blockchain has been attracting a lot of attention. Even many banks and leading consulting and system integration companies talk about the technology frequently. But it is much harder to evaluate the potential real-world impact. Excluding bitcoin, there has not yet been significant business impact or real business applications. Traditional finance companies look especially for IT savings with blockchain, but at the same time many parties could argue that blockchain, with its de-centralized model, will challenge the position of banks and other leading finance institutions.
Investing and lending services are meanwhile starting to compete with banks. At the same time they can complement banking and other investing services. For example, money from other investors and lending can help bank customers access the full amount of cash needed, and other money sources can also help banks with their capital ratio requirements. This is an area where the market will probably see a lot of new innovations with regards to how different instruments and models can work together.
Transparency and collaboration
Finance institutions have been big black boxes both technically and from a business standpoint. New models are enabling more transparency, and open API ecosystems are an important part of this. It will truly enable a networked model, whereby many financial services can easily work together. As a whole with fintech, expect to see more companies and service components in the finance business, and successful services working together with many other services.
This article was first appeared on Telecom Asia Vision 2017 Supplement