Fintechs are riding the growth wave in digital payments in Asia. The region has renewed its leadership in the world’s modern banking industry by delivering unprecedented innovations. From large conglomerates to virtual banks to payments firms have tried capturing the digital growth curve here.
Digital banking that needs heavy investment, has made earlier traditional banking practices redundant. Representing a new opportunity for growth, digitization has made Asia’s Financial Services Industry (FSI) become more accessible and inclusive. Providing new opportunities, these disruptive technologies have geared towards transformation in the region.
There has been an explosion of technology firms working towards providing financial services solutions in Asia. The strong economic push in the region has also led to rising of high net worth individuals, looking for highly customized banking and wealth management solutions.
Access to tailored advice, nontraditional investment, and advanced engagement solutions have led to promote non-cash payment approaches such as e-wallet or e-payment applications. Industry experts also suggest an acceleration in digital lending in Asia.
M&A deals are also on rising investment in the fintech startup space, capturing technology advancement and providing cross-sector offerings. This has been significantly seen with investment coming from non-financial service sectors such as telecom, retail, and media.
Private banks have progressively refocused approaches that are not only regulatory but consumer-driven too. Institutions like HSBC, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, and UBS Nomura, and Daiwa have lined up with ambitious expansion plans in Asia. As per a KPMG report, they have used the existing client base as well as their local presence to retain market share with a wide range of integrated FS offerings.
Asia’s fintech industry during pandemic
The Covid-19 pandemic has been disastrous in many ways to the banking industry and it has caused various shifts in the financial services sector. But the fintech space continued its upward projection in 2020 despite the pandemic. Even after being the first region in the world to be hit by the Covid-19 pandemic, Asian countries were the first to shut down, and the quickest to recover with GDP bounce backs.
The FSI industry grappled with supporting regional growth while fighting the pandemic, making Asia a fertile ground for the development of digital banking. The region has been a booming digital market, given the politics and regulation playing a bigger role in its post-pandemic economic recovery. A large share of private market funds in emerging Asia have invested in fintech rather than regulated shadow banks.
Consumers are also looking for technologically advanced access to financial services as digitization picked further demand during the pandemic. The largest banks in Asia with their solid balance sheets have enjoyed double-digit growth this year. Given the strong growth in consumer spending coming in from the Asia Pacific region, particularly South East Asia, companies have rushed to grow their geographic footprint in this expanding market.
Across Asia, incumbent banks are partnering with fintech start-ups to promote digital payments, said Mckinsey report ‘Future of Asia’. These include Kasikornbank and Grab from Thailand teaming up to launch GrabPay by KBank, a mobile wallet and BRI (Bank Rakyat Indonesia) partnership with Alipay to expand point-of-sale acceptance of mobile payments for Chinese tourists visiting Indonesia.
Current Fintech ecosystem in Asia
Singapore and Hong Kong have led the key trend in the digital banking industry, shaping the financial services sector in the APAC region. But, as per a KPMG report, the growth momentum is picking up in China and India, encouraging innovation and growth of payment services and fintech.
China and India’s financial market continues to open up, in various market segments such as both banking incumbents, e-payments, and fintech upstarts. Most Asian governments are supporting the fintech industry by relaxing regulatory requirements. Governments from India, Indonesia, Vietnam, and Malaysia have been aiming to intensify competition and promote digital advancements.
As per Asia Pacific Economic Cooperation, modern regulators across the region have established so-called sandboxes and other types of innovation facilitators like FinTech accelerators, incubators, and innovation hubs. These currently exist in Hong Kong, China; Indonesia; Japan; Korea; Malaysia; Russia; Singapore; Chinese Taipei, and Thailand. According to the IMF, a sandbox allows small-scale live testing of innovations by private firms, both regulated and unregulated, in a controlled environment under the regulator’s supervision.
China – Fintech capital of the world
Contributing a significant portion to the global economic growth, China’s banking and securities rank as the top three by size globally as its massive GDP makes it a major base for expansion. Positioning the nation as a dominant economic force in the Asia-Pacific region, China has the largest banking system in the world at $40 tn, now larger than that of Europe. The world’s top 5 banks (Industrial & Commercial Bank of China, China Construction Bank Corp., Agricultural Bank of China, Bank of China, and Mitsubishi UFJ Financial Group) by total assets are all from China.
China also pulled ahead of other major economies in recovering from the pandemic. The country has pivoted toward technological self-reliance. The rise of sustainable finance and digital banking developments has significantly transformed China’s financial markets. Furthermore, China continues to expand its presence in the fintech and digital banking race with a boost from robust domestic demand. China’s digital payment giants, AliPay and WeChat Pay, are market leaders, and China overall accounts for ~45% of all digital payments.
It also stays committed to open its domestic financial markets to foreign players that have a limited presence. This is because of regulatory complexities by the Chinese government that have maintained strict control over financial services, including currency valuation, interest rates, capital flows, and foreign investment.
India’s booming Fintech sector
India’s banking system, which was earlier state-dominated and regulated has evolved and opened expansion opportunities for the private sector. India’s enforcement of a cap on promoter holding has led to the introduction of small banks in the last few years. This has also resulted in increased interest of investors in the financial service and fintech space, with the rising amount of IPOs from this sector.
Fintechs have been leaders in the Indian Unicorn landscape as well, raising second-highest PE/VC funding over the last decade, taking in $10 bn. Scaling up of payments through in India via e-wallets, and other digital public infra like UPI, Aadhar, Jan Dhan have favored India, with over 200 mn users. Digital modes of payment have grown 10x over the last five years—and have 30% share, aggregating to US$450 bn, Credit Suisse said in its latest report on India’s fintech space.
India has emerged as one of the world’s largest fintech hub, due to its large consumer base, high adoption rate, and accelerating digitization. Investments in India’s fintech space also doubled in 2019, as compared with 2018. According to a KPMG report, funding in Indian Fintechs in 1H20 doubled from 1H19 to US$1.7 bn.
Expressing views on India, Atanuu Agarrwal, Co-founder, Upside AI, “In India, this journey started in 2009 under PM Manmohan Singh, with the creation of the National Payments Corporation of India and Unique Identification Authority of India. These bodies got the ball rolling on the modernization of digital payments and Aadhaar, the world’s biggest biometric identity database.”
He added, “In 2020, India has also the explosion in broking/investment space with players like Zerodha, PayTM Money, Kuvera, Groww, Small case and Upstox adding new customers at a breakneck pace.”