Despite the challenges that 2020 posed to countries, and individuals across Asia Pacific, the fintech industry was among the few bright spots. Across the region, billions of individuals and companies moved digital, a trend accelerated by the pandemic. Indeed, fintech is one of the few sectors of the economy which has grown.
Although most of us look forward to leaving 2020 behind, there were a few developments in the Asia Pacific fintech industry that are worth revisiting:
The DBS Group Holdings Ltd. logo is displayed atop Tower 3 of the Marina Bay Financial Centre in … [+] Singapore, on Wednesday, Feb. 12, 2020. The coronavirus outbreak rocked Singapore’s financial district after an infection at the country’s biggest bank prompted it to evacuate 300 workers. Photographer: Ore Huiying/Bloomberg
© 2020 Bloomberg Finance LP
The Rise (and Fall) of Asia’s Digital Banks
In 2020, the excitement around the launch of Hong Kong’s digital banks and the awarding of Singapore’s digital banking licenses was palpable and dominated much of the (non-Covid) fintech conversation. Hong Kong now has eight digital banks with products covering nearly all segments of the market. Among the more interesting aspects of the launch is how companies sought to differentiate and acquire customers. ZA Bank from Zhong An was one of the first out of the gate and launched a special offer of 6% interest on a three-month time deposit subject to a cap of about US$25,000. WeLab Bank has focused on customer experience.
Forced to react in order not to be left behind, Asia’s traditional banks responded proactively. In Singapore, DBS’s CEO Piyush Gupta downplayed the impact Singapore’s digital banks will have on the local market, and followed that up with the proactive launch of a SME (small and medium enterprise)-focused digital banking tools portfolio and a soon-to-be-live crypto-exchange. HSBC responded reactively to the launch of the new banks in Hong Kong by re-jigging its fee structure on both account maintenance and payments. It is often difficult for traditional banks to make dramatic shifts to the user experience, even so, they used what levers at their disposal to stay competitive.
It might be too early to predict if Asia’s digital banks can be successful or not, and it may take several years before we see any meaningful results. For some, it certainly hasn’t been smooth sailing, especially with Xinja throwing in the towel a few weeks ago. In the end, however, digital bank deposits will be ensured, so the customers will be the ultimate winners no matter how the actual digital banks do.
We are cautiously optimistic, but only for the very, very well-capitalized challengers.
Plus ça change, plus c’est la même chose (The more it changes, the more it’s the same thing)
Customers wait in line to enter the Lucky Plaza on Orchard Road in Singapore, on Friday, June 19, … [+] 2020. Photographer: Lauryn Ishak/Bloomberg
© 2020 Bloomberg Finance LP
Singapore’s Lucky Plaza is one of the main remittance centers in the city-state. On any given Sunday, it is typically packed with foreign workers looking to send money home. During the Covid-19 lockdown, Lucky Plaza was a ghost town. With both Singaporeans and locals confined to their homes, remittances went digital.
Singapore has a plethora of digital-only remittance providers. With 98% of the population (including foreigners) banked and the proliferation of the country’s MyInfo/Singpass KYC platform, there is little excuse for not moving digital. Yet, the day that the restrictions were loosened, Lucky Plaza was packed once again.
Beneficiary preferences have a lot to do with this. Despite all of the arguments for digital payments being safer, faster, and more cost-effective, for many of the workers, going to Lucky Plaza on their day-off was not just for sending money but also for catching up with friends and the latest news in their communities. Too often, we assume beneficiary preference rather than understand it.
Despite the changes and whatever the ‘new normal’ looks like in 2021, we still need to think about what the ‘preferred normal’ is for our customers.
The Digitization of Everything
The reality of Covid for millions of micro/SMEs across the region was a harsh one. During the lockdown, if your business operated entirely offline, your revenues went offline as well, i.e., they disappeared. Whether it be ‘kiranas’ in India, ‘warungs’ in Indonesia, or ‘sari-saris’ in the Philippines, very few small businesses were not adversely impacted by the pandemic.
Even before the pandemic, there was a push towards SME-digitization. Across the region, a growing number of providers are focused on providing digital financial services to this particular SME B2B segment. Some of these providers are payment service providers (PSPs), integrating more ERP-style functionality, while others are SME-tailored ERP platforms that incorporate digital payments. Both work to digitize the supply and financial chain for SMEs.
Companies like PineLabs and Jumbotail have been working on the multiple angles of this equation to fill India’s gaps. In Indonesia, GoJek’s acquisition of the PSP Moka is another indication of where the market could be going as payments becomes the entry point for new businesses.
It remains to be seen how sticky these new platforms will be for the region’s SMEs. For many, it is, and may continue to be, their only choice.
Quick response (QR) codes for Ant Group Co.’s Alipay digital payment service, center, and Tencent … [+] Holdings Ltd.’s WeChat Pay, right, at a restaurant in Hangzhou, China, on Monday, Nov. 2, 2020. Photographer: Qilai Shen/Bloomberg
© 2020 Bloomberg Finance LP
Fintech in China is great until it isn’t.
If you had asked us a year ago, or even three months ago, if China’s regulators were happy with the pace and direction of fintech development in China, we would have said a resounding ‘yes.’
We were wrong.
Over the past two months, China’s fintech giants have been under the regulatory microscope. The scrutiny kicked off in late October when Alibaba Group founder and massive Michael Jackson fan Jack Ma openly criticized the government’s regulatory approach. In response, the Ant Group IPO was suspended, and the company may now need to restructure. The actions have put a chill on China’s once growing fintech industry.
China’s fintech industry grew rapidly in its early days, enabled by the ‘wait and see’ attitude of China’s regulators. For 15 years, the government and financial industry regulators were happy to see the industry develop in what seemed to be a stable manner. Payment firms were eventually regulated. Restrictions were put on the size of wealth management products. It was a light-touch but effective regulation that enabled but didn’t hamper innovation. Arguably, the recent new approach to regulating the fintech industry will severely impact its ability to innovate.
The next few months for China’s fintech industry will not be pretty as the government works through how to handle Ant Group and if any other influential fintech firms that come under the radar. Tencent has historically been less outwardly ambitious about its growth prospects, which may be its saving grace in this situation. The scrutiny is not limited to China. Korea’s Kakao bank has received an administrative warning from regulators about their risk management practices.
Millions of Chinese individuals and businesses have been positively impacted by the increased availability of digital finance products and tools. Without these, many would not have survived 2020; will there be a fintech industry left in 2021 to help them?
What lies ahead
In 2021, the industry will evolve again as countries worldwide start to recover from the pandemic and adapt to whatever the new normal ends up being. This change will, , bring new challenges and likely resurface many old ones. Fintech will play a critical role enabling these changes for the financial industry and economies in general, and the industry will continue to grow.
2020 was a litmus test for fintech and there were a multitude of additional stories to talk about, not least of which is Asia’s push towards Central Bank Digital Currencies (CBDCs) – one of many developing stories. We will once again be looking at the key stories for 2021 in our Asia Fintech Trends annual research report as well as our accompanying webinar.