Roughly ten years ago, western countries such as the United States and the United Kingdom were quick to adopt financial technology (fintech), while Asian markets were slower to pick up on this development . Over the years, however, fintech has gained enormous traction in Asia and has now transformed the continent into a fintech leader with China in the forefront. Technological developments now facilitate a broad range of services such as wealth management, money transfers, peer-to-peer (P2P) lending, risk management, financial advisory, and insurance.
As Asia’s financial centers in Hong Kong, Singapore, India, Japan, South Korea, Indonesia, and China increasingly capitalize on fintech, they are expected to surpass western capital markets by the 2030s and dictate the global economy. Asia’s advantage is the tremendous number of young citizens who will turn the financial landscape into one of consumers that are highly versed in technological applications. The median age in China is 37 years, in Singapore it is 35 years, and India is particularly young with a median age of 28 years. In contrast, the median age in European and North American countries is above 38 years old.
Venture capital financial flows into Asia have surged in the recent years. In 2018, Asia secured approximately 23 billion USD in venture capital deals, outpacing companies in both the U.S., which received about 12 billion USD worth of funding, and in Europe, which reaped roughly 4 billion USD. China is a forerunner in the field as the home of some of the largest fintech businesses in the world such as Ant Financial, Tencent Holding Ltd., and ChinaPay. As the biggest of the three, Ant Financial is valued at 150 billion USD and offers Alipay, one of China’s most utilized online payment platforms. The 22.5 billion USD valuation of the United States’ biggest fintech company, Stripe, seems relatively meager in comparison. Moreover, China, Japan, South Korea, Taiwan, and India possess 73% of all fintech patents in the world. China’s share alone amounts to over 50% of global fintech patents.
One of the reasons Asia is such an attractive destination for fintech investments is the fact that broad audiences provide a vast testing ground for new technological developments. Notable innovations in Asia include financial transactions via Bluetooth, ultrasonic frequencies, or QR codes. In late 2018, the first entirely online insurance firm was licensed in Hong Kong in order to speed up insurance application procedures. In addition, Google and Facebook have already turned towards India to test out online payment applications. Similarly, Amazon has invested in local fintech companies to grow its profits on the Indian market, which is expected to thrive in the coming years. Similarly, JUMO, which was founded in 2014 as a digital financial services platform, shifted from targeting markets in Africa to markets in Asia.
In addition to fintech development opportunities in Asia, other benefits include the emergence of a new job market. Between 2017 and 2018, the fintech sector in London generated a 61% hike in new job positions. The fast growth of fintech in the east reveals that Asian markets will benefit from this rise in new employment opportunities as well. Estimates point towards a demand for 42,300 additional jobs in Singapore between 2017 and 2019 alone.
While fintech may provide better access to financial services for previously unbanked Asian citizens, internet penetration will become a challenge in the future. A wider net of fintech services will cater to consumers living in areas with only scarce access to physical bank branches, but cost-effective fintech methods will still neglect areas with poor regional internet connections and a lack of technical devices. South Korea and Japan rank among the states with the highest percentage of internet users within Asia. Therefore, they will not face fintech adoption as a technical hurdle. By contrast, fintech access may become a challenge in India, where internet usage is below 30%.
Another change that needs to be anticipated is the transformation of the traditional banking sector. Asian banks will have to rapidly adopt new technologies in order to keep up with fintech developments and may face difficulties in managing novel technologies. Business models will be restructured in order to maintain both profitable outcomes and reliable financing sources. Greater market competition and a fragmentation of the financial sector may result from a growing quantity of fintech businesses. At the same time, this may open up unprecedented opportunities for fintech start-ups.
A final point to consider is the risk of creditworthiness. Consumer credit rating has been an established practice in the U.S. since the 19th century, whereas credit rating is a relatively recent concept in Asia’s financial centers. Hong Kong’s first and only credit rating agency, TransUnion, opened its doors in 1982. Singapore’s credit bureau CBS was first set up in 2002. Consequently, uncertainty in regard to creditworthiness or financial stability is a more pronounced concern than in Western markets. A stronger reliance on fintech, however, implies a heavier dependence on digital data. Large amounts of data from social media and e-commerce will construct a digital customer profile that could substitute for ratings from common credit rating agencies. At the same time, the gathered data can be used to monitor and manipulate consumer behavior. This risk is expected to become a reality in China, where government authorities plan to implement a national surveillance system by 2020.
