FinTech: Disruption in Banking –The Asia Story
Technological innovations drive many markets today. Even in finance, new technology-driven innovators are starting to challenge the status quo of the powerful banking industry. One such disruptive start-up group is ‘fintech’. An estimated $25bn has flown into fintech in the last five years, most of which, was through venture funding.
So what exactly is fintech?
Fintech refers to an industry comprised of companies striving to use technology to offer new financial services over the internet, and make money more efficiently. Global investment in fintech increased from $930 million in 2008 to more than $12 billion in 2014.
Of the $12.21 billion invested in 2014, the US contributes the lion’s share, but Europe experienced the highest level of growth, with an increase of 215% (year-on-year). Fintech investment growth in the UK and Ireland was slightly slower (up 136% to $623 million), although the region accounted for 42% of European investment.
The Asia Pacific Growth Story
The Asia pacific region is not isolated from the global wave of fintech investment. In fact, Asia-Pacific saw investments in fintech touch new highs in 2015. These skyrocketed from a mere $800 million in 2014 to a whopping $3.5 billion in just three quarters of 2015.
The majority of all fintech investments in 2015 were in the areas of lending and payments, which have traditionally been the sole domain of the banks. Many of the investment deals were also directed towards market and wealth management domains.
According to Ernst and Young’s first Fintech Adoption Index which surveyed around 10,000 “digitally active” consumers in Australia, Hong Kong and Singapore, it was found that 15.5 % of those surveyed had used at least two fintech services in the past six-months.
In 2015, Alibaba took $14.3bn in online sales on their annual ‘singles day’ event, a 60% increase from 2014. This was made possible by China’s leading third party solution, Alipay – A fintech startup.
According to a report from McKinsey, ‘Asian financial service consumers are going digital and fast’. The use of mobile and internet channels for banking increased on average by more than 35% annually between 2011 and 2014. The firm noted a corresponding drop in branch usage of 27% across Asia. At a few leading banks, nearly 20% of key product purchases are now completed online.
According the Mckinsey The Outlook
The fintech revolution has the potential to make banking services more convenient by focusing more on customer needs. Asia has been a relative laggard in terms of the fintech agenda; however, there is now some momentum which will ultimately drive more disruption, and further investment in the sector.
The five geographical market segments in the Asia-Pacific region which are likely to derive the greatest potential from fintech are:
- China: This country could see exponential growth of the Asian fintech sector. Considered to be the bellwether of Asian economic growth, China should lead in the number of fintech startups. The country already has more peer-to-peer lending platforms than the rest of the world combined. Its alternative finance industry is also growing rapidly, with more than 1500 platforms today as compared to just 20 in 2011.
- India: The Indian landscape should be primed for entrepreneurs to use technology to promote financial inclusion. Sixty percent of Indians are unbanked, and ninety percent of small businesses have no links to formal financial institutions. Yet 80% of Indians own mobile phones, and 32% will own a smartphone by 2017. Thus the business model of most fintech startups in India targets financial inclusion.
- Singapore: No surprise that Singapore-style fintech is a product of government top-down planning. The city state saw the creation of 3 fintech accelerators in less than a year, giving it one of the largest concentrations, on a per capita basis, of accelerators in the world.
- Hong Kong: Hong Kong has emerged as one of the major global fintech centers. Activity was initially driven by the private sector, and then amplified by the government budget spend in February, making fintech a strategic focus. Hong Kong is the gateway to mainland China, the world’s largest opportunity for fintech development. This in itself gives Hong Kong a competitive advantage compared to any other city.
- Australia: This country is also growing its fintech sector fast: a dedicated fintech co-work space by Stone and Chalk in Sydney received more than 300 applications for just 150 available spaces.