What the Future of Fintech Looks Like
E-payment has become an indispensable and specialized tool for people across the world. How will it evolve in the next five years?
Fintech has been a "hot" sector for quite some time now. Last year, the global funding in the sector rose to US $111.8 billion, up 120 per cent from $50.8 billion in 2017.
Region-wise, the Americas saw a rise from $29 billion in 2017 to $54.5 billion last year; Europe, $34.2 billion from $12.2 billion in 2017; and Asia Pacific, $22.7 billion, up from $12.5 billion in 2017. These impressive numbers by the KPMG Pulse of Fintech report bear testimony to the growth of the sector, which harnesses technology to improve financial services and is divided into five broad categories—payments, clearing and settlement; deposit, lending and capital raising; insurance; investment management; and market support. Over the years, fintech has made most inroads in the area of payments, thanks to the global penetration of the smartphone and internet, and less in the others.
It's understandable then that startups, and big-techs like Alibaba, Revolut and Paytm are harnessing this technological edge along the financial services' value chain to provide agile, efficient and differentiated experiences to the end-user. Banks have been the traditional gateway to payment services. With the fast pace of technological changes, however, this domain is no longer the monopoly of banks. Non-bank entities are cooperating as well as competing with banks, either as technology service providers to banks or by directly providing retail electronic payment services like AliPay, PayPal and Paytm.
What makes digital payments, which allow your smartphone to store money and transact digitally, so popular is the ease they offer. "Digitalization and the penetration of the innovation economy have swept Asia and have impacted every aspect of commerce. Today's consumers are used to tapping into the world through a digital window; accordingly, they expect access to financial services through digital channels. This has fuelled a massive shift in how people buy, spend, save, borrow, and invest," says Scott Galit, chief executive of US-based financial services company Payoneer, which has a strong presence in Asia Pacific. So what does the future hold for digital payments?
Galit believes the growing middle class in Asia Pacific has more disposable income, which highlights the region's importance not only as an exporter but as an importer of goods and services. "While Asia has long played a crucial role in global cross-border commerce, there is now an incredible amount of inter-Asian activity as well. These newly expanded corridors have become an important vector of activity and opportunity," he says.
Agrees Caecilia Chu, cofounder and chief executive of YouTrip, a financial technology startup based in Hong Kong and Singapore that caters to travellers. "Asia is a hotbed of fintech with the relentless pace of innovation driven by evolving consumer expectations. Challenger banks and mobile payments were almost unheard of five years ago but today have emerged to lead digital disruption in financial services," she says.
While Chu believes that in the next five years multicurrency payments, driven by an increasingly mobile-first and digitally savvy population, will emerge, Singapore's SoCash founder and chief executive Hari Sivan points out that the ASEAN, or Association of Southeast Asian Nations, payment vertical has high friction, bad pricing and inefficient settlements cycles, but all this will probably change in the next five years.
"The good news is that the regulatory barriers are melting away and this exposes the incumbents who are busy protecting their "cheese'. The market is ripe for platforms that drive efficiency for the businesses, has fair economic models and stays away from arbitrary pricing. That leaves very little for the incumbents and copycats. I hope to see pragmatic innovations in digital payments that scale quickly," he says.
Galit adds that there will be an emergence of small fintechs driving innovation, and also acting as a catalyst that forces banks to keep up and offer better products and services to their customers.
"Already, we see many banks partnering with fintechs to elevate their offering. Over time, there will also likely be more concentration among the bigger players, who will team up to create large platforms that offer a wide range of activities. The fintech landscape of Asia in five years will likely feature a mix of small, disruptive players along with a field of consolidated incumbents," he says.
Fintech has been driving huge changes across the financial services sector, but one area that is seeing exponential change is in the ultra-high net-worth individual (UHNWI) space.
Crealogix Group, a global market leader in digital banking, has been working with banks across the world on their digital transformation journey for over 20 years, and it is only recently that they are seeing growing momentum in private wealth to digitize.
Pascal Wengi, the AsiaPacific managing director of Crealogix, says: "The old ways of servicing these clients through a personal touch is quickly moving to digitally-led platforms, with younger, techsavvy UHNWIs wanting an immediate and comprehensive view of their assets without waiting for a phone call. At the same time, they also want customized solutions catered to their unique financial needs."
Platforms that allow access on both sides—clients, and their advisors, family office teams and accountants—and at a cost effective and efficient implementation for the banks, will be the future of private banking in the near term, insists Wengi.
Calvin Goh of fintech startup KOKU, which is backed by Jason Zeng (cofounder of Chinese internet titan Tencent), points the future in another direction. He says fintech's future is in "empowering companies in the remittance ecosystem to grow to their strengths, which will contribute to the reshaping of the remittance industry and its capabilities."
As it stands, he says, the remittance industry is somewhat siloed, with nonbank financial intermediaries (NBFIs) who have yet to fully embrace technology falling behind, not only in their business growth, but also losing out on tapping the digital maturity of today's customers. "In five years, we foresee this changing significantly as NBFIs will move to proactively integrate fintech into their operations, allowing them to fully leverage on the region's growing digital penetration," he says. What's more, through fintech, NBFIs will be better equipped to collaborate with partners and expand their business across a borderless ecosystem.
For these NBFIs, fintech will not only provide digital-first services to existing and new customers, it will also deliver a means of financial inclusion for those who don't have access to traditional services, he adds.
As Chris Skinner wrote in his book Digital Human: "The new world is one of transient relationships, shorter-term commitments and everything online all the time. However, the financial system is built for lifetime relationships, long-term engagement, and everything over the counter."
With inputs by Komal Nathani