May 24, 2016
If there is one region to lead the world into the next generation of financial technology innovation, it is Asia. Despite common belief spread by media coverage that the western world is the primary source of growth of financial technology businesses, a wide range of economists and businessmen believe that Asia is a major and underestimated force in the world of FinTech innovation.
Data suggests that investors poured $4.5 billion into FinTech companies in Asia in 2015, which is three times the amount attracted by their peers in Europe.
Now, we can’t really speak of Asia as a homogeneous market. There are more than 20 countries in the region with own hallmarks and opportunities. The majority of them don’t have the scale for FinTech disruptors to flourish, which leads to the necessity to go out and explore massive Chinese, Indian or other relatively large markets. In fact, India is reported to be one of the fastest-growing startup environments in APAC region. The country has the second biggest startup ecosystem after China in deal size and number of deals.
However, crossing borders is not the easiest task for any venture in the financial services industry, but the fact that it is a necessity for most businesses in Asia, some professionals believe that it is an effective weeding out process.
Amar Banwait, Founder of ShereIt, a social trading startup, shared with Forbes, As a founder, you need to do your homework and speak to firms in the new country to get all the relevant information and price quotes before you move and set up shop.
Entrepreneurs that are able to make past those gates can be considered as tested in the battle.
They understand the importance of product design that can function in diverse markets. They know that partnerships can make or break their market entry. They have practice in hiring and managing new employees outside their comfort zone. These founders have the potential to take on larger markets with much greater ease, said Falguni Desai, Managing Director of Future Asia Ventures.
There is a range of reasons APAC region and particular Asian countries are expected to lead the global FinTech growth; let’s go over some of them that are often noticed by professionals.
Asian markets hold a strong position among the world’s top financial centers. In fact, according to the Global Financial Centers Index of 2014, Hong Kong and Singapore are two Asian markets to be in the big four club along with New York and London.
The availability of innovative solutions in the market does not indicate much if there is no adoption of that innovation across the market. Fortunately, the lack of innovation adoption is not the case. In 2015, out of top-three leaders in innovation adoption, two markets were in Asia.
Hong Kong is leading the FinTech adoption market as 29% of the digitally active people in Hong Kong reported that they have used at least two FinTech services in the last month. The US and Singapore come next with 17% and 15% respectively.
According to data presented by The World Bank, the top five positions among the economies with the most business-friendly regulations are occupied by Singapore, New Zealand, Denmark, Korea and Hong Kong. The US and the UK, believed to be the world’s FinTech innovation centers, are falling behind with the UK holding the 6th place, and the US at 7th.
The positions at the top of the ranking do not indicate the absence of regulations or their weakness, but indicate the ability of the governments to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector. For FinTech innovators, those conditions create a fertile ground for the growth and development of financial solutions without irrelevant obstacles caused by ineffective regulatory policies.
According to the World Bank, 2 billion people around the world don’t have access to formal financial services. Most interestingly, over 50% of them are in Asia, particularly in India. While such a large number of unbanked population is not a great feature of the market itself, but the opportunities it represents for FinTech companies are enormous.
Within APAC, FinTech can provide one of the most cost-effective methods of delivering banking services to the 1.2 billion people without a formal bank account. Moreover, China’s digital banking customers are expected to triple by 2020, reaching 900 million.
With more than 1 billion in unbanked population and 1 billion smartphone users, the APAC region is just asking for FinTech to mediate and seize the opportunities banks turned away from.
The global remittance market was estimated at $582 billion in 2014. A major portion of the global remittances (inward and outward) is contributed by countries in South and SE Asia.
India, the Philippines, Bangladesh and Vietnam are among the top 10 remittance-earning countries in the world. Indonesia and Thailand are among the top five remittance-receiving countries in Southeast Asia.
Given the scale of the remittance industry in region, FinTech companies have an outstanding opportunity to leverage it and cut a sizable chunk of the market waiting for disruptive solutions.
APAC was recently reported to have a high demand for payment technologies that process domestic and cross-border transactions. The adoption of faster payment technologies may drive banking and other financial institutions to leverage the digital coin platform, increasing the remittance flow and trading activities in APAC.
China is now the largest P2P lender in the world with almost $66 billion lent out. And even though the total amount of loans lent through online platforms remain a very small part of the total market (less than 1%), China’s market is growing at a rapid pace—around four times the absolute size of marketplace lending in the US and over 10 times the UK.
By 2018, the Chinese P2P market is expected to be around 9% of total retail loans (for comparison, the US P2P market is just 0.7% and even by 2018, the penetration rate would only be slightly above the current Chinese level, which is estimated be at 3%.
In addition to being the world’s largest P2P lending market, China is the largest worldwide crowdfunding market with a potential of $47 billion.
China has the largest e-commerce system in the world with more than $670 billion (40% of the global volume) gross merchandise volume in 2015. By 2018, gross merchandise volume of the e-commerce systems in China is expected to hit $1.6 trillion.
China’s e-commerce ecosystem is now larger than any other country in the world in terms of transaction volume. Moreover, China’s top FinTech companies (Alipay,Tencent and others) often have as many, if not more, clients than the top banks.
In 2014, there were 4.7 million HNWI in Asia holding almost $16 trillion. India and China, in particular, were the number one and two fastest-growing pools of money. Moreover, the amount held by rich people in both countries surged by 12.4% annually between 2006 and 2014.
BCG has estimated that in Asia, the wealth of those with more than $100 million will grow by 18.7% from 2014 to 2019 to $4.9 trillion while the wealth of those with $20 million to $100 million will grow by 11.3% to $5.5 trillion. If in 2014, APAC region held the third place by private assets volume after North America and Western Europe, by 2019, the region is projected to hit $55 trillion in private assets and surpass Western Europe (projected $49 trillion), closing in on North America (projected $62 trillion).
In addition to Asia being an attractive market for FinTech disruption, traditional players also have a strong potential in the region. Recognizing the rising power of the Asian market on global landscape, a large range of international financial institutions are focusing their development efforts on the region.
Credit Suisse, HSBC, Citi Private Bank (CPB), Deutsche Bank and other global banks have recently announced plans to focus their private banking efforts in the APAC region due to a strong belief in high potential and outstanding opportunities of private banking in Asia.
To ensure rapid expansion and development in the region, leading financial institutions are focusing their HR efforts on Asia as well. Estimations suggest that 83% of Standard Chartered’s, 52% of HSBC’s, 26% of Credit Suisse’s and 22% of Deutsche Bank’s open positions’ advertising is reported to be for the APAC region.
Not only banks are shifting their strategies towards Asian expansion and development, but two out of big four global financial centers in Asia are home to an impressive number of financial institutions. There are around 200 banks with total assets of $2 trillion with operational headquarters in Singapore. IT procurement budgets of those banks reached $485 billion last year.
According to Hong Kong’s official government website, at the end of April 2015, there were 157 licensed banks (LB), 23 restricted license banks (RLB) and 21 deposit-taking companies (DTC) in Hong Kong, together with 64 local representative offices of overseas banking institutions in the banking sector. These institutions come from 36 countries and include 71 of the world’s largest 100 banks.
Moreover, Hong Kong’s stock market was the fifth-largest in the world and the third-largest in Asia in terms of market capitalization at the end of April 2015.