Fintech development continues to push forward with some estimates stating that investment into fintech investment whether it be via venture capital, private equity and M&A was at US$111.8 billion globally in 2018, more than double the amount in 2017 based on data from KPMG’s The Pulse of Fintech report 2018. In Asean, Singapore has rapidly established itself as a fintech hub leading the way when it comes to investment and financial regulations supporting the industry.
In 2016, the Monetary Authority of Singapore (MAS) became the first in Asia to launch a regulatory sandbox, a space where fintechs can safely test the applicability of their solution under the watchful eye of the financial regulator. Investment into fintechs based in Singapore has steadily grown to almost US$350 million recorded in 2018, representing the majority of fintech investments in Asean.
“The Singapore authorities are highly supportive of fintech innovation, but they also restrict fintechs from expanding into deposit-taking and lending, as the authorities work to strike a balance between preserving financial stability and giving companies sufficient room to innovate,” says Simon Chen, vice president and senior analyst at Moody’s.
Regarding types of fintech investments in Singapore, 18% of investments went towards blockchain tech related activities followed by investment tech and alternative lending according to UOB’s report titled FinTech in Asean: The Next Wave of Growth.
Singapore and the entire Asean region in general continue to be an area ripe with growth opportunities for fintechs due to the strength of its up and coming young population and their rapid adaptation of mobile devices. According to data from the World Bank, Asean countries such as Thailand and Vietnam have seen the most growth in mobile penetration from 2008-2017. Coupled with the current lack of penetration of financial services, it will take a well thought-out solution to capture market share.
Gone are the days in Singapore at least where fintechs are looking to dislodge banks and incumbent financial institutions, according to a research note from Moody’s on fintech development suggesting that “fintechs are increasingly opting to collaborate with banks to jointly develop products, instead of competing with them or large technology companies for market share.”
While on an upward trend, the biggest factor holding fintech innovation and development back is government policy such as licensing requirements and regulations with The Economist Intelligence Unit reporting that 40% of respondents it surveyed saw this as the biggest obstacle.
This has been a likewise negative factor in other markets outside of Singapore such as South Korea where regulations around fintechs are currently quite restrictive. Moreover, the fintech market is still underdeveloped with virtual banks such as Kakao Bank and K Bank so far capturing a 0.6% market share of domestic loans after approximately 18 months of operation according to a Moody’s research note.
Nevertheless, expect incumbent financial institutions to further embrace emerging technology to solve their traditional pain points. Visa for instance just announced recently that it prevented US$25 billion in fraud on its transactions using artificial intelligence.