Global Fintech: The Fast and the Furious

FinTech, one of the fastest growing sectors of today’s economy, is hitting the business world with explosive force.  Companies are irrevocably changing the way consumers, businesses and financial organisations interact with each other worldwide and are embracing the opportunities afforded of them.  

I’d think that many of us out there often get caught up in this overwhelming fast and furious tidal wave of technological changes, and find myself considering the implications of what’s developing in front of us at an incredible pace.

FinTech is doing far more than changing the way things get paid for or money is moved around - it is significantly changing what we have historically considered ‘currency,’ by creating new digital currencies; ‘cryptocurrency,’ reinventing lending through new business models, using new encryption technologies to enable the transfer of funds around the world, and much more. This revolution sees the world experiencing a very different economy emerging, as it steps away from traditional points of origin and operates independent of government or central bank.

How then is FinTech implemented and appreciated around the world, and what will the implications of this reformation be?

On 29th August 2018, the Dubai Financial Services Authority (DFSA) and the Monetary Authority of Singapore (MAS) entered into a FinTech agreement that permits the referrals of innovative businesses between the two authorities.  

The agreement reflects the commitment made by both authorities to ensure the continual development of financial services through the use of emerging technology.

I firmly believe that in increasing overall efficiency, reducing cost and managing risks better, using the applications of critical technologies such as digital and mobile payments, big data and blockchain distributed ledgers, there is a genuine opportunity for enhanced financial services to be appreciated.

There will also be a significant focus on the facilitating the sharing of information to support financial innovation.

Dubai has been dubbed the ‘City of The Future’ by Popular Science Magazine, one of the world’s oldest science and technology journals, and amongst the sometimes it’s renown enthusiastic plans, such as programmable ‘robot cops’ and appointing a minister in charge of Artificial Intelligence stands another disruption: the determination to become the world’s first BlockChain Government by 2020.

The organisation responsible for overseeing the project, Smart Dubai predicts that leveraging blockchain could save the economy as much as US$1.5 billion annually purely by operating a paperless, blockchain government and this is only one of the disruption proposed to date.

But how did Singapore become No.1 in Asia and can it sustain this placement in 2018?

In general, Singapore operates a much simpler regulatory approach to Fintech compared to the multi-layered structure in Hong Kong.

According to KPMG’s ‘Pulse of Fintech’ report, a record of US$229.1million of FinTech funding was acquired in 2017.  The areas of the blockchain, artificial intelligence, and machine learning are currently key users of Fintech concepts, and the Government is now working on growing the industry further.

A report recently released by PwC indicates that 82% of executives in Singapore have reported that blockchain initiatives are already underway in their organisations.

Singapore’s own blockchain powered project, Project Ubin aims to help MAS and the industry as a whole, better understand the potential benefits technology such as Distributed Ledger Technology (DLT) for clearing and settling payments.

DLT has the potential to make financial transactions cheaper, more transparent and resilient, which could improve the country’s extensive banking system and reduce fees with the eventual goal of decentralising banking transactions.

As one of the earliest advocates of blockchain and crypto,  Singapore’s strategic position enables it to let the market grow with little to no central intervention.

So, what it is that Singapore and Dubai have in common?

In the first instance, both countries are key financial centres in Asia;  both considered among the ‘blockchain friendly territories’. With Singapore backing a massive blockchain initiative and Dubai pushing for a blockchain Government, there’s little wonder why both Governments are joining forces to lead the blockchain revolution.

While central banks and financial institutions around the world remain cautious towards blockchain, Dubai and Singapore are welcoming innovation, working as incubators by leveraging the strength of Singapore’s strong financial organisations with Dubai’s want for change.

Looking elsewhere in Asia?

Let’s consider the ‘Wild Card’: India. While still developing as an internet economy, it is an emerging market with respect to the financial penetration and it’s here that Fintech might go boom.

Naturally there is Hong Kong seeking to position itself as the leader of Fintech within Asia. However, Singapore’s total FinTech funding was 1.6 times higher than that of Hong Kong’s in 2016 and 2017 as seen in the graph below.

VC investments in China Fintech have grown at a compound annual growth rate of 300% from 2014–2017. The largest Chinese FinTech company, Ant Financial, has been valued at more than $100bn, on par with top-tier financial institutions like Goldman Sachs ($94bn market cap).

After a solid US$2B in H2’17, total fintech funding in Asia surged to US$16.8B across 162 deals in H1’18 powered by a massive US$14B Series C VC funding round by Ant Financial (KPMG).

With more than 3.4bn third-party payment accounts in China, it is small wonder that Chinese companies secured 5 of the top 10 slots in the KPMG/H2 ranking of the top fintech firms globally in 2017; Paypal has 227mn users globally (Dec 2017).

Further afield in APAC, Australia’s research firm, Frost and Sullivan studied FinTech Trends, Forecasts and Analysis 2015-2020 and concluded that the Australian Fintech sector division is positioned to claim a significant $10 billion in aggregated revenues away from larger Australian banks, contributing a sizeable $3 billion of new revenue to the Australian financial services sector, by 2020.

Europe brings forth an exciting example as to how this innovation is changing not only the way we deal financially but the impact the new monetary transaction course is having on society as a whole.

The UK is known as one of the leading FinTech capitals of the world and has held the title of ‘dominant Fintech hub’ across Europe.  However if restrictions are imposed on immigration after the UK leaves the EU in March 2019, it’s highly likely a reduction in the numbers of skilled, and necessary, skilled workers will be triggered as the country becomes less attractive as a ‘talent pool for entrepreneurs’, no doubt resulting in a negative impact in the long run.  With start-up’s access to capital being jeopardised, will UK FinTech companies have access to the single market once Brexit is complete and the fact that it’s highly possible that the opportunities for the guarantee of free movement of goods, capital, services, and labour – the “four freedoms”- within the Europen Union (EU) will become significantly compromised.  The Freedom of Movement of the labour offered by membership within the EU single market is crucial in bridging the UK’s technology skill’s gap.

Negotiations continue, but innovation is strongly encouraged by the regulators who are offering ongoing support and reassurance that if investment within Europe experiences loss, it can be counter-balanced by other regions.

London will work hard towards keeping its title of being ‘Global Capital of FinTech,’ but there are other capitals with thriving FinTech Industries poised to surge ahead -  Dublin, Berlin, and Paris to name but three.

Likewise emerging hubs like Tel Aviv and Lisbon have startup colonies are evolving and creating connected new Ecosystems, with digital startup’s profoundly penetrating every niche of today’s economy.  The phenomenon has been given the label of ‘Cambrian Explosion’ as an entrepreneurial explosion erupts with force akin to that of the worlds explosive development some 540 million years ago.

Finally and reflecting on the Americas, with growth being staggeringly strong and investment made in early of 2018 well on target for transcending that of 2017.  US companies have drawn some $14.2 billion in inclusive FinTech investment within the first six months of the year alone, so hosting the vast majority of all FinTech investment within the region.  However, it is only fair to comment that Silicon Valley is not alone and things are ever evolving, with several other hubs also becoming very active within the FinTech space that historically had been hiding in the shadows until recently.

Fintech and Techfin

It’s impossible to close the article without touching briefly upon Techfin. They were defined as so:

FinTech exists with an objective to maximise the use of emerging technologies to disrupt existing 'old world' financial services models. A good example of this would be the use of Blockchain.

TechFin (coined by Jack Ma, Alibaba’s Founder, in 2016) exists where Tech companies provide financial services with a more customer & technology centric approach.

Fintech companies and the technologies that come with it tend to substitute or encourage a whole new approach to an existing process; VISA didn’t create the revolutionary PayPal despite their extensive global reach. The mobile banking services that most traditional banks offer is also fintech. Non-traditional financial offerings such as the digital-only Starling Bank, Monzo, Revolut, Zelle and Venmo are all examples of fintech at play.

Techfin on the other hand, is driven by large technology firms who develop financial solutions to their customers.

These examples here from an article in Thomson Reuters, demonstrate techfin innovation at work:

“In Asia, there is the famous triumvirate (Baidu, Alibaba and Tencent); businesses that illustrate our point:

Baidu can better sell information by letting you not only search for your favorite restaurant, but also handle the reservation of the table, the payment of the menu and the taxi ride back home.

Alibaba can better sell products by facilitating express checkout via Alipay and can facilitate the number of products available by financing the SMEs that it knows will sale.

Tencent can better connect people by splitting bills in a restaurant via WeChat Wallet or reconnecting families millions of kilometers apart during Chinese new year simply by digitizing Red-envelopes.”

In both instances, success hangs precariously on the ability to collect and analyze massive data sets, learn from the insights to improve personalization and digital engagement in real-time, and expand offerings in response to consumer needs, especially Millenials.

Marc Andreessen, a Silicon Valley venture capitalist’s notorious comment may well serve as a fitting conclusion ‘Software is eating the world.’  

An interesting but appropriate analogy as we witness entire industries becoming remolded and original business notions undergoing transformations.  The digital transformation has taken hold, and further maturation of the market is set to cement that an anonymous comment made some ten plus years ago claiming Fintech would be a ‘five-minute wonder’ was most definitely wrong.