Why Fintech Should Be Welcomed, Not Feared

Financial Innovation Can Help Address Asia's Growing Inequality

By Curtis S. Chin

BANGKOK — For policy makers and entrepreneurs around the world, whether in Tokyo, Delhi or here in Southeast Asia, the benefits of addressing the digital divide and of harnessing the power of fintech —shorthand for the technologies that are delivering innovations as well as new challenges and opportunities to the once staid banking sector — should be clear-cut.

As my associate Jose B. Collazo and I wrote recently in a commentary appearing in the Straits Times of Singapore and in other publications across Asia from the Jakarta Post in Indonesia to Kuensel in Bhutan, these two steps taken together can increase the level of access to capital and financial inclusion. 

That's certainly a view that also was shared and discussed here in Thailand as the Milken Institute co-hosted a "Future of Finance" roundtable with the nation’s central bank this April, as well as in Los Angeles at the 21st annual Milken Institute Global Conference in May.

From blockchain to crypto currencies including Bitcoin and Ethereum, as well as Initial Coin Offerings (ICOs) that allocate “tokens” as a new means of crowdfunding capital, the language and disruptions buffeting the mainstream banking and financial services industry can seem overwhelming.

Do Not Be Afraid

Yet, just as businesses and consumers overcame fears and concerns about the advent of disruptions wrought by ATMs, fear of technology's impact on an evolving finance industry should not hold back change. Fintech is a disruption to be embraced. 

This is echoed in comments sent to me from one of Japan's digital pioneers.  “We are strong believers in the power of digital transformation evoked by token economies and fintech innovation,” said Taizo Son, investor and founder of Mistletoe, a hub for startups and overall entrepreneurial ecosystems. Taizo is the youngest brother of another tech pioneer, Softbank’s Masayoshi Son.

“However, such technologies also hold the potential to promote the already widening income gap in our society,” said Taizo Son. “As entrepreneurs and architects of innovation we need to be aware of the important role we play in building a society that remains empathic and inclusive to all people in this era of increasingly autonomous technology.”

Indeed, at a time of growing inequality, how to ensure a positive, meaningful impact from fintech on the people of Asia?

A Positive Impact

Across the Indo-Pacific region, with mainland China typically attracting the lion's share of venture capital investments, fintech deals continue to make news. Many have been covered by my Milken Institute Center for Financial Markets colleague Jackson Mueller in his regular "FinTech in Focus" blog. As examples, multi-million dollar investment deals were reported last year in India into online lending platform Capital Float, in Hong Kong into “digital wallet operator” TNG Fintech Group, and in Korea into that nation’s second largest cryptocurrency exchange, Korbit.

In Indonesia, motorbike delivery and ridesharing app Go-Jek is now officially a “unicorn” – a tech start-up valued at more than US$1 billion. With Go-Jek’s acquisition of payment portals Kartuku and Midtrans, and savings and lending network Mapan, the company is poised not only to be a digital payments leader, but also is in a position to influence the shape and scope of the fintech landscape in Southeast Asia's largest economy.

The unmet need for basic banking services is significant across much of Southeast Asia. Only 27% of the region’s 600 million inhabitants had a bank account in 2016, according to consulting firm KPMG. And herein lies opportunity to find meaning and impact through fintech. 

The Power of Digital Finance

The 2017 Accelerating Financial Inclusion in Southeast Asia with Digital Finance study, conducted by the Asian Development Bank and consulting firms Oliver Wyman and MicroSave, found that opening the door to financial services to the unbanked could increase the GDP of the Philippines and Indonesia by as much as 3 percent and Cambodia’s by 6 percent.

In emerging economies such as Cambodia, only 5 percent of the population have access to formal banking services. This level of “unbanked” has negative repercussions for the region.

With little to no access to formal banking services, too many people in Asia go without the basic protections of a savings account, and also may well face relatively higher costs for sending or receiving money. This, in a region where remittances were valued at US$236 billion in 2016, according to the World Bank.

“Having access to basic financial services can reduce hunger, increase education and generally improve the quality of life,” said Queen Máxima of the Netherlands, UN Secretary-General's Special Advocate for Inclusive Finance for Development, in her speech to attendees at the Singapore Fintech Festival 2017.

Banking on Fintech

“I am convinced that fintech’s greatest achievement will be not just helping the unbanked, but also the underbanked — individuals who have insufficient access to financial services—to live a better life,” adds venture capitalist and fintech influencer Spiros Margaris.

Yet, the sustained benefits of fintech will only be realized if a proper ecosystem is created and maintained – one that addresses concerns of regulators while benefiting innovators and most importantly, consumers.

Narrowing the digital divide also will continued to be a fundamental need, with increased mobile phone ownership and internet penetration key factors in spurring consumer adoption of mobile financial services.

Indeed, the true measure of success for fintech should not be deal size or quantity but in expanded horizons. True success is when fintech helps once-poor farming communities access funds to bring their crops to market, or helps small shopkeepers to grow bigger, or provides seed money for a young entrepreneur ready to turn a great idea into a concrete reality.

Beyond the fintech hype and jargon, the human element of financial technology should not be forgotten. Assessments of fintech must go beyond counting fortunes made and businesses disrupted or created, but also include a measure of people helped. 

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Curtis S. Chin, a former U.S. ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group, LLC. Follow him on Twitter at @CurtisSChin.