The mobile payments market is pretty mature across APAC, so fintechs wanting to make their mark need to consider more advanced solutions. They – and banks – have got to look to AI (Artificial Intelligence), writes Rob Findlay
Fintech in the APAC region is a tale of two parts:
China and the rest.
China accounted for $9 billion of the $9.623 billion invested in fintech across the region over the first seven months of 2016, including $165 million in Hong Kong. India received $339 million, followed by Australia ($103 million), Japan ($68 million) and Singapore ($35 million), with the rest of Asia accounting for the balance.
But it's not just APAC where China is dominant; it's the whole world. During the same period, North America saw $4.58 billion in fintech investment and Europe $1.85 billion.
What is most striking, though, is that the effects are largely confined to within the People's Republic itself. Payments aside, fintech success has yet to filter significantly beyond its borders.
This is probably due to a cocktail of happy factors: the sheer size of the Chinese market means investors don't need to look elsewhere to make a fortune; Chinese consumers are keen to adopt solutions that make their lives easier; and regulation is favourable. The same cannot be said of Vietnam, Myanmar, India or Indonesia, where governments are still trying to catch up with fintech, the banks haven’t noticed the tsunami of change heading their way and populations are far smaller. These countries are largely unbanked – even if the people there are just as eager to embrace the new.
The one big regional winner has been mobile payments.
According to Kantar TNS, more than half of APAC's smartphone owners use them to pay for goods and services via apps.
In China, 40 per cent of connected consumers pay by mobile on a weekly basis and 77 per cent have used mobiles to pay for something at least once. To put this in perspective, the numbers for North America are 33 per cent and Europe 35 per cent.
This is truly a revolutionary change to the way people live their daily lives. Anyone with a smartphone can be a merchant – buying or selling, receiving or paying for stuff from even the most remote regions, increasing regional liquidity and financial transparency. The biggest player is WeChat Pay, particularly in China.
Given that together these digital wallets have made the top four Chinese banks irrelevant, it's safe to say that payment fintech is done in APAC. Looking ahead, fintech will be about the micro level – insurance for one-off needs and the kind of wealth management whereby investors can buy part of a share and invest small amounts. But there's also going to be a role for regtech. Regulation needs a single approach to knowing your customer, for example, and identity.
WeChat Pay is a digital wallet that links users' accounts to their debit and credit cards. As of March 2016 it had more than 300 million users worldwide. Competitors include Alibaba's Alipay, Baidu Wallet and Sina Weibo.
Tom Moyes is doing good work in this area as head of the Mekong Business Initiative, bringing governments together to talk about what a regional ecosystem could look like to help the region leap ahead. But it's not just governments that need to think about the future. Banks and financial services providers have an outdated view, treating fintech start-ups as vendors rather than partners – if they think about them at all.
Banks tend to try to push too hard on price, which can be a disaster for a start-up. While $100,000 to the latter is everything, to a bank it's a rounding error. Instead, it's time to think of fintech and banking as protégé and patron. Both win in the medium to long term, gaining from each other's strengths. Fintechs have innovation, agility and lack of baggage to offer; banks have customer numbers, balance sheets, trust and market knowledge.
When this works, it is a game changer. Look at Wave Money, a joint venture between Norway's Telenor and Yoma Bank that launched in Myanmar at the end of last year. The move, which seeks to reach the vast unbanked population, is seen as part of the growth engine expected to deliver up to 10 per cent growth in coming years. But perhaps the bigger problem is the banks' failure to understand just how fast the market is changing – and that the competition isn't Standard Chartered or Citi, it's likes of Alibaba and Tencent. DBS gets this – and set up a digital pure-play bank in India a year ago that today has more than a million users. But many don't. This must change. The first fintech wave – payments – has played out. The next might involve blockchain, which is hard enough to get people's heads round. But the third wave, already building, is AI. That's going to be big.
Within three years, AI will be the main way we interact with our banks – it will be ambient. To prepare, banks have got to look at thousands of different ways to change the customer experience – and they've got to do so now.
But they need help.
This is where Temenos's MarketPlace and other community fintech hubs and forums will play a part. Banks need to learn what's out there and have their hands held. Those that get with the programme now stand a chance. Those that don't... don't.
Rob Findlay is Senior Vice President, Experience Design at DBS Bank, Singapore
According to Kantar TNS, more than half of APAC’s smartphone owners use them to pay for goods and services via apps.