Panel: Fintech in Emerging and Developed Countries in Asia

This article is part of a series of questions and answers discussed by our panelists during the Fintech Asia Forum in Jakarta on 10 November. As the media partner of Fintech Asia Forum Jakarta, we have been privileged to hear the different opinions of our panelists and understanding the leading fintech trends in Asia. This has provided us with a clearer insight on fintech developments on the ground.

The panelists who participated in the panel discussion include:

  • Donald Wihardja, Partner at Convergence Ventures
  • Vivek Ladsariya, Head of Investments at Fenox VC
  • Steve Lee, CSO at Korea Creadic Life (KCL)
  • Seunghyun Cho (Joe), Chairman at Marvelstone
  • Gina Heng, CEO at Marvelstone

Second Question: What are the distinctive differences between fintech developments and businesses in emerging and developed countries in Asia?

Moderator:

There are many segments within the fintech space and Asia is a hot-bed for fintech startups at the moment with surges in investments and has garnered incredible interest by foreign investors. Nonetheless, Asia remains a fragmented region and fintech developments are at vastly different stages between countries.

Image taken from http://www.edelman.com
Image taken from http://www.edelman.com

 

In developed economies, the regulatory framework for fintech is more mature and existing infrastructure is efficient and effective. Developed Asian countries such as Singapore, Hong Kong, Japan and Seoul are commonly known as hubs with great fintech innovation due to the receptiveness of local regulators to fintech. Therefore, as they understand the space, more support is given to businesses.

Having said that, while emerging Asian markets may not have sufficient regulatory frameworks to support the space and are faced with challenges due to the conservative outlook of local stakeholders, there is a massive pool of opportunities yet to be discovered. This can be explained by the big underbanked population in these nations, and fintech offers a solution, not previously existent, to this problem. The profile of opportunities in different countries in this seemingly homogeneous region is very different, hence it is of vital important to identify the differences, in order to tackle the pain points of the population.

 

Leading on from the first question, we probed our panelists further to unfold their opinions on the actual differences between fintech developments between developed and emerging countries in the region.

 

Panelists:

Vivek began the discussion by making a good illustration on how we can view fintech as a hierarchy of individual needs in terms of banking services.

The most basic need would be banking services – how do we place our physical cash into a bank account and how do I receive my salary. Next, after having a storage system for our cash, comes payments. When individuals move on from bare basic needs from financial services, they can now look into growing their earnings through investments. These can come in the form of mutual bonds, capital markets, hedge funds and more. Finally, individuals look into insurance – whereby they look into receiving financial protection or reimbursements against losses.

Vivek further strengthen his point on how different countries in Asia are in different stages of development, hence individual needs are very much dependent on the state of their country. Therefore, the layers of the hierarchy of needs differentiates fintech trends in developed and emerging countries.

Image taken from http://www.premiumfinance-group.com
Image taken from http://www.premiumfinance-group.com

 

Steve agrees that segments such as wealth management, personal finance and insurance are typically the fintech trends in developed countries. These segments have been handled by financial institutions in the past. Improvements to the system only requires a technology layer on top of the existing solutions to make the process more efficient. Therefore, fintech serves as a tool to further enhance existing solutions through the use of technology and innovation. Furthermore, through fintech, costs for financial institutions can be lowered, which translates into lower fees for consumers, a win-win situation.

coins-948603_1920

Emerging markets have a large unbanked population and financial systems are either non-existent or highly inefficient. Therefore, fintech serves as a replacement to existing solutions in order to make financial infrastructure more efficient and accessible. The trends in emerging countries will then tend to sway towards simple services like financial comparison, basic payment systems and lending, as there is still a long way to go from individuals with no bank accounts to wealth management. Steve echoed Vivek’s thoughts in highlighting that fintech in emerging markets begin with having a safe area for individuals to store their money, while in developed markets, people are more concerned about growing their existing wealth. Hence, it would be a useful skill to have if fintech startups are able to identify and have different perspectives when dealing with different countries.

 

Donald follows after the points made by Steve and Vivek and emphasises the point that in a lot of developing countries, cash is still the number one method of payment. Therefore, the credit card user and merchant base is still weak. It was mentioned that while payments are commonly thought to be the leading fintech development trend, it is not the case in developing countries. Banks are currently covering the payments solutions in these countries and it is not a segment that we are able to invest in due to high costs.

He said that the approach companies are doing currently is through brute force, for instance, providing a lot of discounts in order to acquire new users. However, this approach often lead to failure in startups due to the incredibly high costs. Which is why Donald suggested that financial comparison sites work well they are easy to understand and implement. As the middle class in Indonesia grows, individuals become more financially aware and frequent these sites. Fintech developments in the form of financial education and providing advice to individuals who want to understand more about their options in credit cards, loans, insurance and more then becomes an important need to satisfy.

 

Editor’s notes:

We profile countries into three categories: early-stage emerging markets (with a bank account penetration of <40%), late-stage emerging markets (with bank account penetration at 40%-80%) and developed markets (bank account penetration of >80%).

In early-stage emerging markets such as the Philippines and Indonesia, we observe telecommunications operators disrupting the financial services sector first through creating wallets for game credits, followed by targeting remittance services, which is an important segment to tackle in these markets.

asia-61899_1920

Late-stage emerging markets include China and Thailand where e-commerce is booming and fintech can grasp the opportunity through enabling payments through these channels. Due to the existing inefficiencies of financial services, businesses are able to capitalise on the gap in the economy and provide a solution.

The fintech ecosystem in emerging markets mainly offer B2C solutions in the areas of mobile payments, where they are able to solve big pain-points faced by the general population.

Developed markets include the Asian tigers – Singapore, Hong Kong, South Korea and Taiwan. There, fintech developments can penetrate through P2P lending by offering attractive interest rates to investors and lenders, mainly in the realm of investments and wealth management. Furthermore, the maturity of the financial services industry has groomed a number of professionals, whom we have seen leaving their traditional jobs and bringing their wealth of experience starting their own fintech companies. This occurrence has boosted more sophisticated fintech solutions for developed economies, providing a richer ecosystem that not only caters to consumers but also to businesses.

5063252040_1a2b660b05_b

 

Read the first of our panel series here: Q1: Leading Trends in Asia

You may also like

Leave a Reply

Your email address will not be published. Required fields are marked *