New Horizons: An Inside Look at the Asia-Pac Region's Fintech Boom

When Waters hosted two conferences on consecutive days in Singapore in June, there was one definitive message delivered by speakers and panelists alike: disruptive technologies are happening, so get ready to embrace them. While the speakers were more eloquent during their deliveries, the underlying meaning was evident.

The US and London may be well ahead of Asia-Pacific (APAC) in terms of their fostering of fintech, but there is huge potential in the region that both the startups and established financial institutions are keen to capitalize on.

"I don't think Asia is ahead of the curve but I do believe Asia could be quick to adopt [new technologies], because what you want to look at is the impact of innovation and where it would be the highest," says Francois Monnet, managing director and COO for private banking, Asia-Pacific, at Credit Suisse. "For example, with mobile technology, the penetration is much higher in Asia than in the US; it shows there can be quicker adoption here."

Singapore vs Hong Kong

Nowhere across the APAC region is the hype of fintech felt more than in Singapore and Hong Kong, as the two traditional financial powerhouses lock horns to be Asia's go-to innovation hub. While much of fintech's focus has previously, and to a certain extent currently, been centered on developments in B2C innovations and crowdfunding, startups are turning their attention to B2B solutions for the capital markets and the two cities are where the tide will turn according to some.

"I don't think Asia is ahead of the curve but I do believe Asia could be quick to adopt [new technologies], because what you want to look at is the impact of innovation and where it would be the highest. For example, with mobile technology, the penetration is much higher in Asia than in the US; it shows there can be quicker adoption here." Francois Monnet, Credit Suisse

Markus Gnirck is co-founder and global COO of Startupbootcamp Fintech, a Singapore-based fintech accelerator program that offers startups the opportunity to work, and ultimately partner, with financial institutions seeking to leverage new technologies.

"We see a lot of stuff happening in Asia," he explains. "Venture capitalists and investors are pumping money into the fintech market, which is exciting. There will be 450 million people in Asia moving to the middle class in the next five years."
Last year there was a total investment of $4 billion into the Asian fintech market, according to Gnirck; during the first six months of 2015, that sum tripled to $12 billion. While those figures may be dwarfed by the investment pumped into the US and European fintech markets, there is a clear appetite from Asia-Pacific investors.

Higher Authority

A key factor in the London fintech scene's growth and success was the involvement of the regulator, the Financial Conduct Authority (FCA), which recognized at an early stage the potential new technology entrants had to positively disrupt financial markets. The FCA launched Project Innovate that included an innovation hub, a forum for financial firms to receive support, and advice on delivering financial services.

It's a position that many regulators in Asia-Pacific have also adopted having witnessed the effects in the US and London markets. In December last year Shin Je-yoon, the chief of South Korea's financial services commission, announced government plans to relax its strict financial regulations by allowing banks to fund fintech companies, as the nation seeks to catch up with China and western markets.

In Singapore, The Monetary Authority of Singapore (MAS) announced at the end of June that the new Financial Sector Technology & Innovation (FSTI) scheme would pump $225 million into the arena during a five-year period to create "a vibrant ecosystem for innovation," according to MAS managing director, Ravi Menon.

"When it comes to proposing new technology platforms in terms of security to the regulators, we have a different attitude and level of scrutiny across the APAC region," says Monnet. "We have certain regulators who are open to that and actually foster technology innovation."

It is this regulatory backing that is crucial to the combined success of fintech startups and established financial institutions, according to Gnirck, because what it all boils down to at the end of the day is collaboration-the root of Startupbootcamp's ethos.

"I believe in the whole issue of trust, and in Europe you have a high level of that with financial institutions," he explains. "Here in South-East Asia, it's interesting how no one really cares about banks-there's no trust in the currency or institutions. They like to adopt and try new things."

Many of the Asian regulators will be hoping that giving their seal of approval, not to mention significant financial backing, to a host of fintech firms either starting up or seeking institutional partners to work with will result in definite progress in closing the gap between the APAC and western markets.

The Exception

While the majority of Asian countries have both regulatory and market support for boosting the presence and activity of fintech firms, there is one nation that stands out almost as a non-participant: Japan.

"We travelled around Asia in the first five months of this year, we went to 15 different locations to run so-called fintech pitch days and invite the local startups to pitch to us," says Gnirck. "We went to Japan and tried to order a pitch day, where we normally meet 10 startups. In Tokyo there were only six in total."

In a market that values conservatism and tradition, fintech startups have found it hard to gain traction, often because many Japanese financial institutions outsource their technology operations to regional banks or vendors with recognized reputations, such as Nomura.

"Japanese institutional investment is by far the most conservative in its approach to process risk, so it's hard to get acceptance for new processes in that market," says Richard Waddington, CEO of Singapore-based vendor Sherpa Funds Technology. "However there are a lot of fund managers in Hong Kong and Singapore that trade in Japanese markets and are adopting new technologies all the time."

Sherpa Funds Technology is one such vendor aiming to fulfill demand for new solutions in the Asian markets with its Optimal Risk Sizing offering, which links investors to portfolio managers to minimize communication risk. It's a platform that meets the need for "greater investment risk and performance management," which players in the APAC market are "thinking about from an operational perspective," says Gordon Brown, managing partner at investment specialist consultancy, Stradegi.

Culture Change

One of the biggest and most recognized barriers to the adoption of disruptive technologies is that of culture. Established financial institutions may often resist changing operating models for several reasons, however those operating across Asia will have no doubt glanced westward to see what has been coming their way.

"The issue that we see is this idea that Asia is still trying to catch up to things that are well established in the West," says Brown. "From a cultural perspective, there is a little bit of reluctance to move too quickly and an inherent caution to adopt."

Much of this reluctance stems from the sheer variety found across the Asian markets, according to Brown, which lack the depth and standards of those in the West. Waddington also pinpoints the conservative attitude as a barrier to both growth and entry for technology providers.

"Innovation in financial market trading processes is tricky because of the innate conservatism of institutional investors," he says. "The conservatism translates into a difficulty in getting people to take new-process risk. It's a difficult question to put to people because risk means change."

Waddington also sees the existing presence of major international vendors, those that offer the "type-one technologies" that are the very foundations of any financial institution operations, as a barrier to entry for existing firms.

"If you take the large OMS, EMS and PMS providers, they are global, not Asia-based, and there is quite a big barrier to entry within that group," he explains. "Type-two technology firms such as ours require much less infrastructure, but rather something smart and a decent understanding of business processes en-route to implementation. So there aren't the same barriers in place."

The Next Generation

One of the main drivers in the Asia-Pacific markets is an increasing convergence between investment and wealth management. It's a movement that Brown notes isn't strictly limited to Asia, but will be most keenly felt in the region, especially as "we're not necessarily sure that existing solutions are there to support the trend."

One institution that has moved to embrace new technologies is Credit Suisse, which earlier this year launched a new digital wealth management platform in Singapore before a planned rollout to the rest of its client base.

Similar to other banking institutions such as DBS, UBS and Metlife, Credit Suisse has also established an innovation hub in Singapore to work with fintech startups on future developments.

"There will be fintech companies providing banks with new technologies and innovation," says Monnet. "Eventually resulting in new business models and revenue streams, this association with the fintechs will definitely create new opportunities with new products."

The move to digitize the bank's wealth management services was a strategic one. The next generation of clients in Asia-Pacific is a large, affluent group that has a greater grasp of available technologies than their banks, evidenced by the decision to initially launch the platform on mobile devices. Not that it was an easy operation, according to Monnet.

"Digitization is not just at the front-end," he explains. "You need to turn the bank into a digital body and if you can do that with a view of delivering change in the most agile manner on the backbone of a data-driven strategy which leverages client centricity and the information you have on your client base, I think you can only win. But it's not easy; there are a lot of conditions for success."

New Models

While adopting new technologies is all well and good for banks, it really is only half the battle. There also needs to be recognition and support for new approaches running from the top all the way down through the institution.

"It's not so much about what technology is doing-it's really what is going on within the businesses themselves," explains Brown. "If you look at investment management firms, they're no longer just traditional-the variety of product mix that they offer covers the whole spectrum."

Brown believes that the solutions offered by the buy-side vendors aren't up to scratch for the evolving demands of their clients. Established vendors that want to bring in new technologies to the market "have to go back and re-engineer," whereas new, more agile startups are in a better position to "build and develop solutions that are well thought-out to address a wider asset base."

Asia-Pacific is also seeing the entrance of other players into the market, technology giants such as Amazon and Ali Baba that hold the potential to disrupt the market further. If this will happen is a matter of opinion, one that Monnet dismisses, pointing out that established financial institutions have the wherewithal to see off this new breed of competition.

"We are serving more complex needs, which require the combination of relationship management and extensive technology understanding," he says. "It's the sum of the two that makes a unique and complete experience capable of handling complex needs."

Not The Internet

The hype around fintech in Asia-Pacific is growing far too loud to ignore, although at present it is still largely a forward-looking issue. As Gnirck points out, the change will occur during the next 20 years. "It won't be like the internet, it won't change overnight," he says.

The implications for banking institutions that don't adapt to new technologies-shrinking talent pools, younger competition with greater agility and technology resources-must be recognized. Some of the larger players have already realized the key to embracing new technologies, according to Waddington.

"Disruptive technologies are all about the ‘scientification' of decision making," he explains. "It really does turn out that the more successful a fund manager has been in the past, the more they understand this concept."

Understanding and embracing may be two separate animals, but there is clearly appetite on both sides for fintech across Asia-Pacific. The ramifications for those who don't, however, may find themselves participating as mere bit players further down the road.

Salient points

• Following similar trends in North America and Europe, fintech startups are growing in Asia-Pacific through participation in accelerator programs and innovation hubs, as established financial institutions look to leverage new technologies.

• While Singapore and Hong Kong lead the way in developing new technologies for the capital markets, other Asian nations such as South Korea, India and Malaysia, are also focusing on fostering startup activities.

• Regulators have moved to provide strategic and financial support for fintech growth through funding, innovation schemes, and the relaxation of regulations to encourage banking institutions to partner with startups.

• A new generation of Asian investor is more receptive to disruptive technologies, spurning traditional relationships for mobile technologies as the divide between investment and wealth management practices diminishes.