Around the world, customers and businesses are going online to procure goods and services, manage their finances and make payments, presenting growing opportunities for banks and fintechs alike and shining the spotlight on collaboration between the two.
This has accelerated in the past two years as the global pandemic has forced many to embrace digital payments, especially in markets that have historically relied heavily on physical cash. Several leading fintechs have worked closely with their banking partners, building an impressive array of well-regulated, secure and innovative digital financial products, creating new business and investor opportunities.
But things don’t always go as planned and partnerships can throw up some challenges. This particularly happens if the parties involved have different expectations of each other, or if there’s misalignment on the objectives or timelines working up to product launch.
With investments in the fintech industry forecast to grow to USD310 billion by 2022 – up from USD128Bn in 20181, more fintechs are looking to expand their footprint and their offering, and the opportunity to collaborate with banks is set to increase. Here, Standard Chartered’s Anurag Bajaj, Global Head of Fintech, shares his insights into how banks and fintechs can work together in a productive and sustainable way.
1. Each market is different – get to know it
Growing populations and increasing digital and financial inclusion means many fintech companies are targeting rapid expansion across borders and into more emerging markets of Asia, Africa and the Middle East.
Since regulations on capital, payments, foreign exchange, digital assets and lending vary widely between countries, specialist knowledge of local markets and regulation is necessary in this endeavour.
For some time, Asia has been attracting interest from European and US fintech players, primarily because of the size and growth of its digital-literate population. Against this backdrop, global demand for ecommerce and local payment options is accelerating among consumers and small businesses, now also fuelled by COVID-19 restrictions. In China and India, the usage rates of FinTech powered services2 are well above 80 per cent, and markets like Hong Kong, Singapore and South Korea are catching up, while Southeast Asia is also fast growing with a huge upside from its demographic dividend.
US payment company Stripe3 has also been growing in Southeast Asia and the Middle East, benefiting from explosive growth in ecommerce. YouTrip, a mobile wallet based in Singapore, announced a six-year partnership with Visa4 to accelerate expansion into Malaysia and the Philippines. Consumers and businesses in the Philippines have embraced digital, with fast-growing GCash5 offering payments and frictionless financial services.
Digital payments are also core for Standard Chartered, and the rise of the digital economy is one of the bank’s high-conviction themes. The bank is investing USD1 billion a year in strategic initiatives6 that will help it generate 50 per cent of its income from digital initiatives, innovation and transformation of its core banking technology.
Since Asia Pacific is forecast to exhibit the highest fintech growth of all regions7, we believe our knowledge of these markets, gained through our own rich experience operating in the region, can be leveraged by our Fintech partners to help foster innovation across our operations in individual countries.
An example of Standard Chartered’s ability to help fintechs capitalise on the bank’s local knowledge was its role bringing together Ireland’s CurrencyFair and Australia’s Assembly Payments. The new company, Zai moves beyond domestic and cross-border payments to provide a core suite of broader integrated financial services to mid-market and enterprise-level customers.
Knowing the region as well as the global context is vital. In addition to offering extensive business networks, an “on the ground” presence and local connections, Standard Chartered’s long history and global footprint has helped us understand the importance of localisation. There is no one-size-fits-all approach when it comes to product offerings, local rules and regulations, particularly where innovative Fintech business models and digital technologies are concerned.
For most fintechs entering into a new market today, the growth of instant payments means they must secure direct access to real-time payments infrastructure in these markets, as well as any other local payment methods (like wallets). Driving this is consumer expectation of being able to move money with an increased velocity and transparency. Standard Chartered works with a range of fintechs today to support the solutions they need, and to provide secure connectivity in a compliant manner.
2. Don’t underestimate the effort, especially local needs
Continued fast-paced growth requires local resourcing, particularly in areas like compliance, marketing and product design. Maintaining competitiveness in this area is difficult, with a shortage of, and high demand for, highly-skilled developers and engineers.
Based on experience of being in many of the markets for an extended period, Standard Chartered brings a very local perspective and can help fintechs build a foothold in a new market or grow into another. While we are an incumbent8 in many markets, we are also prepared to disrupt, fostering innovation internally and partnering with innovators.
Beyond the large number of regional and international fintechs expanding into Asia, another fast-growing market is the Middle East. For example, the Dutch payment company Adyen, recently expanded into the Middle East9 with the growth of ecommerce in this region, and has opened an office in Dubai to run Middle East operations and initially support local payment methods in the United Arab Emirates, Saudi Arabia, and Africa.
Standard Chartered has worked with global payments companies and acquirers to set up their offices in the UAE and assisted their further expansion across the Middle East and Africa.
The bank looks to support its clients within as many of its network markets as it can. In the past, the focus was on more developed markets such as Korea, HK and Singapore – but now it is seeing more and more inquiries for assistance to plug in to the fintech ecosystems in emerging markets such as Indonesia, Nigeria and Philippines.
3. Draw on established local relationships
Building a lasting banking franchise has required us to build strong relationships with local regulators, along with a compendium of regulatory knowledge and in some markets, contacts that fintechs may find useful to tap into. International banks with long-established local ties and business history can help support direct engagement with local regulators and help drive clarity in local regulations.
Legal frameworks across the region are complex10 and are constantly evolving. Having a partner in place who already has a fine-tuned dialogue with local regulators can really help to ease that path.
The importance of these long-held presences and relationships was embodied by Standard Chartered’s partnership with PCCW, HKT and Ctrip Finance to obtain a virtual bank licence for a new digital bank in Hong Kong. We have also recently supported a large ecommerce marketplace navigate regulations in Singapore related to cross border payments for merchant wallets.
Standard Chartered has also invested in Atome Financial11, which operates Asia’s largest buy-now-pay-later platform, Atome, as well as digital lending platform KreditPintar in Indonesia. The partnership will initially roll out in Indonesia, Malaysia, Singapore and Vietnam and then expand to include digital lending products.
4. Operationalising risk controls
Checks and balances to guard against fraud and money laundering are vital as criminals look to insert themselves into any potential weakness within a fintech process and take advantage of the uptick in use of these services.
Banks can help navigate the regulatory landscape when it comes to anti-money laundering and counter-terrorism financing. Experience in a broad range of international payments along with the regulatory expectation can be shared, particularly when it comes to transaction screening and monitoring.
As the pandemic accelerated, trends that were already in train increased, including digitalisation. Fintechs and banks were forced to evolve together at an increased velocity, while also coping with the unprecedented challenges thrown up by COVID-19.
That brought into sharp focus what fintechs really need as they grow: local knowledge, appropriate capacity in control functions and strong relationships coupled with robust checks and balances. Putting this in place at the outset creates space for creativity to thrive, and for the promise of digital payments and a truly digital future to be unlocked.
Through partnerships, deals and collaboration, Standard Chartered will continue to invest in and accelerate our digital offerings, working hand in hand with leading fintech innovators to foster fresh ideas throughout our markets.
When working together works well
Standard Chartered’s investment into Linklogis
Standard Chartered and Linklogis, China’s leading blockchain-enabled supply chain financing platform, formed a joint venture to build a digital trade finance platform headquartered in Singapore – called Olea.
It aims to match institutional investors seeking opportunities in alternative asset classes with businesses requiring supply chain financing.
For Standard Chartered, this creates an opportunity to bring institutional investors alternative asset classes on a reliable and trustworthy platform.
This is an example of how fintechs and banks can best work together, as it marries Standard Chartered’s international trade and risk management expertise − as well as its knowledge of Asia, Africa and the Middle East − with Linklogis’ innovative supply chain technology.