By Lisa Robins, Global Head, Transaction Banking
Demography plays an important part in defining Asia-Pacific’s status as the world’s most innovative financial territory. With a few exceptions, the populations of Asian countries are young and comfortable using mobile and financial technology. This naturally drives innovation.
Mindset is also crucial. In India and China, a typically-strong work ethic combined with technology skillsets foster agile development. People are excited and motivated by opportunities presented by the mobile and digital revolution.
This openness to innovation is reflected in the size of the mobile payments market in Asia-Pacific, which is significantly further-reaching compared to that of the United States. Despite being home to some of the world’s leading tech companies – Apple, Alphabet (parent of Google), Microsoft, Facebook etc. – mainstream America is still happy to use cheque books.
Financial inclusion has also been imperative to the growth of financial innovation across Asia-Pacific. With a growing proportion of the region’s population now having access to mobile phone signals, more people have access to banking. Moreover, the cost of managing retail accounts and carrying out transactions, even for the smallest amounts, has been significantly reduced.
A recent estimate by GSMA Intelligence put the number of people in Asia-Pacific who are connected to mobile services at 2.7 billion – which makes up more than half of the global total. Increasingly faster broadband speeds in the region are also making a significant contribution to adoption rates, driving incentives for further innovation.
As a consequence, banking coverage has been successfully extended to previously difficult-to-reach customers. Digitisation of banking systems in India, for example, combined with other government reforms, boosted the number of Indians with bank accounts to 80 per cent currently, compared with 35 per cent in 2011, according to the World Bank.
Overcoming legacy hurdles
China leads the world in the adoption of fintech applications and solutions, followed by India. This is both reflected in and driven by the fact that investors injected USD59 billion of funding into Chinese technology companies and start-ups in 2017, according to Tech in Asia.
Legacy architecture in the region’s financial systems is less problematic than in the developed world, where many major banks struggle with mainframe systems that date back to the 1960s. Adoption of new technologies, like mobile payments, in Asia-Pacific countries is prevalent and faster. As highlighted by the Economist Intelligence Unit, they tend to have less obsolescent infrastructure in place, allowing for smoother implementation of the latest digital solutions. This ensures a continuing competitive advantage.
Meeting unmet demand
While the provision of banking services to previously-underserved customers via fintech firms (fintechs) has been on the rise, traditional banks are not necessarily being disintermediated. Instead of competing, the future trend will be one of collaboration and co-creation between fintechs and banks. Banks remain the only repository with a full view of customers.
Standard Chartered is currently pioneering such partnerships – an example being our participation in ventures with Ant Financial, known for its Alipay mobile payment brand and being the leading player in the vast USD17 trillion Chinese online payments market, according to Bloomberg.
We are the core partner bank for Ant Financial’s new blockchain-based cross-border remittance service, launched in Hong Kong and the Philippines. It harnesses digital wallet technology to provide a fast, secure and low-cost means for Filipinos living in Hong Kong (of which there are 180,000, according to the Census and Statistics Department) to send money back to their families.
Many cities in the Philippines are without bank branches, but mobile phone penetration is deep – in what, according to The World Bank, is the world’s third-largest remittance market. This is a clear example of how the main drivers of financial innovation in Asia dovetail to satisfy unmet demand among underserved and unbanked customer bases.
China is not the only fast-moving adopter of mobile technology. Singapore has the ambition and strategy to become a ‘Smart Nation’, not just financially but in all aspects of society.
The Smart Nation strategy aims to transform Singapore into a country that enjoys total interconnectivity through smart devices on an open API-driven framework, with the goal of integrating and enabling all aspects of life – from healthcare and transport to financial and consumer services – into the Internet of Things. In banking, this includes plans for a unified cashless payment system.
Singapore’s ambition reveals another aspect of Asia-Pacific’s competitive edge – the willingness of government to take a strategic and holistic approach to the introduction of technology. Singapore’s government allocated USD2.4 billion of investment funding to the Smart Nation project in 2017.
The country is developing a national trade platform that will allow buyers, sellers, logistics companies and banks to participate in transactions. This should remove paper from the payments system and make processing safer, sounder and faster.
Singapore is not alone; several countries in the Asia-Pacific region are pursuing similar strategies. India, for example, is investing USD31 billion in its Smart City Mission – expected to benefit 100 million Indian citizens. Other countries embracing smart city initiatives include China, South Korea and Indonesia – according to the United Nations Economic and Social Commission for Asia and the Pacific.
Banks also need to innovate internally. We are currently investing in disruptive technology through our SC Ventures arm, via the opening of a series of innovation labs. The first labs have been established in Singapore and Hong Kong, to nurture engagement with local fintech communities and to drive innovation across our organisation.
The labs are a collaboration space for clients, fintechs and other partners to gather and solve business problems – in line with the broader emerging collaborative environment.
Looking ahead, we believe these symbiotic relationships between banks and fintechs will continue to develop, leading to broader use of technology and new tools that will streamline processes. Creation of more platform services will be accompanied by a scaling-up of participation – a combination of which will be the key to success – in Asia-Pacific and beyond.