Finding success across Asia’s disparate fintech markets

By Joshua Bateman on Monday 18 September 2017

OpinionAlternative LendingDigital BankingSavings and Investment

Owing to Asia's high incomes, savings rates, and asset bases, there are bountiful rewards for companies addressing market inefficiencies with fintech solutions. But just as life varies across countries, so too do the fintech environments.

It is imperative that entrants appreciate the differing financial legacies, regulatory regimes, market incentives, government involvement, and technology acceptance rates.

For Hong Kong fintech to develop, Thomas Glucksmann, head of marketing at Gatecoin, a bitcoin and ethereum token exchange, said education is necessary to address the myriad misconceptions.

Speaking at the Start Fintech Conference, he said that when consumers understand new technologies, payment options, and investment solutions, “You’ll see more adoption in Hong Kong.” Glucksmann also said the market is hampered by ambiguous regulations. Other Asian regulators are explicitly addressing fintech, but Hong Kong has not yet done so.

Fintech development has also been stalled by traditional firms such as HSBC Holdings, Hang Seng Bank, and Standard Chartered cornering the market. Mikaal Abdulla, co-founder and CEO of 8 Securities, an online investment platform, said banks manage clients’ savings accounts, investing portfolios, and insurance products.

This contrasts with places like mainland China where the banks have not realized market dominance. Thus, for example, more than half of all mutual funds in China are sold online, dwarfing more traditional markets that still rely on brick-and-mortar distribution intermediaries.

“There hasn’t been a lot of pressure or incentive for those [Hong Kong] banks to change. And I think friction for users is a natural consequence of that,” Abdulla said. “The successful fintechs will be the ones that attack the profit margins at the banks.”

Conference presenters also noted that many Hong Kong parents encourage their children to be bankers, lawyers, doctors – not entrepreneurs. Thus, fewer fintechs will be founded.

Hong Kong does, however, have advantages. As a global financial center, many decision-makers at financial conglomerates are based there. It is also a gateway for mainland China expansion.

Jason Lau, co-founder of OKLink, a settlement platform for cross-border payments, noted Hong Kong’s geographic and cultural proximity to the mainland.  As an international city, though, he said, “There’s a tremendous pool of talent here and capital flows are easier here.”

In Korea, banks also control distribution, according to SG Lee, CEO of Viva Republica, a financial services platform. Only recently are banks begrudgingly introducing technology-based services. “[Banks] don’t see the digital innovation as an opportunity. They see it as a cost,” Lee said. “There is a huge void in the financial services.”

One service Viva Republica provides consumers is simplification. Typical Koreans have some half a dozen bank accounts and Viva Republica helps them aggregate and manage these. Lee said that banks, securities brokers, and credit card companies need to reevaluate how they think about meeting customers’ needs. “They have to choose whether they evolve,” he said.

In Japan, Abdulla said his regulatory interactions have gone smoother than in Hong Kong. “I’ve been incredibly impressed with the FSA [Financial Services Agency] in Japan and their openness to fintech,” he said. “I’m really excited about Japan.”

Japan’s aging demographic is also driving Japanese fintech. 27 percent of Japanese citizens are 65 years or older, the highest percentage of any country in the world. Accordingly, Japan’s job-to-applicant ratio is at a 25-year high. For every applicant, Tokyo has more than two available jobs. To raise productivity, Abdulla said Japan will remain at the forefront of AI and robotics. Additionally, cash accounts for some four-fifths of Japanese transactions by value. Going forward, this could create demand for technology-driven solutions.  

From a business development perspective, corporate relationships with banks, mobile providers, or technology companies are needed. This applies to any fintech and, owing to Japan’s insular market structure, more so to foreign companies. “If you do not have some association with a big institution or a big brand, it’s just simply not going to work,” Abdulla said.

According to Abdulla, traditional Japanese enterprises acknowledge that their brands aren’t resonating with millennials, which is creating collaborative opportunities between startups and corporations. “You are seeing a lot of interesting fintech companies coming in to serve that base. And I do think you’re going to see quite a bit of M&A and strategic investment,” he said.

Technology is impacting financial services across Asia. For new entrants, though, whether a startup, conglomerate, or capital provider, it’s important to appreciate the region’s heterogeneity.

Joshua Bateman, CFA is based in Greater China. He can be reached @joshdbateman.

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