Financial Services

Asia’s fintech fever

August 04, 2015


August 04, 2015

David Line


David was a managing editor for The Economist Group's thought leadership division in Asia. He has been writing about Asian economics, politics and finance for over 14 years. He has led numerous major research projects in the region, focusing on financial services, including most recently a series of papers on free-trade agreements in the region, several studies on the internationalisation of the renminbi, and the landmark Bank of America Merrill Lynch CFO Outlook Asia series. Among other things he is the author of a major study of middle-market companies in Japan and a chapter on the long-term future of the financial services industry in a 2015 Nikkei book charting global megatrends to 2050.

David was formerly Associate Director in Tokyo of The Economist Corporate Network, a membership-based advisory service for senior executives, and a reporter for the EIU's breaking news service, ViewsWire. He holds Masters degrees in Global Finance from NYU Stern School of Business/Hong Kong University of Science and Technology, in Japanese Studies from the School of Oriental and African Studies (University of London), and in Modern History from Oxford University.

Taking the temperature of the fintech scene in Asia.

Hong Kong hosted Asia’s first  event last week, called . Obeying its commanding title, the event was packed with hundreds of exhibitors from tech startups eager to raise the profile of (and funding for) their new hardware/IoT function/security platform/blockchain system/payments app/—you name it. Many of the 5,000 attendees from more than 72 countries were there, as I was, to take the temperature of the fintech scene in the region.

Globally, Web Summit reckons investment in fintech has risen 20-fold since 2008. Anyone who thinks Asia has lagged Silicon Valley (or ) in this field hasn’t been paying attention. Behemoths like Alibaba saw the promise early: it pioneered Yu’E Bao, a Chinese money market fund, in 2013, attracting 81m investors in a year. Around the same time, Alibaba’s Jack Ma teamed up with internet giant Tencent and insurance major Ping An to launch China’s first online insurance seller, Zhong An. In June this year it raised RMB5.78bn (US$931.3m) in its first round of private fundraising, having attracted more than 150m clients in its first 14 months.

The scale of these enterprises given the size of China and the heft of giants like Alibaba, Tencent and Ping An perhaps isn’t surprising, but the startup scene across Asia is no less exciting. With a good chunk of the 525 startups in attendance at RISE in the fintech space, and a massive crush to see fintech speakers, there was ample evidence of this. Attendees at the conference were only the tip of the iceberg: in his keynote talk Simon Loong, CEO of WeLab (a Hong Kong-based lending platform founded in 2013) estimated that there are around 3,000 peer-to-peer lending startups in China alone.

This scale of competition and the ease of entry to fintech are what make the market so exciting, but it is also fintech’s Achilles heel. Business models are easily copied and standing out is hard, especially in the credit and payments sectors. New entrants in the former, Mr Loong reckoned, have to differentiate themselves through improving accessibility (for instance by using non-traditional data sources to build credit profiles for those who lack them, like students), increasing the speed of loan approvals (now averaging 3-5 minutes on some P2P platforms, compared to days or weeks through banks); or by maximising efficiency. Simply having a snazzy new mobile platform isn’t enough.

Another key differentiator, and a hard commodity for startups to acquire, is trust. “If you screw up money it’s worse than almost anything else,” said John Lunn, who oversees the global developer networks for Paypal and its affiliate Braintree, on a panel on transforming payments technology. One way of building trust as a startup is to join forces with larger, established companies. This has been a key to the success of CompareAsiaGroup—which compares insurance policies and other financial services across multiple jurisdictions—according to its CEO, Gerald Eder, speaking on a panel on financial innovation in Asia. Given well-known banks and insurers are very careful in protecting their brands, associating with them can reinforce trust in startup enterprises.

With the inspiring presence of several “unicorns” (startups with billion-dollar valuations, like payments companies  and ) at RISE, and the general air of feverish excitement, some participants with longer memories suggested the possibility that fintech was in a bubble. Egidio “Edge” Zarrella, an analyst at KPMG with a striking resemblance to Frank Zappa, was one who mentioned the possibility, warning that the way people were talking about fintech reminded him of the Dotcom bubble.

The difference, he maintained, is that “the consumer is pushing this hard.” The driving force behind the growth in fintech is that millennials (and plenty of others) are no longer willing to put up with what one speaker described as the “pain in the ass” factor associated with many financial transactions. Most have a clear incentive to meet customer needs, something which couldn’t be said of many of the Dotcom-boom-era business models that attracted feverish valuations.

With a burgeoning middle class and a large unbanked population keen for access to financial services, the outlook for fintech in Asia looks extremely positive, even if in the brutal competition of the startup scene many of the hundreds of exhibitors at RISE won’t last long. Traditional financial service providers are getting the message. Mr Eder of CompareAsia offered a tantalizing comparison with the pre-digital travel industry of a generation ago, with staffed branches at agencies offering packages the consumer had little choice but to accept. Now travel agents have all but disappeared from the high street: will bank branches be next?

Edge Zarrella (second left) and some mothers of invention: moderator Jennifer Hughes from the Financial Times, far left, Plern Tee Suraphongchai, Ardent Capital, and Gerald Eder, CompareAsiaGroup

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.

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