Competition between rival governments is providing a healthy environment for Asian fintech to develop.
At a briefing in Hong Kong, partners from law firm Simmons & Simmons said that with the likes of Hong Kong, Singapore, Malaysia and China competing to create fintech hubs in their jurisdictions, the ultimate winner will be innovation.
However, the Hong Kong government was warned that it must react more quickly to fintech developments to avoid falling behind its competitors.
Research shows that while Asia has some way to go before catching up with parts of the west, there has been a clear acceleration in Asian fintech’s development over the past 12 months. Last year, fintech in Asia Pacific saw a fourfold increase in investment, while the first quarter of 2016 saw growth of 517%.
The headline figure came at the end of April when Ant Financial, a fintech offshoot of the Alibaba Group, raised US$4.5bn in the capital markets. Conversations with those involved in the trade and commodity space in Hong Kong reveal that it is a big area of focus – even if many are admittedly baffled by fintech’s sudden omnipotence.
Indeed, a number of senior trade finance bankers have told GTR privately that they are actively looking to either invest in or to purchase fintech start-ups in the space, if only to ensure they are not left behind.
“If start-ups can collaborate with existing FIs they’re much more likely to succeed. One of the issues is compliance: it’s difficult, expensive and complicated,” Ian Wood, Simmons & Simmons
Desperation? Possibly not, according to the Simmons lawyers, which encouraged fintech startups to piggyback on established financial institutions (FIs) in order to enjoy the benefits of scale, without being lumbered with the drawbacks.
“If start-ups can collaborate with existing FIs they’re much more likely to succeed. One of the issues is compliance: it’s difficult, expensive and complicated. If you’re a start-up with three or four people, it’s difficult to comply with regulations. If you do that alongside an existing FI, you can rely on their licensing and compliance functions,” Ian Wood, partner at the firm, told gathered press.
He added: “Existing FIs already have access to the market which can be leveraged by startups. Finally, and most importantly, is customer trust. If you’re giving your money to someone, you have to trust someone. What existing FIs do very well is build that trust base. If you’re in fintech and you work with an existing FI, that will help you meet the trust issue.”
This may not be the case everywhere: research shows that in China, trust is often higher towards the new mobile generation of financiers than established, government-owned lenders. The majority of Chinese people don’t have a traditional bank account, but mobile phone ownership sits at over 90%.
The opportunity is obvious, and Simmons’ partners encouraged governments to nurture the market, rather than restrict it with overzealous regulations. China is in the process of putting together a regulatory framework for P2P lending, which as GTR reported recently, is surging across the country.
Singapore is emulating the UK’s “sandbox” approach to regulation, whereby fintech companies can apply to be part of a regulatory “safe space” to develop technology.
The Financial Conduct Authority’s (FCA’s) director of competition and strategy Christopher Woolard explains: “The key question for the FCA was how does a regulator create a sandbox that gives industry the freedom to break new ground and encourage creative solutions when there is a limited public appetite to accept business failure if things go wrong, particularly in financial services?”
Wood says that Hong Kong on the other hand, “has always been paternalistic and is always keen on protecting consumers and therefore is going to move slowly into” the fintech space. This may lead to it ceding an advantage to the likes of Malaysia and Australia, which are already looking at regulatory implementation.
However, Wood added that in the long run, the competition will be beneficial, saying: “This increased competition between governments for their jurisdictions to become fintech hubs is providing a very healthy environment for fintech development in Asia.”