Financial technology (fintech) describes the use of new technology which improves and often automates the delivery of financial services.
For developing nations, it can allow traditional and non-traditional banking providers to create innovative financial products and assist non-banked and under-banked consumers to benefit from a vast array of online services.
Whilst some people think of fintech as the creation of cryptocurrencies, such as bitcoin, there is so much more to the innovation taking place which allows people to transact with business and government, often via mobile smart devices.
Not only are incumbent banks seeking new business opportunities in fintech, but start-ups are disrupting the market seeking to expand financial inclusion by using technology to cut down on operational costs.
Notable announcements have been from the Libra Association (though more recently key organisations such as Visa and MasterCard have withdrawn) with a blockchain-based crypto currency expected to launch in 2020.
Libra is said to be built on a secure, scalable and reliable blockchain, backed by a reserve of assets and governed by the Association.
People will be able to send, receive, spend, and secure their money, enabling a more inclusive global financial system.
How it is received by global regulators is yet to be fully determined, though early indications are not good.
Traditional banking relies on financial services companies holding a licence (something the Libra Association will need to tackle).
The creation of regulatory sandboxes are a safe way to enable emerging fintech ideas, whilst providing a degree of assurance to national governments and consumers.
Global fintech in the first half of 2019 was $37.9b accounting for 962 deals.
Of this, $3.62b across 102 deals were in the Asia Pacific.
Of special interest is the issuance of eight virtual banking licences by the Hong Kong Monetary Authority.
The companies selected reflect a diverse range of non-traditional banking organisations, including insurance companies and telecommunication providers.
Additionally, the Monetary Authority of Singapore announced plans to issue up to five virtual banking licenses to Singapore-headquartered companies.
These licences are expected to respond to underserved market segments such as SMEs.
Whilst AI and big data are expected to continue strong interest, blockchain technology should grow for fintech investors as an enabler in micro-financing.
Regulatory technology (regtech) – the management of regulatory processes within the financial industry through technology – particularly for eKYC processes, should similarly enhance fintech investment and product rollout.
Combining fintech and regtech should aid jurisdictions in their roll-out of virtual banking licences, enabling investment from non-traditional players and existing banks.
There are a range of benefits by focusing on customer experience which should be measured in new fintech products, but also the evolution of existing traditional banking products.
Virtual banks have lower overheads, not having to pay for physical branches and static staff.
The use of cloud services to host data, ‘as-a-service’ offerings and digital ledger technologies make the barrier to entry to a create fintech very low.
This should trickle down to consumers with more innovative product offerings, better service, better interest rates and lower fees.
