Remember the days when we walked into banks to transfer money or get a loan, or even open an account? A day off from work for ‘bank work’ was the norm, but there was no other choice.
Fast-forward to present day, and you can open a new bank account on an app, submit documents online, transfer money at the tap of a button, and do so much more, with just a smartphone and an internet connection. That’s fintech simplified. Financial technology, combined simply to Fintech, has revolutionised the banking industry from a slow lethargic system to an almost instant system, and in the process boosted the global economy. Here are the key trends to watch out for in this space.
Embedded banking solutions are here to stay
Embedded banking, put simply, is the offering of banking-like services by non-banks. Basically, businesses that have a high money churn rate are finding it prudent to offer services like e-wallets, payments and lending, potentially opening up the possibility in the future for every company to become a fintech company.
Banks have realised that they need to grab on to this opportunity to offer these services to companies in order to stay relevant and in the game because either way, fintech will find its way to companies. What banks bring to the table is banking expertise, a large brick and mortar system of branches, and employees who are key resources to make the back-end work. And for companies, they won’t need to hire a team to implement this.
Just in the first half of 2022, USD 41.8 billion has been invested in fintech in the APAC region, the highest-ever investment we have seen thus far. Going forward, embedded banking is only going to increase, and the sooner you integrate them in your business, the better placed you will be.
BNPL is witnessing a major upswing
A key service of embedded banking solutions, BNPL – Buy Now Pay Later – is growing at a rapid pace. Despite plenty of criticism towards BNPL for its potential to put youngsters in financial debt very quickly, its popularity and adoption has only grown.
The retail and e-commerce sector especially is seeing strong adoption of BNPL with over half the retailers in Europe either starting to or increasing their offerings over the next 12 months. After China, India is the highest adopter of digital payment services. With growth in online payments, BNPL transactions grew in India by 21 percent in the first half of 2022. Closer to home, Singapore witnessed BNPL transactions to the tune of SGD 440 million in 2021, which is not that much when one considers that it translates to less than 0.5% of credit and debit card payments. However, it is expected to grow as adoption increases.
The pandemic has brought in several lifestyle changes the world over and online shopping has been the biggest beneficiary of it, but when credit card companies should have seen a major surge, BNPL instead found its way to consumers as it is interest free for most of the people. It has also increased credit availability in the system. By 2025, the BNPL market is expected to reach USD 1 trillion in annual gross merchandise value (GMV).
The safer it gets for everyone willing to invest, cryptocurrency will only be on the rise. However, investors might need to take a risk awareness assessment before being allowed to trade cryptocurrencies, as proposed by the Monetary Authority of Singapore (MAS).
Contactless technology is getting even better
When was the last time you paid cash for anything? It’s not like contactless payments didn’t exist before the pandemic, but the fear of disease was a good motivator to shift to contactless payments. The days of counting cash at counters for payment are now almost over, as all we need is a smartphone with a payment app like Apple Pay or Google Pay (and countless others that come up every other month). All you do is scan a code or enter a mobile number, type in the amount and the payment is done.
A Bailard thought series report on the rise in Contactless payments, states “Countries where contactless was introduced earlier than the U.S. have seen strong adoption—Australia (~90%), Canada (~50%+), UK (>50%), Spain (~50%), Russia (>50%), Czech Republic (>90%), Hong Kong (~40%+), and Singapore (>65%). This indicates a global openness to nascent payment methods in which the checkout experience is more frictionless.”
Digital-only banks are growing in popularity
Digital-only banks have to spend a whole lot less on infrastructure and there are far fewer expenses compared to traditional banks, so growth is swift. They can lend out loans at lower interest rates offering them at little or no fees. Since digital banks don’t have to build the traditional way with legacy technology, they can adapt quicker according to changing consumer preferences. These asset-light banks have only come up across the globe in the past few years, yet quickly grown in size.
WeBank of China is the largest, followed by Ally Bank (USA) and ING Global (Netherlands). WeBank has total assets of USD $69 billion, growth driven due to integration with social media and payment platforms WeChat and WeChat Pay. In fact, China is at the forefront of digital banking with 5 of the top 10 digital banks in the Asia Pacific region coming from the country.
In Singapore too, digital banks have been awarded licenses to operate by the Monetary Authority of Singapore (MAS). Anext Bank and Green Link Digital Bank (backed by Ant Group and Greenland Group, respectively) were launched in 2022 and serve both small and medium-sized enterprises. GXS Bank, backed by Grab-Singtel, is specifically looking to target underserved segments such as gig economy workers and micro businesses.
While one may assume that the lack of a physical presence may create trust issues among potential customers, our survey shows that newer approaches to financial planning are taken positively by a majority of people with a mere 8% seeing it in a negative light. This is hugely significant for new fintech companies.
RegTech (Regulatory Technology) is making compliance seamless
The rise of fintech has inadvertently also led to an increase in financial crimes. To combat this, governments have had to quickly evolve the regulatory landscape to make it difficult to commit these crimes. But that, in turn, started causing compliance issues for fintech companies. The solution again was to turn to tech – Regulation Technology (RegTech). These are tech-driven solutions to help companies stay compliant with all the regulatory obligations in the country.
RegTech is supported by a bunch of technologies from blockchain to cloud computing, big data, machine learning, predictive and data mining analytics as well as smart contracts and visualization solutions. With all the cogs in place, RegTech aims to help navigate the ever-increasing regulatory landscape with ease.
Financial inclusion is becoming the need of the hour
With tech taking over banking and financial services, many are, unfortunately, left behind. Not only seniors who aren’t as well versed with tech, Southeast Asia also has a large rural population that doesn’t get the exposure city dwellers get, making it the responsibility of governments and companies to walk the extra mile and bring everyone on board this tech express.
With Singapore’s rising stature as a global financial hub, financial inclusion has become one of the top priorities. A recent survey found that Singapore tops the charts in financial inclusion, beating countries like USA, Britain, Hong Kong, and Japan. Several other countries in Southeast Asia are also ramping up their efforts in the fintech space. However, this growth is yet to include rural areas where cash is still king. So, rural penetration would be a key focus area for fintech firms.
Every company leverages or incorporates fintech in one way or another, and to understand how your business can benefit from these trends and insights, do reach out to us on connect@blackbox.com.sg.
Author: Blackbox Research Team
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