‘Brace for financial technology’

John Shipman, Pricewaterhouse-Coopers’ fintech leader in Asia, anticipates that “true technology” will be gradually revealed from late 2016 through 2017.

“In the next 18 months, if banks do not adapt and understand digital identity, there will be major disruptions,” he said, shaking his head. “It’s very, very important.”

Digital identity will allow an individual to obtain different financial services at different banks with ease. For service providers, this means opportunities to offer new products. For example, through a smart watch, insurance companies will know how to tailor products for potential clients. Mundane tasks like analytical services can be offered by a third party, leaving the companies to focus more on specific products.

Shipman believes many of the innovations that will disrupt traditional services involve payment systems and lending.

Digital wallets will become more popular, thanks to the smartphone, which can be used in lieu of credit cards or other types of plastic. Peer-to-peer funding is also set to grow, allowing individuals to tap funds from others without going to banks or to buy specific insurance policies without going to insurance companies.

“In China, peer-to-peer funding is four times bigger than in the US,” he said.

The trend is here, he added. While the United States leads the way, the United Kingdom and Australia are close behind.

In Asia, the situation differs from place to place: While Hong Kong and Singapore are very advanced, Tokyo is not. Some countries, including Thailand, are very far behind.

“Fintech is not going to replace banks. But banks can leverage that technology and collaborate,” he said.

Ernst & Young’s first Fintech Adoption Index showed that Hong Kong had the highest rate of fintech use of all markets surveyed (29.1 per cent of digitally active consumers). The US had the second-highest adoption rate (16.5 per cent), followed by Singapore (14.7 per cent), the UK (14.3 per cent), Australia (13 per cent) and Canada (8.2 per cent). 

According to the survey, compared with other urban areas, New York’s adoption rate is the highest, at 33.1 per cent. 

China was not included in the survey, but its WeChat app, when linked to a bank account, allows the user to apply for personal loans, pay credit-card bills and make small transactions.

As the innovations have begun disrupting traditional services, fintech has caught the attention of regulators in various countries.

Shipman praises the Thai authorities for their “AnyID” scheme, saying it is a good beginning. But he cautioned that regulations that are too strict would do more harm than good. While it is true that electronic payments may be linked to drugs and prostitution, the same is true with cash. Comparatively, fintech offers more advantages than disadvantages.

By delaying the trend, a country can expect “less money [coming into] the system and a weaker economy. It’s not going to be good.

“Every bank knows what technology exists in the US. They want to do it, but [the business] culture in each country may be different.”

Shipman had a series of meetings with banks and insurance companies while in Bangkok last week.

In those countries lagging behind, he suggested that banks talk urgently with regulators. Banks themselves must also do things differently, and this requires young executives who should know better what young consumers need.

This month, Singapore’s Overseas-Chinese Banking Corporation launched “Open Vault” to drive partnerships with fintech start-ups. These companies are invited to use the bank’s database to test new ideas and develop them into actual solutions, with a focus on wealth management, credit and financing, insurance, cybersecurity and artificial intelligence. New solutions emerging from the Open Vault will be owned by OCBC.

Siam Commercial Bank has also set up a team to seek equity-participation opportunities in listed fintech companies and to form partnerships.

Shipman foresees a faster pace of mergers and acquisitions in this area. He noted that in the last quarter of 2015, M&A volume tripled.

According to CB Insights, there were 122 investment deals in fintech businesses in the Asia-Pacific region last year, worth US$3.46 billion (Bt123 billion), nearly four times the $879 million in 2014.

A paper from Oxford University’s Said Business School showed that equity investment into fintech businesses in 2014 totalled $12 billion, up from $4 billion in 2013.

While Thai banks may opt to shop overseas for innovations, Shipman said there were ways to grow talent at home. However, this needs collaboration from all parties, from regulators and government agencies to banks and incubators.

In Australia, there is an incubation scheme and tax breaks are on offer for development in this area.