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Can fintech bridge Asia’s digital divide?

Can fintech bridge Asia’s digital divide?

WEDNESDAY, March 28, 2018

For policymakers and entrepreneurs, the benefits of addressing the digital divide and of harnessing the power of fintech should be clear-cut. Taken together, both steps can increase the level of access to capital and financial inclusion. 

That’s certainly a view that will be explored here in Thailand as the Milken Institute co-hosts a “Future of Finance” roundtable with the Bank of Thailand tomorrow and at the 21st annual Milken Institute Global Conference next month in Los Angeles.
In the new landscape of finance – with “fintech” serving as shorthand for the technologies that are delivering innovations as well as new challenges and opportunities to the once staid banking sector – up for debate are future business models, regulatory frameworks and how to align fintech practitioners, investors and beneficiaries.
From blockchain to crypto-currencies including Bitcoin and Ethereum, as well as Initial Coin Offerings (ICOs) that allocate “tokens” as a new means of crowdfunding capital, the language and disruptions buffeting the mainstream banking and financial services industry can seem overwhelming.  
Yet, just as we overcame fears and concerns about the advent of disruptions wrought by ATMs, fear of technology’s impact on an evolving finance industry should not hold back change. Fintech is a disruption to be embraced.  
But as one of Japan’s digital pioneers has noted, fintech may have both positive and negative implications for growing inequality in Asia.
“We are strong believers in the power of digital transformation evoked by token economies and fintech innovation,” said Taizo Son, investor and founder of Mistletoe, a hub for start-ups and entrepreneurial ecosystems. Taizo is the youngest brother of another tech pioneer, Softbank’s Masayoshi Son
“However, such technologies also hold the potential to promote the already widening income gap in our society,” said Taizo Son. “As entrepreneurs and architects of innovation we need to be aware of the important role we play in building a society that remains empathic and inclusive to all people in this era of increasingly autonomous technology.”
Indeed, at a time of growing inequality, how to ensure a positive, meaningful impact from fintech on the people of Asia?
Across the Indo-Pacific region, with mainland China typically attracting the lion’s share of venture capital investments, fintech deals continue to make news. Multimillion-dollar investments were reported last year in India into online lending platform Capital Float, in Hong Kong into “digital wallet operator” TNG Fintech Group, and in South Korea into its second largest cryptocurrency exchange, Korbit.
In Indonesia, motorbike delivery and ridesharing app Go-Jek is now a “unicorn” – a tech start-up valued at more than US$1 billion. With Go-Jek’s acquisition of payment portals Kartuku and Midtrans, and savings and lending network Mapan, the company is poised not only to be a digital payments leader, but is also in a position to influence the shape and scope of the fintech landscape in Southeast Asia’s largest economy.
The unmet need for basic banking services is significant across Southeast Asia. Only 27 per cent of the region’s 600 million inhabitants had a bank account in 2016, according to consulting firm KPMG. And herein lies opportunity to find meaning and impact through fintech. 
The 2017 study on “Accelerating Financial Inclusion in Southeast Asia with Digital Finance”, conducted by the Asian Development Bank and consulting firms Oliver Wyman and MicroSave, found that opening up financial services to the unbanked could increase the GDP of the Philippines and Indonesia by as much as 3 per cent and Cambodia’s by 6 per cent.
In emerging economies such as Cambodia, only 5 per cent of the population have access to formal banking services. This level of “unbanked” has negative repercussions for the region.
With little to no access to banking services, too many people in Asia go without the basic protections of a savings account, and also may face higher costs for sending or receiving money.  This, in a region where remittances were valued at US$236 billion in 2016, according to the World Bank.
“Having access to basic financial services can reduce hunger, increase education and generally improve the quality of life,” said Queen Maxima of the Netherlands, the UN Secretary-General’s Special Advocate for Inclusive Finance for Development, in her speech at the Singapore Fintech Festival 2017.
Yet, the sustained benefits of fintech will only be realised if a proper ecosystem is created and maintained – one that addresses concerns of regulators while benefiting innovators and, most importantly, consumers. Narrowing the digital divide is also a fundamental need, with increased mobile phone ownership and Internet penetration key factors in spurring consumer adoption of mobile financial services.
Indeed, the true measure of success for fintech should not lie in deal size or quantity but in expanded horizons. True success is when fintech helps once-poor farming communities access funds to bring their crops to market, or helps small shopkeepers to grow bigger, or provides seed money for a young entrepreneur ready to turn a great idea into concrete reality.
Beyond the fintech hype and jargon, the human element of financial technology should not be forgotten. Assessments of fintech must go beyond counting fortunes made and businesses disrupted or created, but also include a measure of people helped. 

Curtis S Chin, a former US ambassador to the Asian Development Bank, is 
managing director of advisory firm RiverPeak Group, and Asia Fellow at 
the Milken Institute. 
Jose B Collazo, a Southeast Asian analyst, is an associate with RiverPeak Group. Follow them on Twitter at @CurtisSChin and @JoseBCollazo.