Fintech in Asia: Tale of Two Cities, a Hawksford insight
Fabio Stella is the China Head of Sales & BD at Hawksford. Here he shares with us his insight into the opportunities for growth of the fintech market in Asia by looking at the similarities and differences between two key cities: Singapore and Hong Kong.
Attracting and encouraging the most ambitious and exciting FinTech start and scaleups has become a fiercely competitive international game.
In May, startup body Tech Nation announced that the UK had become the world’s leading FinTech hub, with scaleup firms in London growing by more than 56% between December 2018 and February 2019 (Reference – UK Tech on the Global Stage, Report 2019).
As Brexit looms, however, this position is looking less secure. Businesses looking to capitalise on an increasingly technology driven financial landscape, open to disruptive new solutions, are now looking for new opportunities and new markets in which to grow.
In the FT’s 2018 1000 High-Growth Companies Asia-Pacific index, (Reference – FT article, April 2018), FinTech companies from the APAC region topped rankings. Efforts to encourage the growth of technology clusters across APAC have led to the emergence of new burgeoning hotspots for the next generation of FinTech. In this article, we look at two cities which demystify emerging opportunities for growth in Asia.
As our recent Business Outlook report has shown, Singapore has a long history of adapting itself to the evolving needs of global commerce.
Acting as a bridge for global businesses into Asia’s various markets, Singapore is a significant trading and banking hub, having cultivated a highly skilled, innovative and ambitious workforce over decades.
The Singaporean government has taken a range of steps to encourage its FinTech start and scale-up businesses. The FinTech office, a virtual government entity set up in 2016, was established to advise nascent firms in navigating regulatory requirements, but also towards the growing range of grants and schemes available.
These incentives include a S$30 million Cybersecurity Grant and a S$27 million Artificial Intelligence and Data Analytics Grant, along with an expansive regulator-run ‘sandbox’ that helps start-ups experiment with business-critical solutions.
These incentives, along with the advantages inherent in developing home-grown solutions in the markets they are set to serve, may help explain why 14% of all new company registrations in 2018 were technology businesses, doubling that seen in Q1 2015.
As opportunities for trade and commerce across Asia increase, local demand for disruptive new offerings is only set to rise. Singapore is not alone in taking big steps to increase its appeal to international businesses, however.
While Singapore has a well-established international reputation for its open-armed approach to both Eastern and Western interests, the single largest Asian country and market, China, has largely retained its reputation for caution and control.
The past few years, however, have seen the Chinese government adopt a new approach aimed at unlocking the huge potential of its massive domestic market and to make attracting foreign investment and innovation easier.
This is not to say that China has thrown open every door. Hong Kong has historically stood as the sole gateway to China for foreign firms. This role will almost certainly continue for decades to come, but the city is notably adopting a new mantle: advertising itself as a welcoming ecosystem for technology innovation.
The Chinese government has made it clear it is keen to match Western counterparts in launching schemes and regulations that encourage innovation and growth of new businesses, particularly for FinTech companies. As a result, it is rapidly gaining a reputation as a safe and inviting environment in its own right; one where investors are encouraged to scale up businesses, largely free from arduous barriers and excessive red tape.
One clear illustration of this approach can be seen in the Greater Bay Area policy which has created a city cluster around the Pearl River Delta, promoting closer cooperation and specialisation between 11 cities in southern China (see Hawksford’s recent article about the GBA initiative here).
Hosting regional headquarters for many of the world’s largest banks, Hong Kong remains one of the world’s premier specialist markets for transaction services. The largest venture capital funds in China rely on two lines of financing, one of which is in US dollars, which happens via Hong Kong vehicles, the other in RNB. This makes Hong Kong an ideal home for the development of new transaction and open-banking tools.
The government has also established new programmes to attract skilled experts and encourage scale-up businesses. The Hong Kong Science and Technology Park has been set up to provide incubators and accelerators that help guide and encourage the establishment of new companies.
Hong Kong FinTech Week 2019, set to take place from the 4-9 November this year, is an opportunity for Hong Kong to showcase to the world its appeal for to cross-border financial technology. The HK FinTech Association is taking an increasingly public and vocal role in communicating efforts to make the movement of money into and out of China easier.
From the UK – looking to Asia
This effort has seen positive reaction around the world. The UK government has itself been working with Hong Kong’s government to encourage better, clearer regulatory and commercial cooperation. A new UK-Hong Kong Fintech Bridge Pilot Program is being launched to provide tailored programmes of support to 10 UK FinTech companies entering the Hong Kong market (Reference: UK-Hong Kong Financial Dialogue Outcomes Statement, 8 May 2019)
For many Western businesses, the huge opportunity present in the APAC region still seem out of reach, hidden beyond cultural, regulatory and geographic barriers. The view from the ground, however, reveals efforts to break down these barriers and to welcome the next generation of FinTech leaders.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.