Strong opportunities for fintech in emerging, developed Asia markets: Fitch Solutions

THERE are still strong opportunities for existing and new financial technology (fintech) players to enter both developed and emerging markets across Asia, said Fitch Solutions Macro Research in its latest Asia fintech report.

It said the fintech sector in Asia is driven by substantial venture capital funding, and supported by consistent expansion of advanced mobile broadband, proactive financial regulators and a private sector that's keen to expand fintech services.

"The diverse landscape across Asia with differing market maturities present a wide range of opportunities for fintech companies and investors," said Fitch Solutions. "The biggest draw of the region, undoubtedly, is its massive population; Asia will be home to over 54 per cent of the global population of 7.71 billion by the end of 2019, generating aggregate GDP (gross domestic product) of US$30 trillion annually."

In developed markets such as Singapore's, the focus is on peer-to-peer (P2P) lending, wealth management, microfinancing and cryptocurrencies, said the report. This is in part due to a saturated payments market and the traditional banking system being able to meet most, if not all banking needs.

In these markets, fintech companies have to resort to offering extensive discounts and rewards to motivate use of their services, said Fitch Solutions.

This contrasts with emerging markets, where mobile money and e-payments have been the most popular fintech segments due to fragmented payment platforms and the lack of a unified, national-level interbank payment system into which fintechs would need to connect their platforms.

In such markets - which include Bangladesh and Pakistan - telecom operators dominate the payments segment by offering basic USSD-based (unstructured supplementary service data) remittance services using prepaid talk-time.

Investors also play a key role, with a substantial number of high growth fintech firms owned by a handful of investors such as Ant Financial, Sequoia Capital, Softbank and Tencent.

The vast amount of funding from them causes a distortion in the market, and can tilt the balance of power toward the company that the fund backs, said the report.

Asian fintech companies raised US$22.7 billion in funding in 2018, accounting for 57 per cent of the US$39.6 billion global total, according to CB Insights data.

Increased fintech regulation has also involved more data and privacy laws, and Fitch Solutions noted industry players will need to ramp up cybersecurity investments to protect sensitive customer data.

Lastly, it said Asia has a high interest in cryptocurrencies, with the Japanese yen and Korean won consistently ranking second and third in most traded national currencies for bitcoin.

However, financial regulators have been quick to regulate digital currencies, with Asian central banks having issued warnings to retail investors, and banning the use of crypto-based assets as legal tender in a bid to stop money laundering, it said.