Looking East For The New FinTech Revolution


No longer the purview of Western nations, FinTech is gaining traction in the East — from China to India and beyond — and thus is becoming truly global in scope. But as always, with any sea change in payments, waves can rock some leaky boats, namely, traditional banks. Fitch weighed in on the promise and perils of FinTech as it gathers momentum in Asia.

The FinTech revolution – it’s not just for Westerners anymore.
Fitch Ratings, which typically focuses on credit ratings and credit-related research, said on Monday (May 16) that tech firms are gearing up to change the financial services industry in the Asia-Pacific region.

That may not be a huge surprise, given the impact that FinTech has had in regions elsewhere, such as in the U.S. and especially in Europe, in the United Kingdom.  But the groundswell that may indeed change the financial landscape there has a ways to go. 

Consider the fact that our own Investment Tracker, where investment in FinTech – as defined as Asia with the exclusion of China – has come in at a respectable $800 million year to date.  That may sound like a nice absolute number, and it is, but relatively speaking it is a fairly low one, with a mid-single digit percentage of overall activity on a global basis. Separately, China is another roughly 5 percent.   

The tailwinds are there: Fitch noted that the preponderance of large unbanked populations in the region offer up greenfield opportunities, especially in India, while technology adoption elsewhere in China and also Indonesia has helped propel the rise of the middle class, and the purchasing power that comes along with it.

Tailwinds are nice, but with every tailwind there is a headwindFitch noted that the emergence of the technology itself has led to some issues for the banks entrenched in the financial system itself, and with some knotty problems for regulators.  The balance between risk oversight and the wholehearted embrace of technology for streamlined payments, financial inclusion and other advantages implies walking a tightrope.  Lean too far either way and the unintended consequences can spiral.

Fitch sent a shot across the bow for traditional banks that sit squarely in the ennui patch.  Transformation over the longer term remains a key and urgent piece of any operating roadmap.  There must be vigilance in updating technologies in place (ie, legacy systems) in order to make room for new functionalities.  Likewise, there must be awareness that the FinTech upstarts will be able to make a dent in previously unassailable, and possibly old school, banking business lines, leading to lost revenues, and even impact to a traditional bank’s credit profile.  

Sound familiar?  In the blueprint provided by Western firms that have been down — and are still going down — this path, the choice becomes one wherein banks partner with or swallow FinTech firms, in an age where it has become increasingly urgent to innovate.  Building will take too much time.  In Asia, look for the stirrings of more FinTech investment activity.