Is fintech innovation really worth its hype, and is it truly beneficial for economies as a whole?

Alternate payment technologies are making an economic impact all over Asia already. (Photo by NICOLAS ASFOURI / AFP)

Can fintech innovation really move economies forward?

We are now living in the thick of the Fourth Industrial Revolution (IR 4.0), and with it has come an explosion of financial technology (fintech) innovation. Characterized by the avalanche of data produced daily, IR 4.0 brings about the complete disruption of many industries and their business models.

The banking industry has undeniably experienced many shake-ups. Technology has brought about the digitization of money, opening up numerous possibilities for fintech innovation, capturing value-added data insights while we’re at it. In and around Asia, fintech – the usage of technology to improve financial services – is booming.

Technology-led financial services are set to bring in US$11 billion in revenue in Southeast Asia (SEA). By 2025, it will account for 11% of total financial services in SEA, itself considered the fastest-growing region worldwide.

Asian fintech companies such as China’s Ant Finance and Indonesia’s OVO are already dominating the fintech landscape and despite setbacks like Ant’s failed blockbuster IPO, are showing no signs of slowing down.

As consumers are used to the digital experience offered by companies such as Google, Amazon, Facebook, and Apple, they expect the same level of customer experience from their financial services providers. Fintech provides a very appealing alternative to traditional banks, as they provide customer-centric solutions that incumbent banks cannot provide.

At the recent Fintech and Blockchain session, Revolut’s COO, Richard Davies, the COO of global fintech super app Revolut that has been spreading its wings in APAC, stated that fintech is already poised to bring major economic benefits globally. According to Davies, there are a few key reasons why fintech is appealing to consumers.

  1. Price

Davies noted that 27% of consumers opt for fintech services because it is significantly cheaper compared to incumbent banks. An example is cross-border payments. Often, fintech offers lower foreign exchange rates, and does not come with any hidden fees.

  1. Efficiency

For the tech-savvy consumer, fintech services are more efficient compared to those offered by traditional banks. Fintech apps, for example, often come with user-friendly interfaces that would seamlessly guide a consumer through the process that they are undertaking.

20% of consumers opt for fintech services because of the ease of setting up, with 12% of consumers siding with it because of better user experience.

  1. Fintech product innovation

Because fintech companies do not need to contend with legacy staff and systems, they can afford to innovate relevant products quickly and cheaply.

Also, fintech companies often have a dedicated focus on fixing specific problems, and can, therefore, come up with tailor-made solutions for their customers. This is rarely possible for legacy banks as there is little room for agility –solutions are usually provided in a one-size-fits-all form.

Davies believes that we have already reached an inflection point for the mass adoption of fintech. This couldn’t be truer for Asia, whose fintech landscape is already vibrant and highly competitive. Regulators in the region are supportive of fintech, as can be seen in countries such as Singapore and Thailand.

Both countries have agreed to open up regulatory sandboxes that allow fintechs to test their solutions prior to bringing them into the market. Further, Singapore and Malaysia are also giving out virtual banking licenses that can make the operation of neobanks easier.

Ultimately, traditional banks need not fear technology. The willingness to adapt and collaborate with others will enable technology to serve all parties – banks, fintechs, and consumers- in the financing sector well.