Financial Technology – Embracing The Disruptor
Love it or hate it, we believe fintech is here to stay. Relative to Western
countries, the evolution of fintech is still in its early stages across the
ASEAN region and China. We see strong growth potential in fintech, and
believe that forward-looking banks and telcos are rightly positioning
themselves to ride the fintech wave as part of their growth strategies. As of
now, China has the highest fintech adoption in the region, followed by
Singapore, Thailand, Malaysia and Indonesia. Potential winners in the
fintech race include UOB, CIMB, KBank, BTPN, Singtel, China Unicom,
Axiata Group and True Corp.
- Fintech adoption rising... The evolution of financial technology (fintech)
from institutional-focused to consumer-facing, increasing ownership of
smartphones, and a thriving e-commerce ecosystem have catalysed the
adoption of digitalised consumer financial offerings over the past two years.
Telcos have joined the fray with their offerings of mobile financial services
(MFS), as they seek to strengthen the overall data proposition and provide
strategic monetisation opportunities over the longer term. Still, fintech
adoption within the ASEAN-4 markets remains below the global average,
although China has emerged as the world leader.
- …could leapfrog with government support. We believe fintech adoption
would rise rapidly over the next few years, particularly in ASEAN-4. New
technologies such as blockchain, Application Programming Interfaces and
artificial intelligence are driving fintech innovations. Governments and
regulators are also supportive of technological developments to drive their
countries towards digitally advanced nations (Singapore/Thailand) or
improve financial inclusion (Indonesia).
- Digital disruption evolving beyond payments. Currently, fintech products
and MFS offered in China and ASEAN-4 are typically centred around
payment and remittance solutions. Digital disruption, we believe, would
gradually move into alternative financing (eg peer-to-peer (P2P) lending and
equity crowdfunding (ECF)), wealth management, stockbroking and
insurance segments. The pace of adoption would vary across the markets,
reflecting developments in banking and telecommunication industries, as
well as country demographics.
- Banks rising to the challenge, telcos sharpening customer
engagement. Faced with the risk of losing as much as 20-30% of their
revenues to new digital business models, traditional banks are embracing
digital technology and seeking partnerships with fintech start-ups to create
their own online presence. For telcos, while there are synergies in
collaborating with independent fintech firms, current MFS models also see
them incubating investments as part of their focus on adjacent businesses
with the objective of staying relevant in the digital age.
- Markets and stocks to watch. We believe Singapore banks are most
advanced in efforts to stem the migration of consumer banking revenues.
By comparison, China’s state-owned enterprise (SOE) banks are moving at
a slower pace. In Malaysia, Indonesia and Thailand, incumbent banks in
general have better planned digital strategies. Still, regulatory guidelines
aimed at preserving financial stability could restraint growth in fintech
offerings. Bank stocks to watch are UOB, CIMB, KBank and BTPN. We see
larger telcos benefitting owing to their vast subscriber population, market
knowledge across footprints, strong framework for digitalisation, and
partnerships forged with fintech stalwarts – factors we believe are essential
to drive MFS adoption. Singtel, Axiata Group, True Corp and China Unicom
are well positioned in this regard, in our view. (Fiona Leong, Jeffrey Tan)