Impact of financial technology on payment

and lending in Asia

Saon Ray
Indian Council for Research on International Economic Relations
21st February, 2018

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian
Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does
not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used
may not necessarily be consistent with ADB official terms.
 Fintech
• Fintech is broadly an omnibus term used to describe
emerging technological innovations in the financial
services sector, with ever increasing reliance on
information technology (RBI, 2018)
• Fintech innovations are expected to bring in
efficiency improvements, risk reduction and greater
financial inclusion

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Drivers of financial innovation

Source: http://www.fsb.org/wp-
content/uploads/R270617.pdf 3
 Major fintech innovations
Payments, Deposits, Market Investment Data analytics
clearing & lending & provisioning management & risk
Settlement capital raising Management
Mobile and Crowd funding Smart contracts Robo advice Big data
web based
payments
Digital Peer to Peer Cloud Smart contracts Artificial
currencies lending computing intelligence &
robotics
Distributed Digital e-Aggregators e-Trading
ledger currencies
Distributed
ledger

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 Account penetration
• Payments, transfers and lending are receiving maximum
attention in the recent past
• Innovations in this category are targeted at improving the
speed and efficiency of payments, clearing, and settlement,
reducing cost and changing the ways people access financial
services and conduct financial transactions

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 Internet penetration
• Asian region is expected to fuel the growth in
this sector as financial inclusion and quality
access is an unfinished agenda in region while
mobile and internet penetration is fast
increasing

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 Size of fintech markets

Source: : 2nd Asia Pacific Region Alternative

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Finance Industry Report
 Fintech in Asia

In 2016-17, Asia Pacific received the largest amount of investment (US$14.8

bn) and China accounted for 88% of this (US$13.05 bn)

Globally, two sectors that received most cumulative funding are payments
(US$24.3 bn) and lending(US$ 13 bn) 8
State of fintech 2017, PWC
 Fintech In China
•Phenomenal growth with relatively
short maturity curve
• A ranking of the world’s most
innovative fintech firms gave Chinese
companies four of the top five slots
last year
•Most notable growth in mobile
payments, online lending and
investment
•The extraordinary growth was
caused by
tech-savvy population
an underdeveloped banking
industry

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State of fintech, 2017 PWC
 Fintech in India
• Currently, payments attracts the largest part of investments in India, this is
explained by a combination of mature payment platforms expanding into new
markets as well as the demonetisation of Indian currency.

State of fintech 2017, PWC

 Growth of Payments and lending Fintech in
India
• The Fintech industry, especially payments vertical greatly benefited from
digitization policy of government
• AADHAR, envisaged to provide residents of India with a unique identity
and a digital platform to authenticate anytime, anywhere has been the
biggest enabler – it is widely adopted by all the players for customer on
boarding and digital KYC verification
• Unified Payments Interface (UPI), promoted by NPCI is fully interoperable
across all payments system players. It powers multiple bank accounts into
a single mobile application (of any participating bank), merging several
banking features, seamless fund routing & merchant payments into one
hood
• The digital India campaign and demonetization also substantially
contributed to the growth of digital transactions
• Sustained growth in Smartphone penetration and internet connectivity
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 Other Asian Countries
• Of the USD4.3 billion investment in the region, 45
percent of that amount is attributed to developments in
China and 38 percent to India (OICO-IOSCO, 2017), with
the rest for other countries
• Singapore is fast turning into a major destination for
investors and foreign industry players owing to extensive
government support and expertise of corporate mentors
• Indonesia is another country with fast growing fintech
industry. it is the fourth largest mobile market in the
world with 339.9 million connections and about 43%
owns a smart phone and mobile is the preferred medium
for internet access but very low levels of financial
inclusion so far
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 Other Asian Countries (contd.)
• Republic of Korea: The country boasts of a very vibrant
fintech business and most notable growth is happening
in payment related services and new banking
platforms. In July 2017, Korea created a separate
ministry, Ministry of start-up of to strengthen
competitiveness and support innovation within the
SMEs and start-up space in Korea
• Thailand : digital financial services is yet to make
inroads in Thailand. Digital banking penetration in
Thailand is close to 19 per cent — far from Taiwan’s 92
per cent and Singapore’s 94 per cent. Credit card usage
in Thailand stands at 3.7 per cent, compared with 51
per cent for Taiwan and 31 per cent for Singapore.
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Fintech – Possible Impacts on the financial Market

• Potential to improve efficiencies, reduce costs and expand

access to financial services
• Unbundling and Restructuring of Financial Services
• "Globalizing" of financial Services
• "Personalizing“ of financial Services
• Disruption of traditional models of operation
• Changes in Regulatory structure
– increased adoption of principle based regulation in place
of rule based regulations?
– automation of regulatory reporting and supervision to
have a real time input based approach in place of template
based approaches ?
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 Potential benefits to economy and financial
stability
• Decentralisation and diversification
Decentralization and diversification in the financial system can
dampen the effects of financial shocks in some circumstances
• Efficiency
Efficiency improvements would support stable business models of
financial institutions and can contribute to overall efficiency gains
•Transparency
Transparency reduces information asymmetries and enables risks to
be more accurately assessed and better priced
•Access and Inclusion
Access to, and convenience of, financial services improves the
financial inclusion of households and businesses. This is important
for supporting sustainable economic growth and provides
diversification of exposure to investment risk. 15
 Industry perceptions of risks and
regulations
Regulatio Regulation Regulation No specific No specific
n is is is excessive regulation regulation &
adequate inadequate & needed not needed
India 20 60 20
Japan 69
Malaysia 67 33
Singapore 58 8 8 25
Thailand 20 80

China (P2P RE) 52 15 15 11

China (P2P BL) 54 22 13
China (P2P CL) 56 18 18

Source: 2nd Asia Pacific Region Alternative Finance Industry Report 16

 Risks and Challenges

• Low levels of formal financial services

• Underdeveloped Infrastructure
• Regulatory and governance concerns
• Low levels of Income and financial literacy
• Cyber security, data protection and business
transparency
• Concerns about consumer protection, privacy

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 Way forward

• In 2016, 6 of the 10 leading FinTech geographic regions

were from Asia
• Standardization of Regulation
• Ironing out Jurisdictional differences and prevention of
regulatory arbitrage
• Improve availability and ensure access to funds to sustain
growth and promote innovation
• Aside from Indonesia, China and India, since other
nations in Asia have an inherently small market within
their own country, so they must look outside their
borders – need increased regional collaboration

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Thank you

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