By Timothy Chong | UNI.CORN, Team 4

The Fintech Revolution on Home-ground

June 2, 2016

Perspectives from a UNI.CORN on Singapore’s Fintech scene

 

*The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of DBS.

 

I’ve been keeping an eye on the development of Fintech as a personal interest. While blockchain, micro-lending, remittance, crowd-funding are not new terminologies, many people still do know much about our  local Fintech eco-system. Though Singapore has emerged as the leading nation in the region in embracing innovation in FinTech, there is still more that can be done.

 

The current Eco-system

 

Singapore has successfully nurtured its own start-ups and is already home to 10 of the 15 most funded Fintech start-ups in South East Asia (eg: Infosys Finacle). The country counts over 80 Fintech start-ups tackling numerous areas of financial services. The presence of government support, as well as other factors such as private accelerators, private incubators and a vibrant and active media and events industry here on home-ground are vital in the growth and creation of the 80 Fintech start-ups here.

Singapore’s recipe for building a successful Fintech Eco-system

 

Aside from the monetary incentives and support provided by various government agencies and institutions, I’ve broken down the success of Singapore’s distinct Fintech Ecoystem into two key aspects: Regulations and Culture.

 

On the regulations front, clear regulations have been defined for the Fintech sector by MAS. A broad regulatory agenda has been established to foster and nurtures Fintech innovations. Start-ups can take their products to the market without stringent and tedious official endorsement, as long as they are deemed to have the risks duly accessed and controlled. When these start-ups reach a certain “critical mass”, only then does MAS step in to regulate. This allows Fintech start-ups to move fast and penetrate the market in their infancy, focusing on their ideas and solutions rather than worrying about administrative issues, which are applicable when they become larger.

 

From the cultural standpoint, nurturing a culture of innovation and creativity is essential to creating an efficient Fintech ecosystem: This means going beyond the proverbial box to see innovation as a culture, rather than a new software or hardware, constrained by technology. The Singapore government and institutions have done an excellent job in this aspect, which is apparent in the innumerable initiatives mentioned previously. It is a way of thinking, solving hard problems regardless of means; it could be through the direct help of technology, or a new way of doing things.

Despairing limiters to change – resistance, inertial, legislation and compliance

 

“If you can’t fight them, join them, if you can’t join them, bury them with money”

 

However, there is always resistance and intertia to change. New players that come into the market see themselves as disrupters, while current established players proclaim that they do not see it as a threat and instead view it as an opportunity to collaborate. In my opinion, this idea of collaboration for the betterment of society and the enterprise is too idealistic and romantic. We must recognise that the issue of implementation is much more complex and complicated than just taking a new technology and applying it in the finance industry.

 

Collaboration is all pretty and nice-sounding, but with a whole archaic system already in place, jobs at stake and enormous profit to be made from current complex intermediary systems, big stakeholders such as banks are more comfortable staying with status-quo. Their biggest issue is managing aging systems that represent a limiting legacy as they make the wholesale adoption of innovative FinTech problematic and in many cases prohibitively expensive. This has led to innumerable instances of poorly-conceived, part-by-part adoption policies which have ultimately resulted in a whole set of compatibility issues, further complicating the wider problem.

 

In addition, the problem that comes with such new unproven bleeding edge technology brings about unprecedented risk that is difficult to understand and mitigate. The mindset of middle tier management executives is another issue. Regulatory complexity is another headache; banks have faced increased pressure from regulators since the 2008 financial crisis, and introducing new regulations for new lines of business in Fintech creates more of a hindrance to deal with.

 

As a result of this, established players have little incentives to follow up with such technologies, and ironically face huge disincentives to implement such technologies because of risks.

 

Despite this, banks are not blind to the state of affairs and have shown willingness to embrace innovation through their involvement in setting up innovation teams and venture capital funds in order to acquire Fintech solutions. Whether or not this is a defensive mechanism, or genuine commitment from the banks themselves, we may never know, but my personal feel is that the inherent problems that exists hinder efforts even though the banks may be genuine in their engagement.

 

So what can be done?

 

Providing a regulatory sandbox is an action the government is considering. The central idea is not to remove all risk that comes with innovation, rather, the aim is to create an environment where if an experiment fails, it fails safely and cheaply, without larger adverse consequences.

This could be done in various ways – creation of a localized area of market to test on or ‘unit testing’ each aspect of the product on small samples. This will definitely reduce the risk by mitigating the ‘collateral damage’ felt by various stakeholders by launching in controlled boundaries. Yet, the success of such an initiative depends on the actual implementation and its specific encompassment.

After all, preservation of trust and credibility of the financial system in Singapore is foremost on the minds of regulators. It must be done in the right balance without stifling innovation. Only when they reach a meaningful scale in the industry will Fintech companies be subjected to more stringent regulations.

 

Besides such government-backed initiatives, there is still an area that needs to be addressed if Fintech were to move forward to the next phase - preparing the mind-set of consumers, businesses and society on the whole.

 

Living in an Asian culture, we Singaporeans are more risk adverse and generally do not like to see change. This is even seen from the interviews my team and I had while doing our market research during our first four weeks of UNI.CORN internship at DBS. idea of something new, especially in the financial aspect (extensive cashless system in this case), were greeted with general uneasiness and concerns of security and acceptance.

 

On the business side, incentivising banks and large companies to take risk and implement fintech solutions may be another challenge. The larger the institutions are, the more they have on the line as compared to smaller, nimbler start-ups. This ‘too big to afford to fail’ mentality only adds to the complexity. Thus, we need to incentivise large financial institutions by creating a fail-friendly environment where trials can be conducted without serious repercussions.

 

Not all doom and gloom

 

Nonetheless, I am still optimistic in the direction the local Fintech scene is going. As long as there is genuine willingness from stakeholders, these obstacles are temporal. What I see is a promising future and a revolution in the local Fintech space in the next few year. Singapore is renowned as a leading financial centre and a technology hub, and also boasts one of the widest telecommunication and ICT network in the world. Additionally, it is ideally positioned as a proxy to other much larger markets in the region, including ASEAN, India and China.

 

By leveraging on unique local factors to accelerate innovation, and the immense support by the government, Singapore is still poised to become a national growth hub for Fintech. Personally, I am much excited to see how it will unfold, and be part of (or even helm) this Fintech revolution.

#FINTECH     #FINTECHSG

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