Fintech and the rise of disruption.
Traditional institutions have for the longest period reigned over financial markets as the one-stop-shop for the wealthy and the masses. As the economic climate shifted, disruptive technologies have crept up and overtaken these existing firms. The fragmented market we see today, caters to even the minutest needs of investors. It’s important to understand why disruptors exist.
According to the Capgemini’s World Fintech Report 2016, around 50 percent of global consumers do business with at least one non-traditional firm. The growing popularity of contemporary options would be more than sufficient to jolt traditional firms to either jump on the bandwagon or miss the train.
In this modern day and age, the marriage of finance and technology has simplified financial transactions to a great extent and maximised consumer benefit. Therefore, it’s not hard to imagine why the banking sector in particular, is at the greatest risk of being disrupted — that too from all angles (wealth management, trade financing, remittance, data, retail and wired payments, and currency hedging are some examples).
For instance, traditional financial advisers are now finding themselves in the middle of a face-off against algorithms. Today, investors have welcomed the idea of an algorithmic fund manager, called the robo-advisor — which scientifically allocates their funds with maximum precision with zero chances of human error. Aside from accuracy, automation has also proven to be a more affordable and transparent method of digital investment.
In the last five to seven years, the financial sector has also witnessed a steep rise in alternative forms of investment. Across the board, a large number of enterprises have sprung up offering agile, innovative and customer-centric solutions, to fill in the gaps left behind by traditional firms. In a report titled FinTechnicolor, McKinsey examined more than 3,000 companies and found that the share of fintech companies with B2B offerings has increased from 34 percent of those launched in 2011 to 47 percent in 2015.
As the industry is constantly evolving and competition gets tougher, investment solution providers are continuously creating opportunities to lower their costs and increase their value to the client.
In response, several blue chip firms of the financial sector are being forced to shed the fluff about their heritage, and roll up their sleeves to dive into the fintech wave. It may sound amusing, but several industry titans are rapidly trying to innovate so that they can disrupt their own business model, before any fintech startup does. And it’s certainly not surprising that well established names such as Schroders, Allianz and even OCBC have resorted to offering robo-advisory services to win back a slice of the lost market share.
On the domestic front, Singapore banks are choosing to partner with successful disruptive solution providers in the hope of boosting their clientele. As a result, there is now no dearth of innovation labs, accelerators, boot-camps, and hack-a-thons emerging within the industry. Take DBS for example, from a neighbourhood bank to a full-fledged innovation lab. It’s proudly sparking innovation by engaging fintech startups to partner with staff and develop prototype ideas as well as mobile and banking solutions. This neighbourhood bank has even gone branchless by launching India’s first mobile only bank.
Whether one perceives it as retaliation against the incumbent or as a survival technique — it’s the only option left. While searching for newer innovations, financial institutions are now embracing options such as partnering, directly investing and/or acquiring fintech firms. In fact, financial heavy weights are looking for all possible methods of detaching themselves from the word “traditional”.
The fintech push is also strengthened by the invisible hand of venture capitalists and regulators. Although Asian regulators have always been recognised for the conservation approach, their support and encouragement towards fintech has been invaluable. Regulators play a vital role in channelising the direction of their economies. For instance, China is moving away from an export-reliant economy to a consumer-driven economy through innovative service providers such as Alibaba and Tencent. Similarly, in addition to sandboxes and fintech festivals, the Monetary Authority of Singapore has set aside $225 million to develop and support fintech projects in Singapore. In fact, MAS has an in-house innovation lab called Looking Glass.
The race to the finish line would be incomplete without mentioning the involvement of angel investors and venture capitalists who fuel several innovations through seed funding. Accenture research shows that $10.5 billion was poured into fintech regionally.
All these factors are definitely instrumental in building a conducive fintech ecosystem and eventually taking the country forward in the global fintech race. Singapore ranks second in the world, just behind London and followed by New York, Silicon Valley and Hong Kong.
We have come a long way since the global meltdown in 2008/09, when financial institutions were severely scarred by losses and dented by the image of poor credibility. The memories of that period are still fresh when, global markets halted in shock of the unimaginable bloodbath which took place at the stock exchanges. It was tragic to see investors lose their lifetime worth of savings overnight. And it’s understandable why they lost faith in the sustainability of financial institutions.
Since then investors have been rapidly moving towards contemporary avenues of investment. We are seeing how this has given rise to a new breed of disruptive technologies as it paves way for an even more vibrant and integrated fintech sector tomorrow. Fintech is here to stay and will continue to grow fast over the next decade as a source for alternative finance.
Roger Crook is the CEO of Capital Springboard - Singapore’s leading peer-to-peer invoice financing platform for SMEs. Capital Springboard facilitates trade for SMEs by granting them access to working capital provided by investors which include accredited investors, institutional investors, HNWIs, IFAs and family offices.