Asia’s great leap forward
Innovation is being fuelled by the dynamism of a new generation, and aided by a lack of legacy
“Mobile-wallet adoption in the Asia-Pacific markets is far higher than in the US, the UK and Germany. In domestic payments, the Australians have embraced contactless as a way of life. Objective academic studies show that Asia-Pacific is a hotbed of innovation. What’s the secret?” asked Oliver Kirby-Johnson, partner, advisory, KPMG, introducing Thursday’s Big Issue Debate, ‘The rise of Asia as a source of innovation’. “Is it the availability of low-cost smartphones? Rising internet penetration? A growing awareness of mobile payments? I’m not sure it’s that simple,” he continued.
Two significant factors were identified early on. First, the situation in Asia is unprecedented, and second, Asia has “leapfrogged” the West. “On the consumer side, this is a once-in-a-hundred-years, perhaps unique, change. We have so much technology in our hands, and it is completely democratised. The growth has been absolutely phenomenal. Users have access to information and to banking that’s relevant to them,” said Madhur Deora, CFO and senior vice president, PayTM, an Indian digital payments provider. The consumer market now accessible in Asia via technology, Deora pointed out, simply didn’t exist until recently. “This is different from the West, where consumers have been through several technology curves, from desktop computers onwards; in Asia we have leapfrogged all that.”
The West’s relatively slow development and adoption of new, digital technologies reflects embedded mindsets and practices as much as legacy systems, suggested Peter Hiom, deputy CEO of the Australian Securities Exchange (ASX). “With legacy comes legacy business models. It’s not just about the technology, but also the challenge of customers transitioning from old business models to new ones.”
Later, Deora pointed to the “intuitive expectation” among some of PayTM’s merchants that money would move instantly into their accounts rather than over three to five days. “Going forward, more than anything else, it is the culture of the company that will matter. You can always ride the next technology wave; what’s going to matter is whether you can make fast decisions,” he observed.
Push and pull
Noting the diversity of Asian markets, Kirby-Johnson asked whether take-up of mobile payments was predominantly attributable to the ‘pull’ of consumer demand, rather than regulatory ‘push’, as exemplified by Singapore’s Smart Nation initiative, recognised as a driver of innovation.
Lisa Robins, global head of transaction banking at Standard Chartered, said: “To generalise, the population is younger, and very used to mobile technology. Mindset is also perhaps a factor here: there’s the ability and desire to change rapidly and put the work in to get things done.” The needs and energy of a new generation were also acknowledged by James Ma, vice president, JD Finance, a Chinese provider of mobile-based financial services, including consumer loans. “I see a rise in entrepreneurship in Asia. I meet a lot of new founders. They are young, well-educated and inspired by the success of pioneers such as Tencent, Alibaba, JD.”
The expectations of China’s consumers and entrepreneurs were explored earlier in the week, in ‘Quo Vadis? FinTech in China versus the West’, presented at the SWIFT Institute by Bonnie Buchanan, Howard Bosanko Professor of International Economics and Finance, Seattle University. Buchanan’s research indicated China is a “huge underserved market” in which expectations are changing, particularly among the millennial generation. “China has an expanding middle class with an unprecedented tolerance for technological innovation, particularly when it comes to financial services. There’s also a huge funding gap in part of the Chinese population,” she explained. In the plenary room, Ma emphasised widening opportunities: “Even a young person without much experience, as long as they have good ideas, can easily get financial support from venture capitalists.”
Robins noted the scope for co-operation between service providers: “When you look at what a big bank does, a legacy institution like ours, we’re really looking at how we can co-create, looking for areas where people are innovating in big ways and we can innovate together.” Exchange and analysis of data is central both to these collaborative efforts and to delivering value to customers. “We look at data as the new engine. We see the whole industry becoming much more focused on how we can extract data to enable companies to do what they’ve always done better. The better the information we can get, the better we are able to service our customers,” Robins added. The theme of leveraging new capabilities to meet timeless objectives was echoed by ASX’s Hiom. Discussing market infrastructures, he said: “Lots of things remain true, regardless of these new technologies. We continue to provide infrastructure that enables our customers to do business.”
And what of innovation in Asia’s cross-border financial services to corporate and institutional clients? In the Wednesday session on ‘The Trade Finance drive towards digitisation’, the panel was surprised by the outcome of an audience vote that indicated ambivalence. As moderator Raphael Barisaac, global co-head of trade and market capital solutions, UniCredit, put it: “There are so many options in the market, but our clients just don’t use them.” Soumyo Dutta, treasurer, Reliance Industries, explained the reservations of multinational corporates: “Unless the whole ecosystem develops towards this process, people are not going to benefit.” Nevertheless, it is clear that appetite is strong among corporate clients for greater convenience, transparency and flexibility. “We’re seeing treasurers wanting to use their mobiles to see real-time information and make decisions,” said Standard Chartered’s Robins. “Why would your expectations at home be different from what they are at work?”
Consumers are setting the pace, but perhaps we’ll see trade finance leapfrogging in Asia in the near future. Last word on the rise of Asia goes to JD Finance’s Ma, who noted that the drivers of change are more deep-seated than the desire to get the latest upgrade on our smartphones. “This is how we innovate. It’s not only about the technology; we’re trying to build a sustainable business model.”
With Asian markets leapfrogging the West in terms of financial service innovation, how should we re-adjust our world view? “Let’s get some assumptions out of the way first,” said Chris Hamilton, CEO, Banks for Africa, opening the session, ‘Emerging and developed: terminology of the past?’ “The terms ‘developed’ and ‘emerging’ are no guide to the level of technological sophistication in a market,” he said, embarking on an assessment of differences and similarities between the priorities of financial market infrastructures across the globe.
Probably the easiest consumer payment experience in the world today is found in China, despite still being regarded as an emerging market. The largest issue of crypto-assets is Venezuelan petro-dollars. Thus, emerging markets can be at least as technologically sophisticated or innovative as developed markets. “That said, I suggest that developed/emerging is still a useful and interesting distinction to draw,” said Hamilton.
Emerging markets might be evolving fast, but developed markets are far from static. Hamilton invited Walter Verbeke, global head of business model and innovation, Euroclear, to give his perspective on the distinction. Verbeke said: “The way we look at markets, the experience we have, is – they’re all developing. In our world, we see a lot of development triggered by new technology, enabling new business cases to arise that need to be accommodated. Technology drives change in our world.” A timely reminder: even developed markets aren’t static; technology innovation impacts all markets.
Verbeke went on to make a thought-provoking point about innovation: it is no longer about activity diversification. “Now, there is so much going on in our core activity – the CSD (central securities depository), plus collateral, plus fund services, plus data – that we focus our attention there. As a financial market infrastructure, market participants look to us to provide safety and efficiency.” Technology impacts the core remit. With these caveats in place, the session went on to vindicate Hamilton’s suggestion that the developed/emerging distinction is still useful.
First, there is a distinction in terms of priorities. Sebastien Kraenzlin, head of banking operations, Swiss National Bank, said: “When it comes to innovation, we distinguish between the core of the market infrastructure – the stock exchange, the clearing house, the CSD, the RTGS system – and the outer layer, which is the interface between customers and banks. Several central banks are experimenting with new technologies and on how to interconnect existing core elements, such as the RTGS system, with potential new DLT-based systems. Several initiatives in Switzerland have so far concentrated on the core of the FMI; more could be done on the outer layer.”
Hamilton suggested that emerging markets will tend to place greater emphasis on financial inclusion. Breno Lobo, advisor, Banco Central do Brasil, agreed, adding: “We are trying to improve our electronic means of payments and give consumers the opportunity to use mobile payments more than they do now. We still have all the problems associated with cash.” Electronic payments – and especially instant payments – can address structural problems, said Lobo.
The technology is primed for service. “We have to create an alternative for people. Low-income people don’t have credit and debit cards. They are not part of the financial system, but they do own phones. Everybody has a smartphone with an internet connection,” said Lobo. The role of the central bank is to construct – or to allow the banks to construct – the infrastructure and “let the players play the game”.
Maria Krasnova, deputy chair of the executive board of NSD, the Russian CSD, suggested her domestic market’s experience and priorities were more akin to Brazil than Switzerland. “Recently, the situation has improved a lot. There is a special cashless economy programme, conducted by the Bank of Russia and the Russian authorities, with the result that more than 50% of retail payments are now conducted via mobile applications. There are still efforts to be made, but we have reached the last mile.”
Emerging or developed, all market infrastructures are leveraging technology innovation, but the way they do so is highly informed by local economic realities.