The Future of Fintech in Asia

Although the title sounds grandiose, it is not an exaggeration to say that Fintech is like a crossroads in Asia. In recent years, low interest rates and asset bubbles have driven fintech valuations around the world higher, and Asia is no exception. However, inflation, rising interest rates and VCs’ shift to “risk-off” investment strategies are bringing pause to what has been an incredible run in all things Fintech, including crypto. In a recent report from Kapronasia and Elevandi, we look at how the nature of fintech is changing, especially in emerging markets.

Emerging markets remain a crucial element in the FinTech story in Asia as the combination of technology and the financial industry has created new solutions for both financially included and excluded individuals and businesses.

In developed markets, new solutions bring convenience to people who are usually already banked. More importantly, they also bring with them an element of competition that pushes traditional suppliers to raise their offerings.

In emerging markets, the growth of DFS (Digital Financial Services) has had a huge positive impact on financial inclusion. The numbers show success: UPI alone has brought more people into the financial system in less time than any other initiative in modern history.

Because of the progress, the conversation around financial inclusion is also changing. Financial inclusion is broadly defined as individuals having access to traditional financial services – which today can be through a conventional bank, a non-bank financial institution or one of their digital counterparts. In many jurisdictions, as evidenced by the World Bank data shared earlier, we are making progress towards achieving financial inclusion.

Therefore, for the industry to evolve, we need to advance the traditional definition of financial inclusion to include a broader set of financial products and services. In other words, the future of financial inclusion is not just having access to traditional financial services, but all the products and services the financial industry offers.

FinTechs will be an integral part of this future, and indeed already are. In India, these are the start-ups that enable lending for merchants using UPI. In Singapore, digital wealth managers allow investors to move money more easily using PayNow. Across the region, nimble start-ups are leveraging technology to redefine the customer experience.

That is not to say that the journey will be easy. The next few years will be challenging for all the geopolitical and economic issues we discussed earlier in the paper. VC funding is becoming harder to come by as the industry has become more selective and focused on sustainable business models.

FinTechs need to get back to basics and focus on customer problems to build solutions that solve friction points rather than relying on fancy but ultimately unnecessary technology. It is about resilience in the face of adversity. Innovative, but at the same time sustaining.

FinTechs that can survive will be those that find that ever-so-fine balance.

To read more about the future of fintech in emerging markets, the full report is available here.