The fintech revolution has been sweeping across the globe, transforming traditional financial landscapes and revolutionising the way people access and manage their money.

Asia, with its diverse markets and rapidly expanding digital infrastructure, is poised to become a global fintech powerhouse. However, several challenges stand in the way of its fully-fledged growth, including regional regulatory complexities, barriers in partnerships and cybersecurity concerns.

The value of fintechs, particularly to traditional financial institutions, is undeniable. When the idea of a fintech revolution started, banks initiated their collaboration with minimal engagement in areas such as KYC, identity verification and fraud management, and are now partnering with fintechs to disrupt the market around payments, lending and digital banking.

These partnerships bring innovation and hyper-personalisation for consumers and have given a much-needed impetus to the fintech industry.

Onboarding fintechs can help to reduce a bank’s operational costs, ensure easier deployment of new technologies, such as online portals and banking channels, and achieve efficiency and automation.

According to a survey of 260 major banks conducted by Finastra and East & Partners in January 2023, a total of 87 per cent of banks in Asia Pacific said they are planning to connect with an average of four fintechs in the next 12 months, with just 12 per cent planning to develop their solutions in-house fully.

Regulatory fragmentation

Regional fragmentation in Asia creates significant barriers both for banks engaged in digital transformation and for fintech growth, including navigating multiple legal frameworks, compliance standards, and licensing procedures.

Also Read: Fintech growth in Asia: Why businesses should prioritise expansion in the region

These can be time-consuming and expensive and make it challenging for banks to scale their services across borders. It is particularly noteworthy in Asia compared to other regions and can limit the partner solutions that can be used.

A Cambridge University 2022 report, ‘Fintech regulation in Asia Pacific’, cited the main obstacles in forming regulatory frameworks in Asia Pacific as limited technical expertise, having to coordinate activities with multiple regulators, a lack of clarity on jurisdiction over an activity and limited funding and resources.

COVID-19 also exacerbated existing challenges in regulating fintech and introduced new ones, such as accessing timely data, coordinating with other domestic agencies and performing core functions while working remotely.

Internal matters

Internal factors can also be challenging for banks trying to integrate fintech solutions into their product offerings. Major issues include interoperability, budget constraints, upgrading legacy systems and shortage of expertise within the bank.

The Finastra and East & Partners survey found that almost a third of banks (31 per cent) said one of the biggest barriers for them was internal coordination/cooperation when integrating fintechs with internal product offerings, while 20 per cent said a lack of a strategic direction and plan was holding them back. This finding is underlined by contrasting responses from business leaders and CTOs on which fintechs they prioritise when onboarding.

Data concerns

As fintech adoption grows, so does the threat of cyberattacks. Asia has witnessed a surge in cybercrime, and financial institutions are prime targets. Consumers and businesses can be hesitant to fully embrace fintech solutions due to concerns about data breaches, identity theft and financial fraud.

High-profile data breaches and cyberattacks have raised red flags, leading to apprehension among potential users and regulatory bodies. In Asia, where varying data protection laws exist, the lack of a unified data privacy framework complicates matters further.

Some Asian countries, such as China and Indonesia, have implemented data localisation requirements, mandating that data collected within their borders must be stored and processed locally. However, this can pose challenges for fintech companies that operate across multiple jurisdictions as it may require them to establish costly data centres in each country.

As Europe and North America embrace data sharing and open banking, varying data rules in Asia can be frustrating for banks, who risk falling behind those in other regions.

Traditional mindset

Cultural factors can also play a pivotal role in shaping consumer behaviour and business practices in Asia. Many people in the region, even in highly banked populations such as Singapore, still prefer traditional banking methods due to longstanding relationships they may have with conventional banks, a sense of security when dealing with an established financial institution, reservations about doing digital banking, and a preference for face-to-face banking services and human interaction at physical bank branches.

Also Read: Despite decline, global fintech funding remains fairly stable: McKinsey report

What’s to come?

Asia is poised to be the fastest-growing region for fintechs, led by countries like China, India and Indonesia. The adoption of cloud and technology changes, along with fast-growing customer bases, are contributing to the growth of the industry. We are seeing traditional and digital banks collaborate with fintechs not only to create differentiation in the market but also to service the underbanked.

But the fintech space is fast-moving, and innovation is crucial. AI is perhaps the biggest innovating development and will continue to shift the fintech landscape. We are already seeing fintech products and services steer towards AI and machine learning capabilities to differentiate and disrupt the market.

Looking ahead, amidst funding issues and attempts to gain trust from the industry and consumers, fintechs are likely to evolve their business models and form value-based partnerships.

Considering Asia more broadly, through collaborative efforts involving governments, regulatory bodies and industry players, this region can certainly create an environment conducive to further fintech growth and unlock the industry’s full potential.

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