August 12, 2015

By Geoffrey Parsons, Director Research & Consulting

Sachs Insights was recently at the Rise Conference in Hong Kong, where nearly 6,000 investors, entrepreneurs, media and attendees from over 70 countries descended on the city to listen to industry leaders, experts and innovators speak to the latest digital trends and engage with a host of new start-ups seeking funding.
 

Drone giant DJI showed off new obstacle avoidance software.

On the agenda was Digital Marketing, eCommerce, the Internet of Things, Drones, FinTech and much, much more.  Of all these, FinTech stood out in the crowd.  (One might think that Sachs is biased, having worked on both the B2B and B2C side in financial services to help assess market opportunities, build products and revamp marketing and UX strategy with our Fortune 500 partners, well….actually, that is true, we do love this stuff.)

FinTech was BIG in Hong Kong at the RISE Conference.  Hong Kong has long been a financial giant in the APAC region, and many speakers came from the upper echelons of the big venture capital firms, banks and investment houses that have brought so much wealth to this region and their clients. But in equal numbers came speakers representing industry-disrupting innovations in Financial Technology, or FinTech.  And among the several hundred start-ups in their booths pitching for capital, dozens were scrambling for a piece of the FinTech market, whether it be payments, transfers, remittances, currency exchanges, or loans.

Back in the States we’re most familiar with FinTech in the form of our banking apps, allowing us to cash checks with a quick picture, send our friends a payment with our phone and of course through the deluge of Bitcoin stories in the media.

But the APAC region is unique, with a basket of challenges and opportunities that create significant pain points for consumers, merchants and institutions and allow for serious disruption of the well established players.   On the one hand, APAC is a very fragmented market, with a very low credit card penetration rate.  Small markets, made distinct by culture, currency and infrastructure, means a lot of money needs to flow across borders, but the lack of credit cards and the limited service provided by regional and multinational banks complicates things (two exceptions exist in Hong Kong and Singapore, where English law has provided a relatively stable political and business environment, large multinationals have established footprints, and credit cards are more ubiquitous).

Hungry FinTech entrepreneurs pitching for cash.

So businesses that wish to grow need to expand into dissimilar and challenging markets, migrant workers seeking better work conditions abroad need to send money home, and merchants, institutions and customers need ways to send payments to one another quickly.

The failure of traditional banking institutions to fill these gaps efficiently has led to lucrative opportunities for FinTech entreprenuers, particularly in the form of transfer payments, remittances and loans.

Leaders of Compare Asia Group; TransferTo; WeLab; PayPal; QFPay; Adyen; and Currencyfair all contributed as speakers representing up and coming players in the APAC region.  Each of these companies is an upstart gaining traction in underserved or unbanked markets.

The keys to their success are almost uniformly the same: Localization, price and a refined user experience.  They target their products to meet the specific needs of the myriad of regions they serve, undercut banking fees via technology, and provide a digital experience that far exceeds anything offered by their much larger, institutional competitors.

The future of all this points to P2P and mobile.  China, historically an underbanked market, missed the desktop phase and jumped right to smartphones.  Their P2P payments market, led by monolith Alipay and recently challenged by the entrance of WeiBo, represents $47 billion.  Compare that to $7 billion in the United States.

Back home, American companies have not been sleeping.  Snapchat and Facebook made news recently by joining Venmo and Paypal in the United States P2P payments market, their outlook largely the same as their coevals in Asia:  We can provide a cheaper, more streamlined and engaging experience.

For the plethora of less established FinTech start-ups seeking funding at RISE, the outlook was bullish and investors were keen to jump in.

The message to banks is clear:  Change or lose market share.

How do you think FinTech will impact the banking around the world in the next five years? Please leave your comments and ideas below. We’d love to hear your perspective.

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