The Changing Fintech Landscape in Asia-Pacific and Its Security Implications

The definition of fintech, or financial technology, has grown in leaps and bounds thanks to all the disruption it has brought. Any services, aside from mainstream banking and financial tools, that aim to improve personal or commercial finance through innovation, education, banking, investment, payment, advisory or blockchain can be classified as subsets of fintech.

The birth of fintech acted as a disruptor in the industry as startups began to leverage available resources to offer financial services. This affected consumers’ spending, saving and investment patterns, and represented tough competition for traditional financial institutions.

Analyzing the Fintech Market: Growing Opportunities

According to “The Pulse of Fintech, Q3 2016” by global audit and advisory firm KPMG, venture capital funding in Asian financial technology companies increased to $1.2 billion last year, outpacing even the U.S., where this type of investment totaled $0.9 billion. At a compound annual growth rate (CAGR) of 72.5 percent, Asia-Pacific fintech solutions and services are expected to gross more than $70 billion in revenue by 2020.

According to John Hope, the Asia-Pacific transaction advisory services leader for Ernst & Young, four markets in the Asia-Pacific region — Hong Kong, China, Singapore and Australia — are of particular interest in the fintech industry. Although each market has a different growth and investment pattern, each contributes to the overall growth of the fintech ecosystem.

A report by PwC found that China and India have the largest fintech ecosystems based on investments and number of startups. Singapore is also a leader in the Southeast Asian region, given its strong startup and fintech ecosystems. In short, the Asia-Pacific market is a goldmine for fintech startups.

These opportunities will only grow when combined with the Internet of Things (IoT) and cognitive technology to offer more customized experiences. For example, insurers can use data from smartphones and smart watches to offer low premiums on health insurance for consumers who have better health histories, thereby rewarding good behavior. Predictive analysis and machine learning could further change the rules of the game with better insights and a better customer experience.

Factors Influencing the Rise of Fintech

Below are six major factors contributing to the rise of fintech solutions.

1. Innovation in Digital Technology

Digital technology is pervasive with the falling price of cellphones and accessibility of the internet. Similarly, the e-commerce boom has played a vital part in changing customer expectations: Organizations can now innovate and offer better services to the customers making fintech startups so popular. In fact, all financial service providers in the region are competing in the mobile space to be the preferred choice of consumers.

2. Data Driven by Cloud

The popularity of cloud services to store data enables organizations and consumers to do away with huge servers. Meanwhile, advanced analytics lead to valuable insights that allow fintech providers to personalize services for their customers. Facilities such as virtual banking also empower fintech providers to reach underserved consumers and drive inclusive growth in the region.

3. Convenience and Variety

Since the fintech industry is not burdened with compliance issues or the need for legacy systems, it can innovate ways to offer convenience and variety. With money going digital, the fluidity of currency allows for cheaper transactions and easier transfers and, most importantly, eliminates the need to carry a hefty physical wallet.

4. Government Support

Asia-Pacific government agencies provide support with favorable policies for startups, allowing for growth and investment in the fintech sector. In Australia, for example, the government offers tax incentives to the fintech sector, while other Asian countries offer a similar boost to startups.

5. Changing Consumer Behavior

With consumers becoming more tech savvy and open to new experiences, the fintech industry has a huge opportunity to tap into new consumer expectations.

6. Blockchain

Blockchain technology promises to do away with the complexities that exist in various transactions we face today. If implemented correctly, this will lead to further growth in fintech. Many banks and financial firms have already started to experiment with blockchain and are very optimistic about the changes and enhancements it could bring.

Security Implications

As technology advancements promote more digitalization, the risk of data breaches increases. Global numbers confirm the increasing need for a security-rich environment: An Allied Market Research report predicted that the global market for managed security services (MSS) is expected to garner $40.97 billion by 2022 and register a CAGR of 16.6 percent between 2016 and 2022.

However, cybercriminals are constantly outpacing security professionals with their innovative and complex techniques. As a result, effective security solutions are moving targets. A 2014 IBM report found that nearly 60 percent of security leaders feel that the sophistication of attackers is outstripping the sophistication of their company’s cyberdefenses, mandating the need for MSS.

With the economy moving toward cashlessness, optimal threat management for the digital payments ecosystem and net banking are more important than ever. Effective security management through integrated security solutions, therefore, goes a long way toward effective incident response.

A Trusted Security Partner

With the help of managed security service providers, numerous banks in Asia-Pacific have been able to secure their information assets around the clock. Industry-leading technology and expertise have been instrumental in mitigating the risks that arise due to weak security defense. With the ability to provide differentiated services, including threat intelligence, operations management, incident management and recovery expertise, companies like IBM are a trusted security partner for many leading fintech organizations.

With every aspect of the fintech industry relying on the power of mobility and digitization, the sector must mitigate security threats to preserve the trust of its consumers. Providers must be vigilant and proactive in securing their customers’ interests to enable continued growth and innovation, and to generate further disruption in the industry. To be successful, the fintech sector must rise to the challenges outlined above and adapt to new ones as they emerge along way.

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Preeti Sahu

External Relations Specialist, IBM

Preeti Sahu supports Security and Global Technology Services business units at IBM as an External Relations Specialist and is responsible for churning out high quality content for the team in various formats. Her current role involves creating, editing and repurposing assets like press releases, blogs, executive announcements, byliners, social content etc to name a few. Her educational qualification includes MBA in Communications Management from Symbiosis International University and B.E. from Biju Patnaik Technical University. She has over seven years of professional experience spanning technology and communications.