Financial technology ("FinTech") has the potential to revolutionize the way that financial services are provided, and it has already made a significant impact in many areas.
Convenience and user experience: FinTech can make it easier and more convenient for people to access financial products and services, by providing online and mobile options for managing money and conducting transactions. As a result, the overall user experience has been significantly enhanced.
Positive competition: Positive competition between FinTech companies and legacy financial institutions can help to create a more dynamic and efficient financial system that better serves the needs of consumers with improved services, greater choice and lower costs.
Financial accessibility: FinTech has the potential to make financial services more accessible to underserved or unbanked populations, by providing alternative channels for accessing financial products and services.
Financial inclusion: FinTech can help to improve financial inclusion by providing innovative solutions that reach people who may have previously been excluded from the financial system due to lack of access or other barriers.
Financial literacy: FinTech can help to improve financial literacy by providing educational resources and tools that can help people to better understand their financial options and make informed financial decisions.
This newsletter is the first part of the two-part article, which covers an introduction to FinTech and several examples of FinTech applications, ranging from Payment Gateway to Asset Tokenisation. In the next newsletter, i.e. the second part of this article, we will discuss the benefits of FinTech and its prospects for growth.
This article is also available on LinkedIn.
Introduction to FinTech
FinTech refers to the use of technology to improve and innovate financial services. Although FinTech is not a new industry, it attracts a lot of attention as well as substantial investments as it has been evolving rapidly in recent years. Technology has always played an important role in the finance world, whether it is the introduction of credit cards in the 1950s, electronic trading floors, ATMs, personal finance apps, or high-frequency trading in the following decades. Today, the latest financial technologies are Distributed Ledger Technology (“DLT”), Big Data, Machine Learning algorithms, Data Science and Graph Technology.
There are several subsectors of FinTech, including Payments, InsurTech, RegTech, WealthTech, Banking, and Digital Lending. FinTech is changing our daily life, and its innovations have transformed consumer and small business relationships with money and debt.
Examples of FinTech Applications
There are numerous FinTech applications that are really changing our daily life and business operations, like Payment Gateways, Mobile Payment, Distributed Ledger Technology (“DLT”), Asset Tokenisation, Central Bank Digital Currency (“CBDC”), Digital Insurance, Earned Wage Access (“EWA”), Trade Finance, Crowdfunding Platform and Robo-Advisors among others.
Payment Gateways: A Payment Gateway is technology that enables merchants to accept electronics payment from consumers. Essentially, it is a bridge between the merchant's website and the payment processor that handles the transaction, including the authorisation and settlement of the payment. Payment Gateways ensure that online transactions are secure by encrypting sensitive information, such as credit card numbers, to prevent third parties from intercepting them. Payment Gateways also provide fraud protection and compliance with industry regulations. Payment Gateways are among the most popular FinTech use cases. Before the development of e-commerce, electronic payment systems were in use. As a result of the introduction of online Payment Gateways, financial services have become more convenient, accessible, and easy to use on e-commerce platforms. Through Payment Gateways, it became possible to send money without the involvement of banks.
Payment Gateways can provide consumers with considerable benefits, including relief from high bank transaction fees. Meanwhile, Payment Gateways facilitate the completion of transactions for e-commerce businesses as well. Moreover, Payment Gateways have been enhancing their security measures to ensure that multiple threats are not encountered. As an example, blockchain-based systems could improve the security of payments compared to traditional banking systems.
PayPal, the global leader in online payments, is one of the most popular FinTech examples among Payment Gateways. With around 286 million active account holders, it specializes in electronic money transfers and operates in more than 200 markets around the world. PayPal has inspired some of the other Payment Gateways to some extent.
Mobile Payment: Mobile payment refers to the use of a mobile device, such as a smartphone or tablet, to make payments for goods or services. Mobile payments can be made using a variety of technologies, such as Near Field Communication ("NFC"), QR codes, and Bluetooth.
There are many successful mobile payment apps in Asia, including MoMo and Vimo in Vietnam, Go-Pay and OVO in Indonesia, Kakao Pay and Naver Pay in South Korea, WeChat Pay and AliPay in Greater China.
Overall, mobile payment apps offer a number of benefits to users, including convenience, security, speed, rewards and discounts, and integration with other financial services.
Distributed Ledger Technology: Distributed Ledger Technology (“DLT”) is a database system that is distributed across a network of computers instead of being stored in a central location. The most well-known example of DLT is the blockchain, which is the technology that powers cryptocurrencies such as Bitcoin.
DLT has the potential to streamline and improve the efficiency of cross-border payments in a number of ways. For example, DLT can help reduce the need for intermediaries, such as correspondent banks, which can slow down and add cost to the payment process. DLT can also help to improve transparency and reduce the risk of fraud, as all transactions are recorded on a secure and tamper-proof ledger.
One example of a DLT-powered cross-border payment system is Ripple, which uses a network of validated nodes to facilitate the transfer of money between countries in real time.
Overall, DLT has the potential to revolutionize the way that cross-border payments are processed, making them faster, cheaper, and more secure.
Asset Tokenisation: Asset Tokenization is the process of representing ownership of a physical or digital asset as a token on a blockchain. This allows the asset to be bought, sold, and traded like a digital asset, rather than as a physical item or a traditional security.
There are several potential benefits to asset tokenization, including increased liquidity, lower barriers to entry, improved accessibility, and enhanced security.
ADDX, GAMMA Paradigm, Liquefy, and InvestaX are the leading asset securitisation platforms in Asia.
Central Bank Digital Currency: Central Bankk Digital Currency ("CBDC") refers to a digital form of currency that is issued and backed by a central bank. CBDCs are designed to be an electronic equivalent of fiat money, and can be used for a range of purposes, including making digital payments, storing value, and serving as a medium of exchange.
It is estimated that 35 countries in Asia are currently exploring CBDC in different stages, either in research, development, or pilot programs, according to the American think tank Atlantic Council. China is likely to be the closest to a full-scale launch, as the country was the first to introduce the digital yuan, or e-CNY, in August 2020.
Digital Insurance: Digital Insurance refers to insurance products and services that are delivered and managed online, using digital technologies such as the internet, mobile apps, and data analytics. Digital Insurance products can include traditional insurance products, such as health, life, and property insurance, as well as more specialized products that are tailored to meet the needs of specific segments of the market.
There are many successful digital insurance companies and products in Asia. Here are a few examples: Digit Insurance, YAS Microinsurance Acko General Insurance and Oyen.
Earned Wage Access: EWA is a new and innovative way to help workers and employees access salary which they have already earned but is not due to be received until their pay day at the end of the month. To help situations when urgent purchases need to be made, but the paycheck has not arrived yet.
Paywatch, Salary Hero, GajiGesa and GetPaid are leading EWA platforms in Asia.
Trade Finance: Trade Finance refers to the practice of providing financial support to businesses involved in international trade. Trade finance can involve a range of activities, including the financing of exports and imports, the management of trade risks, and the optimization of working capital.
In Asia, Incomlend, FundPark, Qupital, ApexPeak, Paper id and Dltledgers are building Trade Finance solutions.
Crowdfunding Platform: Crowdfunding refers to the practice of raising small amounts of money from a large number of people, typically via the internet, to fund a project or venture. Crowdfunding can be used to fund a wide range of projects, including startups, small businesses, creative projects, and charitable causes.
Crowdfunding is a popular and successful way of raising funds for a wide range of projects and ventures in Asia, and there are a few platforms e.g. AngelHub, CrossFund, Give Asia and FringeBacker.
Robo-Advisors: Robo-Advisors are online investment platforms that use algorithms and artificial intelligence to provide automated, data-driven investment advice to clients. They are designed to make investing more accessible and affordable for people who may not have the time or expertise to manage their own investments.
there are many successful Robo-Advisor apps in Asia, including Aqumon, Krystal.AI, StashAway and Alpha Robo-Advisor.
QIDS Venture Partners is dedicated to supporting and catalysing the developments in FinTech by sharing with our audience FinTech trends and interesting FinTech business ideas. You may forward this article to other investors who are interested in FinTech as well. If you need more information or would like to arrange a meeting with us, please feel free to contact our Managing Partner Edward Shen via LinkedIn or email.
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