Economic Affairs

Race to be fintech hub

Having strong partnerships among government agencies, financial institutions and start-ups is proving to be a promising formula for the fintech scene.

The sheer scale of the recently concluded Singapore Fintech Festival was a good reflection of how seriously the Republic views the potential of this burgeoning industry.

The week-long festival schedule was packed with two conferences, an exhibition, a forum, a hackcelerator, an innovation lab crawl featuring over 20 labs and several networking events, attracting 12,000 participants in all, from across the globe.

It was a big bang, designed to show the world just what a formidable fintech hub Singapore could be and, indeed, already is.


It has to be said that over the past two years, the Monetary Authority of Singapore (MAS) has made great strides to put the little red dot on the global fintech map.

The regulator set up a dedicated fintech and innovation group last year, under a chief fintech officer, and committed to invest $225 million in fintech over five years.

This year, it followed up with a partnership with the National Research Foundation to set up a fintech office, to provide a one-stop point-of-contact for all fintech matters.


The MAS also has its own innovation lab, Looking Glass, to spur collaboration among the regulator, financial institutions, start-ups and technologists, and facilitate consultations for start-ups by industry experts.

Last year, in one of his first major speeches about Singapore's fintech ambitions, MAS managing director Ravi Menon said that even as it strives to promote safety and security, the MAS wants to build a regulatory regime that is conducive to innovation and encourages the adoption of new technology.

Speaking at the Fintech Festival earlier this month, he noted that this is a fine balance to strike. "It is important to keep pace with what is going on, assess what the risks might be, and continually evaluate whether it is necessary to regulate or leave things to evolve further."

This is a particularly tricky line to walk, but past actions have shown that the MAS takes this task seriously and will take its time to fully consider the issues at hand.

It took over a year, for example, for the regulator to take in public feedback and consult industry players before eventually coming out with a set of regulations for the fast-growing crowdfunding and peer-to-peer lending industry here.

Another way the MAS balances safety and security with innovation is through its regulatory sandbox for financial institutions (FIs) and fintech players, launched in June.

The sandbox "allows experiments to take place, even where it is not possible at the outset to anticipate every risk or meet every regulatory requirement", as Mr Menon explained.

It also provides an environment where, if an experiment fails, it fails safely and cheaply within controlled boundaries, without widespread adverse consequences.

And the MAS itself is involved in several ongoing projects aimed at taking Singapore's finance infrastructure into the future.

For example, it is working with the Singapore Exchange and eight banks on a project to use blockchain technology for inter-bank payments, including cross-border transactions in foreign currency.

As a result of such moves, Singapore is widely considered to be among the most progressive fintech ecosystems in the world, with consultancy Deloitte recently naming the Republic the top global fintech hub, alongside London.

EY placed Singapore fourth in a global ranking of fintech hubs, behind Britain, Silicon Valley and New York.

And at the end of the Fintech Festival, Singapore upped the ante, launching a grant scheme under which the MAS will fund up to half the cost of promising fintech "proof-of-concept" trials based in Singapore, or a maximum of $200,000 for each project.

This was as loud a message as any to fintech entrepreneurs from all over the world: If you have an idea that could benefit the financial system at large, Singapore is the place from which to launch your idea.


It is apparent to any casual observer that the world's most successful fintech market is China, where the number and range of fintech services available and the rates of consumer adoption far outstrip that seen anywhere else in the world.

China is home to much of the world's fintech innovation, and Chinese fintech players such as Ant Financial and Baidu Finance are giving traditional Chinese banks a run for their money.

One big reason for this was the fact that large swathes of the population were unbanked to begin with. Fintech, when it came on the scene, offered these consumers financial services for the first time in their lives, and unsurprisingly they embraced it with great enthusiasm.

But China is not often named a fintech hub - it is a market unto itself. Put simply, it is not as much of a gathering place for the international fintech community as London, Silicon Valley, New York and Singapore are.

When consultancies such as Deloitte and EY rank fintech hubs, they are not only looking at fintech availability or adoption rates, but also studying factors such as the regulatory regime, talent pool and start-ups' access to capital and public markets.

On some of those fronts, China is lagging behind. For example, its fintech sector is largely unregulated. And while this has resulted in breathtakingly rapid innovation, it has also led to some scandals.

One recent study found that a third of more than 3,000 peer-to-peer online lending platforms on the Chinese mainland are "problematic". Last year, some 900 such platforms faced problems, with half found to have committed fraud.

It remains to be seen how much more regulators will let the fintech sector grow before reining it in, and this uncertainty creates a big dent in the overall attractiveness of China's fintech ecosystem.

Another important point to note, too, is that those markets competing to be global fintech hubs are not just looking to encourage fintech start-ups to flourish in their markets.

They want to build innovative financial ecosystems that encompass traditional FIs too.

After all, these stalwart banks, insurers and asset managers often make up a big part of their economies, employing large numbers of the population. This is especially so in the case of established financial hubs such as London and Singapore.

So it is in the larger economic interest to encourage FIs to embrace innovation, forge collaborations with fintech start-ups and experiment with the latest technologies.

Or, in the MAS' words, to build a "smart financial centre".

Deloitte South-east Asia's strategy consulting leader, Mr Mohit Mehrotra, said that the presence of the world's largest FIs in Singapore is actually a boon, not a barrier, to the country's fintech ambitions.

When fintech first became a phenomenon, it was largely seen as something that would disrupt and challenge traditional finance players. Not so these days, especially in Asia, he said.

"In many cases, innovative technologies scale up the most when they are in partnership with large players. Some fintech start-ups are geared to compete against these big players, but many are now geared to scale up with them or make them more efficient."


Now that the foundations have been laid, what should Singapore do next?

According to EY's managing partner for financial services in Asean, Mr Liew Nam Soon, Singapore should focus on talent.

Singapore has a good, but not deep enough, pool of talent, relative to London, New York or California, he noted.

"The three key skillsets that the right talent should have are technical knowledge, financial services expertise and leadership know-how," he said.

"There is also a need to develop a healthier pipeline of tech employees, and more home-grown tech talent such as programmers, designers and engineers."

Singapore should seek to build a network of investors, tech companies and academia to create a vibrant entrepreneurial community, he added.

At the same time, traditional companies, from small and medium-sized enterprises to large FIs, have to play their part, whether by collaborating with fintech players or adopting digital payments.

And, as always, Singapore has to think big - fintech solutions developed here have to scale up across the South-east Asian market, or even farther.

Get these right, and soon enough Ayer Rajah - Singapore's start-up district - will give the famed Silicon Valley a run for its money.

A version of this article appeared in the print edition of The Straits Times on November 30, 2016, with the headline 'Race to be fintech hub'. Print Edition | Subscribe