S'pore slips to No. 4 in fintech index; still top in Asia-Pacific

Singapore has fallen one rung to fourth place in this year's Global Fintech Rankings. While it still takes the top spot among countries in the Asia-Pacific, the Republic faces stiff competition from nations such as Australia, China and Japan, which have moved up the leaderboard this year.

The second annual index, produced by fintech analytics provider findexable in partnership with cloud banking platform Mambu, looks at more than 80 countries, 264 cities and over 11,000 fintechs.

The index scores each location for the quantity and quality of privately owned fintech companies, as well as the local business environment.

When it comes to the ranking of cities, Singapore fell six places to take the 10th spot.

Eight of the top 10 cities have remained the same as in last year's inaugural index, with the top three - San Francisco, London and New York - in the same order. Cities that have surpassed Singapore this year include Sao Paulo, Tel Aviv, Berlin and Boston.

Indonesia's capital Jakarta moved up 27 places in the city rankings to No. 32 globally, whereas Malaysia's capital Kuala Lumpur rose 11 places to take the 67th spot.

Uneven funding is one of the pressing issues highlighted in the Global Fintech Rankings report. This is even as statistics reflected the first quarter of 2021 to be a record year for fund-raising by venture capital-backed fintechs, with every continent seeing a higher number of deals, if not money raised, compared with a year ago.

According to CB Insights, the number of fintech unicorns have increased from 61 in April last year to 108 a year later, with combined valuation of these unicorns more than doubling to US$440 billion (S$590 billion).

But while established fintechs have been able to raise money with ease and at growing valuations, newer innovators seeking seed capital to tackle new problems thrown up by the pandemic have found the picture less rosy.

Part of the challenge is in building trust and rapport with investors amid a pandemic. This has led companies to gravitate towards established financial hubs, where they will be more likely to grab the attention of venture capitalists.

President of the FinTech Association of Malaysia Karen Puah was quoted as saying: "The pattern that we see is that foreign funding misses us and goes straight to Singapore, so then you see a pattern of companies establishing headquarters in Singapore, when they're actually building here."

That said, the report acknowledged a growing diversity in funding sources and global connectivity, including capital from sovereign wealth funds. It also highlighted the changing role of the state, "from bystander to cheerleader and regulator".

Countries like Singapore have allowed for "structured experimentation" through regulatory sandboxes that allow fintech companies to launch products to a limited number of customers without clearing onerous licensing rules.

The report quoted Mr Ravi Menon, managing director of the Monetary Authority of Singapore, who said sandboxes allow experiments even where it is not possible at the outset to anticipate every risk and meet every regulatory requirement. He also said that if such experiments fail, they fail "safely and cheaply within controlled boundaries, without widespread adverse consequences".

Singapore was also highlighted for its ability to develop the fintech talent pool. The report's authors noted that the Republic had in the mid-2010s committed US$170 million to incentivise global financial institutions to set up innovation labs in the city.

Central bank digital currencies (CBDCs) is another fintech innovation featured in the report. It noted that these digital versions of fiat currencies hold out "very different sets of possibilities" for the wealthiest and the poorest countries.

In developed countries where banking is near universal, CBDCs pose a more immediate challenge to banks, with risks of deposit flights. This is less of an issue in less wealthy countries, where banks are not as central to the economy, precisely because larger parts of populations cannot access them.

THE BUSINESS TIMES

A version of this article appeared in the print edition of The Straits Times on June 25, 2021, with the headline 'S'pore slips to No. 4 in fintech index; still top in Asia-Pacific'. Subscribe