• Why is Asia Such Fertile Ground for FinTech?  
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Why is Asia Such Fertile Ground for FinTech?

As widely reported, the first quarter of 2016 was a good one for FinTech investment, with a total of $5.7 billion gleaned by private FinTech companies globally – an increase of over 150% on the previous quarter.

Of that investment, almost half went to Asian FinTechs, with the region attracting a $2.6 billion slice of the pie. This represented not only a new quarterly high, but also a continuation of an upward trend which saw Asian FinTechs pull in $4.5 billion in 2015 – a figure outstripping investment from the previous four years combined. Backing up the picture of buoyant growth, an estimated 50% of the world’s 6,000 or so FinTech companies are located in Asia today.

Analyzing the continuing rise of Asian FinTech, Future Asia Ventures’ most recent report highlighted the unique conditions that have made the region so fertile for growth – conditions that recently prompted commentator Chris Skinner to surmise that Asia offers a “different flavor of FinTech” compared to its Silicon Valley and European counterparts.

Mobile Penetration Vs. Unbanked Population

Future Asia Ventures points out that Asia “leapfrogged the landline era and went straight to wireless and mobile.” In 2014, China had a mobile penetration rate of 74%, compared to a banked population of 60% – creating clear opportunities for FinTech start-ups to offer everything from mobile payment apps to credit check services and non-bank lending platforms. In the Philippines, where only 31% of adults have a bank account and 3% have credit cards, mobile payment services have existed since as far back as 2001 – and mobile penetration surpassed 100% in 2014. Such trends are in evidence throughout Asia, creating an opportune landscape for new financial players.

China Mobile Payments

Mobile payments in China are expected to total over $3 trillion by 2019. Source: Citi GPS

Geography Matters

For Asian FinTech entrepreneurs operating outside of China, India and Indonesia, the comparatively small size of their available markets means success will depend on their ideas gaining traction across several locales that have different currencies, economies and regulations. Future Asia Ventures says this challenging environment creates an “effective weeding out process,” because “entrepreneurs who make it past their own country understand the importance of product design that can function in diverse markets.”

Youthful Exuberance

Website Tech in Asia lists “Chinese Millennials” as one of the key factors helping to ensure FinTech’s growth in the country. The site highlights the spending power of young people in Asia’s biggest FinTech market, noting that a new generation is “moving away from their parents’ thrifty mindset and is instead embracing consumerism and more modern societal norms.” Future Asia Ventures’ report addresses the point too, claiming an emerging consumer class across Asia – coupled with low credit card penetration – makes for ideal FinTech territory.

While these three factors only represent a snapshot of the unique conditions driving FinTech forward in Asia, they do serve as a reminder that the evolution of the start-up scene continues to be defined by much more than just good user-interface design and a slick marketing campaign. Although those never hurt either.

It will also be fascinating to see which factors play a part in shaping Asian FinTech in the future. A February white paper by DBS, for example, suggests that blockchain technology will be of more critical value to Southeast Asia than the US or Europe because “the region consists of loosely coupled countries who want to trade with each other, yet levels of trust between countries are disparate, preventing the region from realizing its potential.”

It also remains to be seen whether Asia as a whole will remain so strongly focused on the B2C sector, or whether future growth will bring notable B2B innovations as well. Likewise, can e-commerce giants such as China’s Alibaba successfully transition into the West, or will the conditions that gave rise to their success also prove to be a limiting factor for cultural crossover?

These matters of geography, history and sociology have a part to play in every FinTech market, of course. In Asia, however, they have certainly combined to create a unique environment for financial service start-ups in recent years – and an intriguing set of possibilities for the future.

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