Fintech’s success will be measured by how wide its reach is, not by flashy IPOs

At the recently concluded Future of Finance round table co-hosted by the Bank of Thailand and the Milken Institute to help mark the Thai central bank’s 75th anniversary, a critical point emerged that remains particularly relevant at a time of growing inequality across the Asia-Pacific region, including in both China and the United States. That theme? In a word, “inclusivity”.

Among the some 40 leaders in finance who had convened, there was no ignoring the importance of including inclusive measures to assess the development and application of innovative new financial technology – “fintech” – that is upending traditional ways of banking and financing. Thanks to fintech, industries are being disrupted and individuals and companies are interacting in new ways. 

Electronic payment using a mobile phone app is perhaps the easiest-to-understand example of how fintech is changing day-to-day life. From cryptocurrencies such as bitcoin and ethereum and initial coin offerings (ICOs) that allocate “tokens” as a new means of crowdfunding capital, to an evolving mobile payments industry that has pushed us towards a cashless society, fintech can seem overwhelming and unsettling, but it is a disruption to be welcomed. 

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China and the United States have always been ambitious. Now, the race is on to see who will lead the world in such areas as artificial intelligence, supercomputing, biotechnology and space. If this competition between the two largest economic powers yields a race to the top, not the bottom, when it comes to fintech, that could indeed be a very good thing. 

By some accounts, China’s fintech industry has flourished in the absence of significant regulation, with tech companies instead of traditional banking institutions leading the way. Yet, along with the benefits of greater financial inclusion via financial innovation can come the downsides of scams and fraudulent companies taking advantage of unsuspecting consumers or investors.

Cryptocurrencies have been of particular concern to regulators who moved to ban ICOs and cryptocurrency exchanges. In the case of cryptocurrencies, instead of letting market forces decide, the People’s Bank of China has outlined a vision for a centrally issued and managed digital currency.

China’s fintech deals and initial public offerings (IPOs), in particular, continue to make waves because of their size. Much of the venture capital in Asia has predominantly flowed into China, particularly among a handful of large tech companies. This remains the case even as other countries have worked hard to position themselves as fintech hubs, says Jackson Mueller, associate director at the Milken Institute’s Centre for Financial Markets.

In 2017, six Chinese fintech companies went public in the US. Qudian, one of China’s largest online lenders, raised US$900 million in its IPO. ZhongAn, a Chinese online insurer, raised US$1.5 billion in Hong Kong.

But beyond the multimillion-dollar, headline-grabbing investments and acquisitions, what does fintech actually mean for the people of China or the US? Across the Asia-Pacific region, assessments of fintech must go beyond counting fortunes made and businesses disrupted or created. Assessments of fintech also must include a measure of the people helped.

For brick-and-mortar financial institutions, the ongoing rise of fintech poses challenges to existing business models as well as opportunities to reach new customers. But for policymakers and entrepreneurs, the benefits of addressing the digital divide and of harnessing the power of fintech can seem clear-cut in their combined ability to increase the level of access to capital and financial inclusion.

As examples, WeChat and Alipay, the two largest Chinese mobile payments platforms, rightly take pride in reaching China’s extensive rural population. Alibaba (which owns the South China Morning Post) plans to invest US$1.6 billion through 2019 to build 1,000 county-level and 100,000 village-level service centres, which would help rural residents get connected and set up their own online shops. Already, some 30,000 villages have reportedly benefited from this programme.

But concerns stemming from past financial crises about the downsides of financial products and services that might not be well understood also linger.

Taizo Son, founder of Mistletoe, a hub for start-ups and entrepreneurial ecosystems, says that while they are “strong believers” in the power of digital transformation evoked by fintech innovation, the technologies can widen the income gap. Son is the youngest brother of another tech pioneer, Softbank’s Masayoshi Son.

Inclusivity will remain a critical issue at a time of growing inequality worldwide. In China, at the National People’s Congress sessions held in March, Premier Li Keqiang announced a national commitment to modify or abolish rules that “sap the inspiration for innovation” as well as a commitment to increase access to high-speed broadband and free internet. China is understandably focused on boosting the development of a “Digital China” and widening financial inclusion.

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Expanding access to financial platforms and digital products could indeed dramatically change the lives of tens of millions of farmers, entrepreneurs and small business owners.

Importantly, the sustained benefits of fintech, whether in the US or China, will only be realised if a proper ecosystem is created and maintained – one that addresses the concerns of regulators while benefiting innovators and, most importantly, consumers. Indeed, the true measure of success for fintech should not be deal size or quantity but expanded horizons. And that is where our ambitions should aim – towards unlocking the broad-based benefits of fintech for all.

Curtis S. Chin, a former US ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group LLC and inaugural Asia Fellow at the Milken Institute. Follow him on Twitter at @CurtisSChin