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Pandemic opens the door to a new fintech era in Asia

Changing consumer behavior and new regulations spur innovation

Asia is already a global leader in fintech innovation. (Photo by Kosaku Mimura)
Already at the forefront of innovation, Asia can seize opportunities opened up by the coronavirus pandemic for fintech 2.0. (Photo by Kosaku Mimura)

SINGAPORE -- When the ax fell on Lehman Brothers in 2008, an equity derivatives trader for the U.S. institution became one of many people disillusioned with traditional banking. Seven years later, Nikolay Storonsky launched Revolut, now one of the best-funded fintech companies in Europe.

Even if you do not believe financial technology startups were a product of the global financial crisis, their growth was undoubtedly fueled by it.

With the coronavirus crisis, those same elements that spurred a generation of entrepreneurial thinking about financial services one decade ago are present again. If we are lucky, it will help bring about a new era for fintech, a 2.0 version.

Asia, already a global leader in fintech innovation, is well-placed to ride this shift, especially those companies that survive the crisis.

No doubt, the health crisis is bad news for fintech companies and startups. Every day brings more news of layoffs, defaults, fall in disbursements or the sucking sound of money leaving the sector.

In Asia, the great promise of fintech was serving the underserved. Unlike Europe or the U.S., here was a mobile-first population with limited or no access to credit, and in many instances, even a bank account.

That potential led to a feeding frenzy in recent years, with investors piling into online lending companies in particular. Companies who barely had revenue, let alone a road map to profitability, were being handed outsized sums of money.

Last year, one young founder in India was dizzy with shock when I interviewed him about his five-month-old fintech company that received $25 million in seed funding from global venture capital firms.

Even companies who did not start out offering loans, such as Southeast Asian ride-hailing companies Grab and Gojek, saw the potential of getting into financial services.

That hype is probably done now. If the failed WeWork initial public offering and subsequent meltdown at SoftBank Vision Fund was the coffin for crazy valuations and a "growth-at-all-costs" approach, then COVID-19 is the nail.

Online lenders offering their services to consumers and small businesses in countries under lockdown cannot physically collect. Many of those customers are not working or unable to work, and loan delinquencies are rising. Regional banks, family offices and local funds, those that provide liquidity for these startups, are pulling back. As one investor told me the other week, now "men will be separated from boys."

There are exceptions, especially for startups not in the lending space. But for the majority of founders in Asia who have never experienced an economic downturn, this is a "make-or-break" moment.

Those that survive will probably become bigger and stronger than before. This is a good thing because they are essential for enterprises and consumers who remain overlooked or excluded by bigger banks. Even during coronavirus, startups are doing their best to support this segment.

And yes, it is great that companies from Grab to Revolut to small startups in rural Indonesia are providing options for underserved customers or those who feel big banks are letting them down. Overall, however, success for the fintech sector will not be based on one or two big technology companies.

Which makes the secondary effect of the current crisis even more important: a heightened awareness of how interdependent our financial system has become since 2009, thanks to technology.

Even more crucially, it comes as the elements that created the perfect cauldron for fintech to blossom in the era after the global financial crisis -- changing consumer behavior, an opportunity to innovate, and new regulation -- are present again.

Central banks and other financial authorities were already experimenting and deploying new digital infrastructure to regulate financial services.

Consider the Bank for International Settlements, which late last year launched the BIS Innovation Hub Centre in Singapore. The move -- the first expansion of BIS' global footprint in 17 years -- was aimed at fostering greater collaboration among the central banking community globally.

Another example is India's Unified Payment Interface. The UPI movement not only simplified the digital payment process in the country of 1.4 billion, it also boosted many startups and technology companies.

Hopefully, the coronavirus pandemic provides wind in the sails for these initiatives. Asia is home to some of the world's biggest financial services disrupters, which have had a transformative effect on society. If governments and organizations can channel that same innovation on a larger scale and with greater cooperation, the region will trailblaze fintech "2.0" as well.

Mercedes Ruehl is the Financial Times' Asia Tech reporter based in Singapore. She writes about technology and investment in Asia, from startups and entrepreneurs to the region's biggest companies.

She previously led the Financial Times' newsletters and audience engagement team in Asia. Before that, she spent six years reporting in Australia on business, finance and politics for The Australian Financial Review and The Sydney Morning Herald.

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