Disruptive Fintech Is Dead — Long Live Collaborative Fintech!

As we move closer to the end of January 2017, one thing’s for sure: digital financial innovation shows no signs of abating in Asia Pacific, and a series of financial technology (fintech) startups continue to put Singapore and Hong Kong firmly on the innovation map. Just last week Next Money held its Fintech Finals 2017 (FF17) in Hong Kong, and the Monetary Authority of Singapore (MAS) also announced that it will hold the Singapore Fintech Festival 2017 in November, the second year in a row that the regulator will be hosting the event.

FinovateAsia 2016 in Hong Kong and the Global Fintech Hackcelerator in Singapore last year gave us a glimpse into how fintech in the region will develop in 2017:

  • Asia’s governments are playing a pivotal role in driving fintech investment. MAS has committed nearly $160 million through 2020 to the Financial Sector Technology & Innovation (FSTI) scheme to fund infrastructure and deliver fintech services aimed at establishing Singapore as a smart financial center, as part of the Singapore government’s Smart Nation initiative. The Hong Kong government has announced a $370 million Innovation and Technology Venture Fund aimed at encouraging private venture funds to increase their investments in technology startups through a matching process. Both MAS and InvestHK have established dedicated fintech teams.
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Digital Insurance Success Demands New Metrics

Digital technologies are transforming the entire value chain of insurance, not only opening up new distribution opportunities, but also altering how insurers can assess, price, and manage risks, and creating new distribution and business models. At Forrester, we have done extensive research over the past year that involved speaking to incumbent insurers and insurance technology providers, as well as leveraging our consumer technographics data for our digital insurance strategy playbook. The playbook provides guidance that digital business strategy professionals need to formulate and hone their digital insurance strategy in the age of the customer.

We have recently published the executive overview, landscape, processes, assessment, and benchmark chapters.

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It's Time To Rethink Digital Banking Metrics

This time of the year is significant not only because of the never-ending amount of Christmas log cakes (or puddings) that we guiltily consume without restraint at our offices, it is also when we sit together to talk about everything that has transpired in the past year. As we go into the festivities over the next few days, this is the time for us to pause and reflect on the things that have gone well, and those that haven’t quite gotten to the stage of being ideal.

For the financial services sector in particular, this means taking stock of your digital transformation journey by evaluating your progress in digital banking in the age of the customer.

At Forrester, we have done extensive research that involved speaking to incumbent banks globally and leveraging our consumer technographics data for our digital banking strategy playbook. We have recently published the digital banking strategic plan, processes, and benchmark chapters. 

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Counting Down To Forrester's Next-Generation Financial Services Summit Sydney

Despite being geographically far away from the rest of the world, Australia's financial services sector has found its place on the world stage. Australian banks are some of the most innovative in the world. As our 2016 Global Mobile Banking Functionality Benchmark has shown, some Australian banks have overtaken their global counterparts, with Westpac taking the coveted top spot.

The question that I often get asked from Australian digital banking teams is, "so what's next in financial services?"

And I think that's a great question. As uncertain economic conditions, wavering markets, and tight budgets continue to increase the pressure on Australian digital teams to deliver better experiences and increased sales through digital touchpoints, we believe that digital business executives have to drive digital transformation. And this means far more than simply developing a "digital strategy". 

Digital banking executives must make mobile the hub of customer interactions, and not treat mobile as if it were just another channel. They should develop mobile banking as a platform to engage customers. To continue to win and retain mindshare and increase wallet share, the next step digital banking teams must focus on are ways to create new sources of value for their customers, not just meeting their basic needs.

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Where Will Disruption Happen Next In Financial Services?

Digital disruption has hit retail financial services in Asia Pacific (AP). In 2014, fintech investments in AP totaled US$880 million and skyrocketed to a staggering US$4.5 billion last year. Just as payments innovation has been a darling of venture capital investors in the US, the picture is not so different in AP as payments took the largest share of fintech investment deals at 40%. This is followed by lending at 25%. However, the next frontier of disruption doesn't lie in payments and lending. FF16, AP's first fintech competition, featured an array of fintech finalists offering a wide array of capabilities that signal what is to come in digital disruption in financial services.

We observe that the next frontier of digital disruption for the financial services sector will take place in investment, security and authentication as:

  • Data access, predictive analytics, and machine learning drive investment innovation. Exploding volumes of data are driving new, disruptive products and services in retail financial services. While predictive analytics isn't new, it has now entered the mass market, becoming more ubiquitous to retial investors. Smaller, nimbler players such as 8 Securities are now using algorithms to help customers derive insights from data, making predictive analytics more affordable and accessible. There are also B2B fintech companies such as BondIT and ShereIT that help financial advisors and brokers maximize their clients' portfolios. 
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Forrester's Inaugural FSI Summit In Singapore: Accelerating Digital Business And Innovation In Financial Services

Faced with increasingly empowered customers, together with mounting pressure from existing and potential digital disruptors in the financial services sector (such as Alipay in China and Codapay in Southeast Asia), many banks across Asia Pacific have launched mobile banking apps to enable customers to make mobile transactions. Initally, these mobile banking apps suffered from abysmally low customer adoption and delivered poor customer experience. However, mobile banking apps have come a long way over the past five years, going from little more than an extension of online banking to what one digital banking executive calls “the most important part of my job.”

Through conversations with our FSI clients, we have observed a positive transformation in how eBusiness executives think about and execute on their mobile strategy, which contributed to rising adoption levels and better customer experience. The most notable shift that eBusiness executives have made is to perceive mobile as a crucial part of their organization’s broader business transformation imperative linked to specific business objectives and outcomes — this is fundamentally different from the early days when some eBusiness executives equated a mobile app to a mobile strategy.

Our exclusive FSI summit in Singapore on Friday, April 15 will bring together an intimate group of senior executives from banks, insurance companies, and selected fintech firms. At the event, my colleagues and I will share Forrester’s FSI digital business research, and facilitate discussions with industry leaders.

My presentation, “Who Does Mobile Banking Well In Asia Pacific?”, will explore:

  • Key mobile banking trends across Asia Pacific
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Ezubao Shutdown Challenges P2P Lending Companies In China, But Doesn't Spell The End

News of the shutdown of the P2P lending platform, Ezubao, following investigations by Chinese authorities have shocked the world. Small investors in China were allegedly scammed out of more than $7 billion in what is now called "a giant Ponzi scheme". 

But I wasn't very surprised by the news. As I mentioned in my report, P2P lending in China has reached a tipping point and there is a dark side to the industry as it continues to be fraught with fraud and embezzlement. Widespread fraud tarnishes the entire industry, damaging well-run marketplaces as well as immediate victims of fraud. Many P2P lending platforms with unsound business models have operated for years without any backlash, violating regulations with impunity. Some of these platforms used money from new investors to pay off existing investors—like what Ezubao did—or invested lenders' money in the volatile Chinese stock market. These unstable platforms were simply ticking time bombs.

However, the fall of one P2P lending platform does not signify the fall of the entire P2P lending industry in China. Instead, the shutdown of Ezubao:

  • Signals the Chinese government's resolve to enforce regulations. In late December 2015, the China Banking Regulatory Commission (CBRC) drafted new rules calling for closer supervision of the P2P lending sector. However, "law without enforcement is just good advice". Thus, there was a level of skepticism surrounding what impact these new rules would have on unlawful P2P lending companies. Therefore, the shutdown of Ezubao is significant in that it signals the regulator's resolve to enforce these rules, sending a strong message that violation of these regulations is a criminal activity and there will be consequences, which is positive for the industry.
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Only Sophisticated And Innovative P2P Lending Platforms Will Survive In China

China is now the largest P2P lending market in the world. In just the first half of 2015, people exchanged RMB 300 billion ($47 billion) on more than 2,000 P2P lending platforms. As P2P lending in China reaches a tipping point, we expect many platforms to fail, and only sophisticated and innovative platforms will survive and thrive.

The “Q&A: Peer-To-Peer Lending Platforms In China” report takes an in-depth look at P2P lending platforms in China,  including the main players, key differences between Chinese P2P lending platforms and those in the UK and US, the problems that Chinese P2P lending marketplaces address, challenges P2P lending platforms face, as well as best practices in the P2P lending industry.

While the potential for P2P lending in China is huge, the challenges that lie ahead for these companies are significant. To succeed, P2P lending companies must overcome barriers related to the external environment that they operate in and the operational obstacles that their platform face such as:

  • Fraud. Widespread fraud and embezzlement in P2P lending tarnishes the entire industry, damaging well-run marketplaces as well as the immediate victims of fraud. Many of China's P2P lending platforms are not transparent, failing to disclose their revenues, expenses or fund allocation.
  • Regulation. In late December last year, the China Banking Regulatory Commission (CBRC) published new draft rules calling for closer supervision of the P2P lending sector. Some of these regulations include establishing a third-party depository of customer funds, requiring P2P lending platforms to improve disclosure, and prohibiting platforms from building capital pools.
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The Race For Mobile Payments Is Heating Up In Southeast Asia

My recently published report, “The Mobile Payment Opportunity In Southeast Asia,” finds that mobile payments are hot in Southeast Asia, with online and mobile-based purchases already exceeding tens of billions of dollars. Venture capital firms are also investing close to $75 million in mobile payments, drawn by a combination of factors including a booming digital content market, increase in online and mobile commerce and favorable government policies.

Well aware of the mobile payment opportunity, banks are scrambling to build their own mobile payment systems. But it’s not just financial institutions that are competing against each other to provide the best mobile payment services to their customers. Surging smartphone penetration in the region has created revenue opportunities for mobile operators, credit card networks and financial technology startups, all of which are also rapidly ramping up their mobile payment capabilities to stay competitive.

The brutal reality is that there is a high risk some of the banks’ mobile payment systems will fail. How then can banks ensure the success of their mobile payment systems?

eBusiness professionals need to keep up with the shifting landscape by understanding the market trends, usage scenarios, and local mobile payment options available to consumers. We recommend that banks incorporate three market dynamics into their mobile payment strategies:

  • User scenario for mobile payments varies across Southeast Asia. P2P payment growth in emerging markets differs from developed markets. We expect remittances to continue to spur P2P payment growth in emerging markets, and P2P payments will continue to account for a small share of transactions in developed markets.
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Which Bank Has Emerged Top In Forrester’s 2015 Singapore Mobile Banking Functionality Benchmark?

Consumers in Asia Pacific have made the mobile mind shift—the expectation that they can get what they want in their immediate context and moments of need. This rings particularly true for consumers in Singapore, where smartphone penetration will reach a staggering 85% by the end of 2015. From researching products prior to purchase to booking of taxi services, consumers in Singapore are increasingly reaching into their pockets for their smartphones to get information and services in their mobile moments of need. And they have come to expect similar—if not better—information, digital services and customer experience from their financial institutions. It comes as no surprise then that competition in mobile banking has started to heat up in Singapore, with many banks enhancing their mobile capabilities to serve increasingly empowered customers. 

In our inaugural 2015 Singapore Mobile Banking Functionality Benchmark report, we have evaluated the retail mobile banking offerings of four banks in Singapore using 41 criteria. We found that:

  • Banks in Singapore offer accessibility and convenience, providing a wide range of mobile touchpoints where customers can quickly log into their accounts to carry out key tasks, either on the web or on the app.
  • Most banks offer services that matter most to customers including balance checking, transaction history, and basic money movements.
  • Leading banks (such as DBS Bank and OCBC Bank) differentiate by offering next-generation value-added features, either by using augmented reality technology to help home buyers with their purchase decisions or by using mobile image capability to pay bills.
  • Yet, there is room for improvement for banks when it comes to leveraging context and analytics to gain a deeper understanding of their customers, and they can do more to cross-sell additional banking products and services through mobile
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