Capital shift: People taking photographs in front of the Apple Store at Marina Bay. With about 1,500 registered fintech firms, the largest ecosystem in South-East Asia, the city-state is seen as a challenger to leading global fintech hubs in the US and Britain. — AFP
SINGAPORE: Singapore’s financial technology (fintech) market will likely double in size in the next few years as banks and fintech firms leverage each other’s unique strengths, says HSBC executive Shayan Hazir.
Hazir, the bank’s chief digital officer for Asean, believes Singapore’s fintech ecosystem has the potential to reach US$10bil (S$13.2bil) in total investment value in the next three years, up from around US$4.1bil in 2022.
The number of fintech firms can also double to around 3,000 in the same period.
The ambitious goal to achieve up to US$10bil in investments transpired at a roundtable hosted by HSBC at Elevandi’s Insights Forum in 2023.
Elevandi was a non-profit that aimed to foster international collaborations on technology and innovation in financial services.
It was replaced with the Global Finance and Technology Network (GFTN) by the Monetary Authority of Singapore (MAS) on Oct 30, 2024.
MAS chief fintech officer Sopnendu Mohanty will continue to lead GFTN as group chief executive officer.
“We have to rally the financial sector as a whole to make Singapore really shoot ahead of its ambitions,” Hazir told The Straits Times.
“And I think that if we don’t set out big, ambitious, lofty goals, we’re not going to galvanise as an industry together.”
Partnerships between banks and fintech companies can come in many forms.
Banks can buy equity in fintech firms to upgrade in-house technology capabilities or form an alliance to jointly offer products while taking care of the working capital needs of the fintech partner.
For instance, Singapore-headquartered fintech firm Validus recently secured a loan of up to US$50mil from HSBC under the bank’s Asean growth fund strategy, aimed at supporting micro, small, and medium enterprises.
During the pandemic, DBS Group Holdings Ltd collaborated with Singapore fintech company Doxa in 2020 to launch Doxa Connex, the first automated supplier procure-to-pay solution here for the construction sector.
Hazir said HSBC has made over 50 investments in fintech firms globally, including eight in Asia, and can do more here in Singapore, which is regarded as one of the region’s leading fintech hot spots. Other banks can also do a lot more, he said.
The local fintech industry has grown fast, from just around US$500mil in investments in 2018. With about 1,500 registered fintech firms, the largest ecosystem in South-East Asia, Singapore is seen as a challenger to leading global fintech hubs in the United States and Britain.
However, with the global fintech industry set to suffer a second year of a funding drought from private investors such as venture capital firms, Hazir said banks should explore what role and responsibility they have in fortifying the most innovative and fast-growing part of the financial sector and driving overall economic growth.Global consultants KPMG in its Pulse of Fintech report for the first half of 2024 said total global investment declined to US$51.9bil in the period from US$62.3bil in the previous six months, marking the lowest inflows since the first half of 2020.
Singapore fintech firms raised US$522.89mil in the first half of 2024 – compared with US$790.1mil in the last six months of 2023, the KPMG report noted.
Funding from investors had already started to dry up in late 2022 amid rising inflation and interest rate hikes worldwide.
Inflation has, however, eased and central banks have started to cut rates, raising hopes in the industry that the funding winter is nearing its end.
Consulting firm McKinsey believes that since fintech companies account for only 5% of the global banking sector’s net revenue, there is plenty of room for further growth.
McKinsey predicts global fintech revenue will double to over US$400bil by 2028.
“There is optimism for 2025, with expectations of a backlog of fintech deals potentially rejuvenating the investment landscape,” said the KPMG report.
Funding, however, is just one of the top challenges for fintech firms.
While most would have a great product or solution, they lack the experience to commercialise and market it, said Hazir.
Fintech companies usually also struggle with achieving scale and reach, gaining visibility and building sustainable income streams, he added.
“At times, they become very bogged down with the solution; what they’re focused on is the product, what they’re not focused on are the commercialisation, growth and scalability.”
Banks have their own issues and challenges.
Indeed, they have access to the cheapest source of funding – customer deposits – and large teams of experienced staff that take care of operations, marketing and compliance, referred to as the legacy core banking system.
However, their very size limits flexibility, pace of innovation and agility, attributes that fintech companies have used in the past decade to boost the demand for digital-first financial products, with web and mobile as their primary delivery channels.
Hazir said banks are large and complex.
“As any large organisation has multiple, different departments, which eventually can become a little bit siloed, there are complexities, bureaucracies and legacy created over the years. It takes time to get things done.”
Hence, many banks worldwide in the past few years – especially in the wake of the pandemic when contactless payments and web and mobile banking became a necessity – have been increasingly looking at forging mutually beneficial partnerships and alliances with fintech firms.
“We (banks) can learn from financial technology companies on how to be agile. And they can learn from us on areas of regulation, on governance, on safety protocols, on resilience and managing risk,” said Hazir. — The Straits Times/ANN
