April 18, 2016
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.
- Identity authentication services take off with interest from financial firms. For financial institutions, meeting AML and KYC requirements is difficult and comes at great cost—often running into hundreds of millions of dollars. It's little wonder, then, that executives from financial institutions such as Wells Fargo were emphasizing the need for innovation in identity management in general and authentication in particular at FF16. A number of firms such as SayPay uses voice recognition for identity authentication. Other firms such as Everledger uses the blockchain to track provenance for luxury goods like diamonds while Uniken helps to protect digital identities with a two-way identity authentication solution.
- Risk management services approach prime time as fraud reaches alarming levels. Financial institutions incurred more than US$16 billion in fraud losses on credit, debit, and prepaid cards, with the highest overall rates of card fraud occurring in AP. Card fraud not only has a direct financial impact on financial institutions but also causes attrition as customers lose confidence in banks to prevent future fraud. To manage risk, companies are leveraging machine learning and pattern recognition from companies such as Apvera and Scaled Risk. Firms like Coinalytics track the bitcoin blockchain in real time to help companies accurately assess risk.
To read more about the next frontier of digital disruption in financial services, and how financial institutions should respond to this disruption, please click here.
Do you think that disruption in AP is brewing in investment, security and identity in the financial services sector? Would love to hear your thoughts!