The finance industry has been one of the most enthusiastic proponents of advances in technology. Numerous FinTech firms are exploring the infinite potential of advances such as AI and machine learning (ML) in search of more efficient and profitable financial services. The global FinTech market is expected to grow at a CAGR of 24.8% per year through 2022 to reach US$309.98 billion ($432.5 billion).
“Many of these FinTech firms deliver more economical, flexible, user-friendly services, disintermediating financial services and capturing a considerable part of traditional banks’ market share,” boast a Harvard Business School case by IESE Business School professors Mireia Gine and Miguel Antón. Visa chairman and CEO Alfred Kelly told Euromoney that three out of four internet users worldwide use at least one FinTech application.
Singapore’s financial sector has been eager to jump on the FinTech bandwagon. According to the Monetary Authority of Singapore’s (MAS) chief FinTech officer Sopnendu Mohanty, the number of companies working in FinTech has risen from below 20 in 2015 to over a thousand today. Fresh graduates with computer or finance skills will also be glad to know that there are now 10,000 jobs in the industry up for grabs. Spending on the FinTech industry has risen from less than $20 million–30 million in 2015 to $1.2 billion–1.5 billion in 2020.
Despite the onset of Covid-19, spending amid the Covid-19 crisis reached $640 million in 1H2020 with a 200% increase m-o-m from April to May. Sopnendu says that most of this money is flowing to companies that are working with the banks and supporting the SMEs. “It is a testimony that the focus we had in Singapore is that we will build an ecosystem where the FinTechs...really work for us. It shows that during a crisis, they are the good companies that investors want to stand by,” he tells The Edge Singapore.
Pushing the tech frontier
Far from wishing to saddle these rough diamonds with red tape, MAS wishes to actively help these firms grow the FinTech ecosystem in Singapore. “Now, if you think about any centre, there are four aspects we look at — the innovation effect, the network effect, the ecosystem effect and the regulation effect,” says Sopnendu. Such an attitude marks a departure from the traditionally adversarial relationship between businesses and regulators, echoing former IMF chief Christine Lagarde’s call for dialogue between policymakers, investors, and financial services firms.
With regards to the innovation effect, MAS is looking to invest in continued FinTech innovation in Singapore through sandboxes and grant funding schemes to ensure that the city-state remains a FinTech leader. MAS sees itself as a facilitator for the more than forty innovation centres — 30 from banks and the rest from tech companies — to further Singapore’s FinTech transformation. It has announced a $125 Million support package for the financial and FinTech sectors and a $6 Million MAS-SFAAMTD FinTech Solidarity Grant to help FinTech firms tide over Covid-19.
“Singapore’s FinTech journey is about innovation, inclusion and inspiration. Everything we do in FinTech must always have a larger purpose — to improve the lives of individuals, to build a more dynamic economy, to promote a more inclusive society,” says MAS managing director Ravi Menon at SFF 2018. In the eyes of MAS, FinTech businesses are not necessarily a potential source of misbehaviour or a threat to Singapore’s financial system, but rather a key driver to furthering the collective social goods and improving the lives of Singaporeans. It is perhaps such a view that has prompted MAS to intervene in support of this FinTech story.
Such innovation cannot take root, however, without linking Singapore’s FinTech ecosystem globally across multiple ecosystems and jurisdictions. Sopnendu explains that without a good network effect, it would be difficult for the exciting FinTech developments in Singapore to scale sufficiently within an increasingly integrated financial system. Through building up international partnerships, Singapore is able to carve a niche for its FinTech innovation within global financial markets and make its products relevant to international financial transactions.
MAS has been looking to build such ties through initiatives such as Project Ubin, which has seen it collaborate with 40 banks and multiple regulators globally to experiment on blockchain payment systems. It has also initiated the Veritas Initiative to promote the responsible adoption of AI and Data Analytics based on the FEAT (Fairness, Ethics, Accountability and Transparency) principles, roping in 25 global partners within six months. Beyond MAS, Ngee Ann Polytechnic and Temasek Foundation International are working with the Indonesian government to extend a new FinTech programme for tertiary students in Indonesia.
Growing a fintech hub
Considering the relative youth of the FinTech ecosystem in Singapore, however, MAS recognises the need to further nurture the sector through events like the SFF. From only planning for 1000 people in 2016, the festival now hosts 60,000 people, with people from the global FinTech scene coming to energise the community in Singapore. Deloitte, SFF’s Grand sponsor and knowledge partner, describes the event as the world’s largest platform for the global FinTech community, placing Singapore on the world map of the FinTech world.
Within the local FinTech community itself, there is an increasing emphasis on associational activities and educational institutions providing training in the new technology. For instance, the Singapore Fintech Association offers MAS-certified training courses that are free for corporate members to attend, with 96.8% of attendees achieving certification within a week. Sopnendu also highlights the strong venture capital and investor base providing the necessary finance for emerging FinTech firms to grow and expand their business outside of Singapore.
Such initiatives, however, have not seen MAS waver in its commitment to be a strong regulator over the industry; after all, says Sopnendu, strong regulation and regulatory support is key for a strong FinTech hub. MAS’s well-understood Technology Risk Management Guidelines, he says, have helped build a strong base of resilient FinTechs that are highly-regulated, making potential partners such as banks more confident about working with them. During the crisis, MAS issued a framework to help FinTechs assess themselves against these guidelines, helping them better develop strategies to ensure compliance and build partnerships with the banks.
These regulations are the product of strong consultation with industry, with Sopnendu highlighting the example of the Payment Service Act. “We didn’t bring regulation immediately. We took four years, consulted with industry, broke the whole payment regulation into seven parts to develop strong and thoughtful regulation,” he recounts. By treating banks and FinTechs as partners in regulation, MAS builds trust, openness and mutual respect, encouraging collaboration with the finance industry to develop a framework relevant to business needs.
On Aug 4, MAS, the National Research Foundation and the National University of Singapore announced the launch of the Asian Institute of Digital Finance (AIDF), which will run a Master’s programme. It will also be giving out scholarships to outstanding students to pursue research at the doctoral level, as well as train post-doctoral fellows in digital finance and FinTech. Through its education programme, the AIDF will build the FinTech leadership pipeline for Singapore and the wider region. The institute will start operating by end of the year.
Nevertheless, there still remains much work to be done. Lawyer Yeong WanHsi of Arrowgate LLC writes in the Asia Law Network that Singapore to date has no specific regulations dealing with FinTech in Singapore, with the sector regulated under a wide range of legislation such as the Banking Act, Securities and Futures Act and the Moneylenders Act.
Yet Yeong expects that it is only a matter of time before the Singapore government formulates a more coherent piece of legislation aimed at regulating this growing sector. In the meantime, she tells businesses to stay up to date with regulations and take the opportunity to strengthen their competitive advantage.
“The bottom line is that compliance continues to evolve as the FinTech business environment matures and becomes more complicated. Stay informed and take the necessary steps to build a solid foundation under your business to stay competitive and make sure your business doesn’t suddenly run into major roadblocks because you did not take these steps,” Yeong concludes.
Value of FinTech investments in Singapore from 1Q2014–4Q2019 (US$ mil)
