Dear readers,

As the eighth Singapore Fintech Festival (SFF) 2023 gets underway and some 60,000 participants head to the Lion City, fintech and digital transactions have become ubiquitous. Most transactions at hotels, restaurants, bars, cafes, and shops are likely to be done digitally, although purpose-bound money, which was given to participants last year as part of Project Orchid’s experiments on retail central bank digital currencies, may be absent.

Separately, projects and experimentations started by past SFFs are playing their part in boosting Singapore as a wealth management hub. For instance, the Singapore Funds Industry Group, together with the Monetary Authority of Singapore (MAS), is leveraging distributed ledger technology to enhance efficiency. Fundnode is Singapore’s DLT (distributed ledger technology)-based settlement utility for investment funds. Elsewhere, Project Guardian, which tests the feasibility of applications in asset tokenisation and DeFi (decentralised finance), is exploring the issuance of variable capital companies (VCC) on digital asset networks.

More than being beneficial to Singapore, fintech has played an important part in fina cial inclusion, improving lives and livelihoods across Asean. Imagine not banking digitally or or not using digital forms of money; cheques are no longer used in Singapore, making it easier for cross-border payments and settlement. With digital identities, this is becoming a reality across Asean.

At SFF 2023, the governor of the National Bank of Rwanda, the governor of the National Bank of Cambodia and the chief executive of the Bahrain Economic Development Board will have a dialogue on digitising inclusion on Nov 15.

See also: SFF 2023 spurs discussion on generative AI and the future of finance

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MAS is at the forefront of three initiatives, to enhance financial inclusion. It is collaborating with Malaysia, Thailand and India to enable integration of real-time payment systems. This enables micro, small and medium-sized enterprises (MSMEs) to send and receive payments more conveniently and efficiently in a timely, affordable and secure manner.

For example, MAS has worked on an initiative called Business Sans Borders (BSB) to enhance and expand access to financial services. This led to the establishment of Proxtera as an open digital hub of networks, which aims to enhance trade discoverability and financing access so MSMEs access trade opportunities and financial services in Asia and Africa.

MAS is also collaborating with the United Nations Development Programme (UNDP) and other international partners to explore the use of Universal Trusted Credentials (UTC) to verify the identity of credentials of MSMEs to better participate in cross-border trade and finance, their intent and ability to pay.

“To harness digital technology for financial inclusion purposes, we need to put in place key building blocks, which we call foundational digital infrastructure,” explains Leong Sing Chiong, deputy managing director, markets and development at MAS.

See also: MAS launches blueprint outlining technology infrastructure required to facilitate digital money transactions

These include digital identity, interoperable electronic payments; and a trusted data exchange, where individuals and corporates can access their relevant data in digital form to carry out digital transactions, says Leong, who oversees the markets & investment, development & international, fintech & innovation groups at MAS. “These building blocks will support the channels through which digital financial services can be provided to the unbanked,” he adds.

“As we make digital financial services more accessible, it is critical that such services are subject to appropriate regulatory oversight to make sure that transactions can be done in a safe and sound manner. This addresses key areas such as know-your-clients (KYC) rules, consumer protection, market conduct, financial stability and cybersecurity,” Leong explains.

Within Asean, there has been good progress on three fronts. First, over 20% of 460 million Internet users came online in the past three years. Second, Singapore, Malaysia, Vietnam, Indonesia, Thailand and the Philippines are issuing licences to new digital entrants, including digital banks.

Third, because of regulatory considerations, many of these digital entrants are either partnering or becoming subsidiaries of existing licensed banks. Existing licensed banks will now also have the technology to offer direct services to the unbanked, on top of their existing customer network. “It is still quite early to assess what impact these players will have on servicing the unbanked, but the potential is there,” Leong says.

Additionally, Singapore is turning out to be a global fintech hub. “Just three cities — New York, London, and Singapore — account for almost 10% of the financial sector’s contribution to global GDP, according to Oxford Economics. These giants of the financial industry have an incumbent advantage in the fintech space — providing expertise and a potential customer base. They rank first, second and fourth in our fintech index,” says Charlotte Rushton, analyst at Savills World Research, in a report in September.

New York has the world’s largest and deepest exchanges. “With its intense demand for fintech innovation and the vast capital base investors have in one place, the city performs particularly well for its tech environment and deep talent pool,” Rushton says.

Number 2 in the ranking, London, is also Europe’s top fintech hub and is home to the largest number of fintech companies in the world.

Singapore, meanwhile, is a centre of multiculturalism — and establishing itself as Asia’s fintech hub. “The city-state plays host to the world’s largest fintech festival and saw the highest level of VC investment in fintech from 2019 to 2022 at US$34 billion. Singapore also provides global regulatory stability — MAS has eight agreements with regulators across the world,” Rushton says in her report.

Singapore has an ecosystem of more than 1,440 fintechs and 40 innovation labs dedicated to financial services. According to KPMG, fintechs in Singapore raised US$4.1 billion ($5.6 billion) in 2022, up 21% y-o-y, an all-time high. However, Singapore fintechs’ capital-raising of US$934 million in 1H2023 was down 41% y-o-y. In contrast, total fintech funding in the Americas — almost all in the US — rose from US$28.9 billion in 1H2022 to US$36 billion in H12023.

The dip in fintech capital raising is likely to be temporary as harnessing fintech for good is an unstoppable trend.

Our supplement for SFF2023 explores topical areas such as the impact of digital value chains on financial services, insurtech with the digitalisation in the insurance sector, embedded finance, and, of course, AI and payments.

We wish all our readers a fruitful SFF 2023.

GOOLA WARDEN

Executive Editor, The Edge Singapore