Urszula McCormack of King & Wood Mallesons
introduces the 2019 Asia-Pacific Fintech Special Focus with a
region-wide look at trends
Take a region as politically, culturally, economically
and legally diverse as it is innovative and ambitious and you
find yourself in the Asia-Pacific region (APAC). Comprising
over 50 jurisdictions, it spans agrarian-based markets right
through to highly developed powerhouses of the global financial
The common thread within this region is its dynamism.
The APAC fintech market is predicted to reach $72 billion by
2020, a 72.5% increase from 2015. Global investment fintech
ventures more than doubled in 2018 to $55 billion, with the top
five markets for fintech fundraising being Mainland China,
Singapore, India, Australia and Japan.
Unicorns abound. APAC punches above its weight, with "big
tech" Mainland Chinese companies dominating league tables,
closely followed by other emerging titans of e-commerce such as
Singapore's Grab, Indonesia's Go-Jek and India's Paytm. The
unicorns are also "paying it forward", with significant
multi-billion dollar investments in start-ups, creating a
competitive environment with US and European players also keen
for a foothold.
High levels of mobile penetration, rapidly evolving
telecommunications infrastructure and vastly differing levels
of access to traditional financial services create an
environment that is ripe for disruption for some markets,
whilst an opportunity to leapfrog to a modern digital economy
This whirlwind of fintech development, acquisition and
joint-venture activity has been closely matched by regulatory
interest and government engagement, although its status and
depth varies significantly. Thailand has fully embraced
"Industry 4.0" and is keen to see it adopted as a priority for
the ASEAN jurisdictions. Singapore has a strong Smart Nation
and Digital Government mandate. Technology features heavily in
the Greater Bay Area initiative, as does smart banking in Hong
Kong. Vietnam and Cambodia have placed the digital economy
squarely on the agenda. Numerous sandboxes are in play.
Local market needs, prevailing market infrastructure and
funding availability drive very different fintech across APAC.
Regulatory idiosyncrasies such as capital controls, data
protection standards and even philosophical considerations also
inform how technology is deployed in each jurisdiction. The
quality of a developer community also counts.
In some cases, markets are being disrupted; in others, they
are simply being created – allowing "second mover"
economies to leapfrog traditional development paths.
However, despite the differences, a number of key focus
areas are emerging.
Three developments dominate this area. First, digital
identity technologies are being used to simplify the customer
onboarding process by authenticating an individual's identity
based on their biometrics (for example fingerprints and voice
print). Some countries are also implementing a national digital
identity system, which can be used to simplify certain
processes. A number of risks need to be managed, including
security, anti-discrimination and fairness principles.
Second are KYC utilities or similar technologies that aim to
mutualise the identification, verification, unwrapping,
screening and ongoing review processes. Third are alternative
credit scoring techniques to enhance financial inclusion and
mitigate risk amongst populations that do not have traditional
credit history, which is a particularly common concern in
emerging economies. This is also often expressed as having the
potential to better represent a person's risk level, although
has inherent vulnerabilities that need to be addressed.
Digital payment services continue to grow in APAC,
particularly given the increase in digital transactions and the
need to support e-commerce with effective payment mechanisms.
Digital wallets and e-payment methods are become increasingly
widespread and popular. The move toward a cashless (or
cash-low) economy is on the agenda for some as well, although
systemic risk and financial inclusion need to be carefully
Digital banking and insurance also continue to grow in APAC,
with more consumers willing to go fully digital in relation to
banking services. Digital banking allows customers to access
services on the go and, for digital-only banks, eliminates the
cost of having physical customer facing locations.
Meanwhile chatbots are increasingly being used to improve
customers' experience by providing immediate, 24/7 customer
service. Chatbots use artificial intelligence / machine
learning (AI/ML) to engage with customers and provide answers
to customers' queries. Chatbots are becoming popular across
several industries including retail and insurance.
Products and services
In many markets, payments and lending (including
microfinance) remain the priority. However, in many
jurisdictions, significant development is underway in relation
to new types of products that leverage technology.
These include robo-advisory and automated investment
management, where AI/ML is being applied in the wealth
management industry. It is expected that by 2023, the
robo-advisory market in the APAC region will be worth $16.7
billion. The focus of the robo-advisory market is shifting
towards embedding digital advice seamlessly into current
financial service offerings.
Another key "product line" is virtual assets. This wave hit
a number of APAC jurisdictions during 2017 and 2018 but
regulatory responses throughout the region have been vastly
different. These spanned outright bans through to a more
embracing approach of this new asset class. During 2018 and
2019, a significant amount of regulatory development has
occurred in several key markets. Depending on the location,
this has included regulation of the asset, its mining, its use,
the provision of exchange and brokerage services and/or custody
solutions. The focus has also now turned to the use of
blockchain technology to create programmable securities (also
often called security tokens).
In addition to financial crime controls, back office
functions are also rapidly evolving. Cloud technology remains
in high demand and many companies are using it for storage
space and computing power. Cloud technology can provide faster
service by eliminating the need for software or hardware. It
can also increase flexibility while reducing costs by allowing
companies to scale their services based on changing customer
demands. At the same, defined parameters are needed before
cloud can be deployed by many highly regulated institutions.
Guidance is available from some, but not all, regulators.
The focus has also now turned to the use of blockchain
technology to create programmable securities
Blockchain and other distributed ledger technology (DLT) has
been deployed in a number of areas, including settlement and
trade. A number of pilot projects are underway throughout APAC
that have close regulatory involvement. Others move through
regulatory sandboxes and/or under outsourced models.
In the AI/ML space, there has also been an increase in risk
management platforms that help companies detect compliance and
regulatory risks. For example, certain platforms can detect
hidden associations. These developments speed up the KYC and
due diligence process and make diligence and compliance faster,
more efficient and cheaper. A number of markets are developing
standards for the use of AI/ML, although on the whole, this
remains a developing area.
Finally, fintech platforms are also helping companies with
their regulatory reporting. This use of regtech solutions is
often trialled in regulatory sandboxes, under the supervision
of financial regulators.
In the broader economy, similar technologies are being
deployed in areas such as healthcare and retail.
Interoperability between the financial markets and these
segments is key because digital payments can help bolster their
success, but also because many of the technologies either need
to be, or benefit from being, interoperable or at least
Building robust enabling environments
Fintech has overwhelmingly been embraced by APAC regulators
as a driving force for innovation, competition and economic
inclusion. However, regulators have also been swift to
appreciate the commensurate controls that are required. Second
movers have particularly benefitted from watching the pitfalls
that have hampered industry developments in other markets,
enabling them to bypass traditional development phases.
Across the board, digitalisation, cross-border cooperation
and risk management are evident regulatory priorities. Digital
payments and online platforms also feature heavily, with the
build-out of regulatory licensing and prudential controls and
greater granularity for more complex products in larger
markets. Individual accountability is a growing
Cybersecurity and financial crime also dominate regulatory
agenda. On the data side, new standards are under consideration
across a number of markets, but cross-border flows and cloud
storage remain a challenge. AI/ML design, ethics and
accountability standards are also emerging from certain
financial and data regulators.
Supervision in this new era requires new techniques
(including regtech and suptech), specialist resources and
consistent data standards. Competition and concentration risk
issues will become increasingly important to consider.
International "influencers" and the path ahead
Fintech requires a transnational approach to fostering
innovation and risk management.
Regional and international bodies will continue to impact
the direction of fintech development in APAC. APAC regulators
and governments already participate in several key fora.
Multilaterals are also helping shape the fintech landscape,
particularly in emerging economies.
In the coming year, we are likely to see a number of further
emerging technology initiatives take shape. However, their
impact will be closely linked to the degree of collaboration,
harmonisation and true innovation involved.
Partner, King & Wood
Central, Hong Kong
T: 852 3443 1168
Urszula McCormack is one of Asia's leading
blockchain and financial regulatory lawyers, with a
focus on emerging technologies and financial crime. In
2018, she was recognised as a Financial Times Top 10
Legal Innovator of the Year.
Urszula advises virtual asset issuers, new DLT
protocol developers, custodians, regulators, global
banks, multilaterals, SVFs, payment providers, market
makers, asset managers and innovators on new products,
compliance and licensing. In the financial crime arena,
Urszula advises on digital identity, KYC utilities,
AML/CTF and sanctions. Across the spectrum, she advises
on privacy regulation, digital transformation and
Urszula is a member of the SFC Fintech Advisory
Group, co-chair of the Fintech Association Policy &
Advocacy Committee and a member of the Asifma Fintech
Working Group. She is admitted in Australia, England
& Wales and Hong Kong, and is a Certified
Anti-Money Laundering Specialist.