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In Asia, Fintech Not a Challenger to Banks: LexisNexis

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The Asia-Pacific region has established itself as a leader in fintech, but established banks there are unlikely to be replaced anytime soon, according to a white paper by LexisNexis Risk Solutions.

“In Asia-Pacific, we have seen an ecosystem of fintech companies emerge that are focusing on the applicability of technology like blockchain, artificial intelligence and biometrics has emerged with the aim of working with conventional financial institutions, rather than replacing them,” Chris Foye, manager of financial crime compliance at LexisNexis Risk Solutions, said in the paper.

The paper referred to a report by IDC Financial Insights finding that of fintech vendors that gain more than a third of their revenue from financial institutions, four of the top nine are in Asia.

“‘Challenger banks’ have emerged in the U.K. and elsewhere to disrupt big banking institutions, including crowdfunding/P2P platforms, payment processors and lenders,” Foye said. “Yet in recent years there have been no signs — and no instances — of banks disappearing due to tech interlopers.”

The key is finding ways to “encourage and regulate digital disruption at the same time,” according to John Price, fintech commissioner at the Australia Securities and Investments Commission.

(Related: International Regulatory Shift Could Tame Cryptocurrency Market)

Banks are ideally suited to that purpose, Foye said, being intimately familiar with regulation and compliance obligations, and many have established innovation labs to experiment with ways to bring innovation to consumers.

Australia, Hong Kong and Singapore have led the way in developing fintech sandboxes to give institutions room to test innovation without running afoul of regulators. 

This helps consumers, fintechs and financial institutions, and regulators alike by reducing time to market for new technology, bringing additional choices to consumers, giving new firms a better understanding of what regulators expect of them, and demonstrating to regulators ways that these technologies can help them do their jobs.

The paper cited the Hong Kong Monetary Authority, which credited its Fintech Innovation Hub with giving it the ability to “explore the use of emerging technologies to enhance the efficiency and efficacy of the HKMA in discharging our duties.”

Big-data solutions in particular are being adopted by regulators to help them oversee financial institutions. Big data helps institutions collect and group data from multiple sources, and analyze it. Standardizing data across institutions can further facilitate this process.

The report noted Indonesia has opened its national ID card database to financial institutions, and India is considering a similar move with its ‘Aadhar’ data. Meanwhile, Singapore is testing a national KYC utility based on government-operated digital identity service, MyInfo.

“Utilities promise to provide the efficiencies FIs need — a degree of standardization across the KYC process and a superior customer experience as the speed of onboarding will increase and customer friction will reduce as customers will not be asked to provide the same documents to multiple institutions,” Foye said.

— Read Ric Edelman: Advisors’ Biggest Tech Threat Isn’t Robos on ThinkAdvisor.