Shining the spotlight on Asia, key trends defining China’s place in the global e-commerce space are discussed in sessions at Money 20/20 USA’s Leadership Lodge, diving deep into how fintech firms are adapting to deliver broader, yet innovative services to support a diverse range of merchants with cross-border payments.
On stage, David Messenger, CEO of LianLian Pay Global, highlights that “the ecommerce payments space will rapidly evolve in the next few years and the catalyst for this growth has been Chinese budgets. The global cross-border ecommerce trade volume growth outpaces overall volume growth 25.5% vs 3%.”
Messenger adds that the APAC region has seen a growth of 35%, only beaten by South America with 37% growth. “The whole supply changes with ecommerce and for merchants, the process is far more complex than it has ever been before. It is not enough to just have a store on Amazon Marketplace, merchants must drive traffic to their store on the marketplace while at the same time, manage compliance.”
Serving the merchant
The payments space is a critical enabler for e-commerce. Consumers were served by global leaders such as PayPal and Alipay with solutions built by the likes of Stripe and Adyen, but merchants have not been provided with a new platform, Messenger says.
“However, new market leaders will emerge out of China and payment service providers are the right companies to take lead in making these changes. They already have a stable relationship with merchants, access to core data and are in control of merchant funds flow, and in turn, managing risk.”
Alongside this, as cross-border growth is expanding globally, it will not be emerging technology that will drive change, but providers who have “best-in-class compliance capabilities and have the ability to work with central banks and global regulators.”
Beyond foundations, e-commerce players will be required to expand and provide comprehensive payments services. Soon, companies will not want to operate through marketplaces, they will want to set up their own stores: this reiterates the importance of creating a marketplace for merchants, facilitating information flow and integrating payment flow.
Environment for e-commerce
Later, Melissa Guzy, co-founder and managing partner of Arbor Ventures, led a panel on Hong Kong’s position as a global financial centre and one of the fastest growing fintech hubs in Asia. Hong Kong is spearheading the region’s financial services industry into the virtual era, which has been seen by the issuance of the first virtual bank and virtual insurer licenses by regulators.
Guzy says that it is important to differentiate Asia from the US: the latter has a 100 year history of banking and commerce, which is not the case in Asia. Joseph Chan, Under Secretary for financial services & the Treasury at the Government of Hong Kong SAR sets the conversation on this subject in motion.
Under Secretary Chan explains that the government granted eight virtual bank licenses at the start of 2019, with an “objective to facilitate innovation and offer better customer service that is 24/7, personalised, provides services for small to medium businesses and promotes financial inclusion.”
James Lloyd, Asia Pacific fintech & payments leader at EY, discusses how Hong Kong is a strong environment for digitisation, which has been strengthened by recent changes in regulation. He goes on to explore how Hong Kong is the first market where new digital banks are not merely scaleups that are attempting to raise money.
Beyond the Big Tech threat
Some of the licenses that were issued were given to scaled up players, and today, they are rolling out their services to their pre-existing, substantial customer base. Lloyd provides examples of Jardines to show how non-financial players are now entering the market and Standard Chartered, that recently partnered with a telecommunications company to show how collaboration will set these new FIs apart.
Jim Lai, chairman at Fusion Bank and VP at Tencent, continues speaking about this point and promotes collaboration, stating that “banks and fintechs need to have a win win ecosystem for good business,” providing WeBank as an example.
Lloyd adds that Hong Kong is not a small market; it is the third global financial centre after London and New York and has the most profitable retail banking market. While European and US banks fear the threat from Big Tech, technology giants have already entered the market in China which has led to a spectrum of activity.
“Hong Kong is the first market where we are seeing Big Tech truly take on and work with banks. In other places, it is hypothetical,” Lloyds says. Lai then reveals that Fusion Bank have onboarded a staggering 900 million users and are already able to use advanced technology to protect customers; this includes using tech to work with the police to fight crime.
The Under Secretary concludes by stating that Hong Kong has always been a “conduit to China” and the region has always experimented with new services first. This, in turn, reidentifies Hong Kong as the financial centre of not only China, but of Southeast Asia, Chan says.
Comments from the Money 20/20 community
Finextra spoke to Ryan Frere, VP global payments at Flywire; Promoth Manghat, group chief executive officer of Finablr and Joel Yarbrough, VP Asia Pacific, Rapyd about how cross-border payments providers can play a bigger role in the global e-commerce market and how Asian fintech firms are taking a leading role in this evolution.
Frere highlights: “The Asian fintech market is heterogenous and China specifically is idiosyncratic. In less than a decade we have seen two key trends: the dramatic growth of Asian payment methods like AliPay and UnionPay and the accelerated nternationalisation of Asian businesses and consumers accessing more products and services across borders such as the latest, gadgets, education, or healthcare.”
Asian fintech firms are now the “dominant and preferred method of payment in their respective markets - and thus are the bridge between the global markets and Asian businesses and consumers,” and Frere uses the example of the international education market as an example.
“Today, if you’re a student from Asia and studying in the UK or the US - it is likely that you’ll want to use UnionPay or AliPay to pay for your tuition. Asian fintechs are working with other fintechs along with banks and payment players to open up domestic markets to the global financial services ecosystem.”
The industry is demonstrating how cooperation between fintechs and financial institutions is re-defining the future of consumer and SMB finance in Asia and around the world, but what does the future hold? According to Frere, “competition has made way for collaboration.
“Banks need fintechs and vice versa, but we’re also seeing fintechs working with other fintechs to circumnavigate traditional banks entirely. In Asia for example, you have established banking giants like ICBC, and emerging fintech giants such as Ant Financial and Tencent that both have a huge customer base but are very different from each other.
“These emerging giants like banks, have access to a wealth of data about their customers. The difference between these fintechs and banks is the fintechs are using this data. SMB finance is the perfect case in point. Ant Financial tore up the playbook when it introduced three-minute loans. Its delinquency rates stood at 0.48% of total credits in comparison to 1.74% of all credits from state-owned banks,” Frere says.
Finablr CEO Promoth Manghat points out in conversation with Finextra that it is “not just cooperation between fintechs and financial institutions that will define the future of finance, but cooperation between big tech companies, governments, and more.”
Discussing the increase in consumer demand, Manghat continues: “partnerships to own every part of the channel are cropping up at an astounding pace and disparate submarkets of payments—acquiring, PSPs, money transfer and more—are emerging under established, well-recognised brands.
“The next few years will see the Big Tech disruptors—Facebook, Google, Amazon—following the same path as Asia’s mobile giants, Tencent and Ant Financial.”
Joel Yarbrough, VP Asia Pacific, Rapyd also tells Finextra that the market will get much more crowded: “partnerships will continue to be the most effective way to succeed for both fintechs and incumbents, not just in Asia but anywhere.”
Yarbrough adds: “China continues to be a fast-moving market, with big platform companies growing and evolving across multiple areas, and blurring the lines between ecommerce, services, and digital content and then growing into overseas markets.
“This international expansion is one of the trends that we see progressively picking up in the region. Products, UX and payments capabilities will gradually adjust to the expectations of the non-Chinese customers.”