Fintech and the future of digital finance

Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic Policies talks up fintech.

Some analysts are projecting the revenue of FinTech companies tripling in the next 5 years, to around $US240 billion by 2026.
In the first half of this year, the sector attracted a record $US98 billion, up from $US34 billion in the same period last year.
There is a very strong interest in FinTech today as it is seen as a new frontier in finance. But to realise the potential of this new frontier, it is important for the investments to be directed towards innovations that are valued eventually by businesses and consumers.

We are seeing a range of interesting developments in Fintech around the world. In developed and well-banked economies, we have seen FinTechs augmenting traditional financial institutions.
For example, FinTechs such as Riskified, use behavioural analysis and big data to help financial institutions detect and prevent fraud.
Analytic platforms, such as Pitchbook, use AI solutions to crawl market data and organise them into actionable insights for institutional investors.

Robo-advisors, such as EndowUs and Syfe, provide affordable and automated algorithm-based portfolio management to consumers.
The impact of FinTech is even greater in developing economies, in improving access to finance and lowering costs. For example, M-Pesa’s in Africa, is providing financial services to millions of unbanked consumers who have mobile phones. Paytm is likewise revolutionising payments in India.

These innovations around the world illustrates the potential of FinTech. In Singapore, we are in a good position to contribute to global digital finance. We have helped connect FinTechs with financial institutions to experiment with new ideas.
One key initiative is API Exchange, or APIX, a partnership between MAS, the ASEAN Bankers Association and the International Finance Corporation. APIX has helped to connect more than 600 global FinTechs and financial institutions, to collaboratively design and deploy new solutions via the cloud sandbox environment.

For example, through APIX, Australian FinTech, Geniusto, and the Cantilan Bank, a rural bank in the Philippines, worked together to develop an omni-channel mobile banking and payments solution. And there are many other good examples.
Besides connecting companies together, we are also strengthening connectivity across borders, including the linking of national payment systems.

For example, we recently linked up Singapore’s PayNow system with Thailand’s PromptPay. A person can now transfer funds from Singapore to Thailand almost instantaneously through his or her mobile phone. And we look forward to connecting with other national payment systems. Singapore’s FinTech ecosystem has grown by leaps and bounds. We have more than 1,400 FinTechs firms today, up from just 50 firms five years ago. Our local FinTech sector attracted $US1billion, in equity funding and M&A last year. This is 34 per cent higher than in 2019, despite COVID-19.

Singapore became the first country in Southeast Asia to issue digital banking licences last year, another major step in the liberalisation of our banking sector. There is potential to do much more, especially with the digital economy in Southeast Asia projecting to triple to $US300billion by 2025. A burgeoning middle class and a fast-growing internet population will contribute to this growth.
As a key node in the region, there is much more Singapore can do to improve the lives of people and enhance the vibrancy of economies in the region.

This is why we announced the setting up of the Asian Institute of Digital Finance at SFF X SWITCH last year. This Institute is a collaboration between NUS, the Monetary Authority of Singapore and the National Research Foundation. Nine months on, the new baby is born. And I am glad to be here to officially launch the new Institute. How can the Asian Institute of Digital Finance make a lasting impact in the fast growing FinTech and digital finance arena? Let me share three ways they are doing so, as they seek to tackle challenges from the past, in the present, and in anticipation of the future.

Let me start with challenges from the past. The Institute is working on a number of exciting areas to tackle the legacy challenges that are hindering progress. One legacy challenge is the hesitance by financial institutions to share microdata with one another, due to commercial and competition reasons. Often, there are also restrictions from data protection rules and banking secrecy laws.
This inability to share and learn collectively leads to a much less efficient banking system. The resulting inefficiencies are paid for by lenders and borrowers alike. Lenders would need to take on a higher credit risk. As a result, borrowers would be charged higher interest rates, or be denied credit facilities.

Over the past few months, the Institute has partnered the industry to develop a federated learning initiative to address this legacy challenge.
Their first use case is in credit assessment, with a collaboration called the SME Credit Analytics Consortium.
The efficacy of today’s credit assessment models is limited, as each financial institution only draws on its own datasets to train algorithms.
Federated learning does not aggregate the data centrally. Instead, using machine learning, the algorithms are optimised using datasets from multiple institutions, without the microdata actually leaving each financial institution.
Through this Consortium, financial institutions can learn from the collective experience to develop better assessment models, particularly for defaults and debt recovery.

This will result in more optimised credit assessments – reducing the risks for the banks and lowering interest rates for SMEs with strong fundamentals. With more targeted interest rates, firms with good potential will also be better able to expand, by unlocking more working capital to drive growth. This Consortium is Singapore’s first federated learning platform for the finance sector. I hope this is the start of the next big step for data sharing in the industry, and a new paradigm for collaboration.
Several financial institutions – including several AI-driven ones such as Funding Society, FundOn, and GreenArc – have committed to join the Consortium. I look forward to more doing so. The Consortium will be launched by the end of the year. And we hope to expand this collaboration to other parts of Southeast Asia, where there are huge unmet SME financing needs.

Having outlined how the Institute can address challenges from the past, let me now touch on how the team can tackle the big challenges in the present. COVID-19 is the clear and present danger, although it will fade at some point. The pandemic has also provided a wake-up call for the world to deal decisively with the other global challenges ahead. No challenge is more existential to the world than climate change. As we seek to emerge stronger from the crisis, I am glad that there is a renewed emphasis on sustainability. And finance can be a key catalyst for a green recovery.

The Asian Institute of Digital Finance is contributing to green finance. It has established a Green FinTech collaboration with MUFG, two Singapore-based FinTechs – iAPPS and CriAT, and a few NGOs including the Zoological Society of London.
This collaboration seeks to develop evidence-based approaches to measure green initiatives in agricultural supply chains, using IOT and satellite maps.

Take palm oil for example. Many palm oil companies are vertically integrated. Historically, investors will rely primarily on the voluntary ESG disclosures made by these companies. But the data available is often not as robust. In some cases, there are concerns about greenwashing – where a firm creates a false impression of sustainable practices. This penalises firms which are committed to and have invested in sustainability practices. This collaboration takes a bottom up approach – relying on technology to collect trusted, quality, timely and verifiable data from the farmers, and right across the value chain.

From the insights gathered, the Institute can then build predictive models, which can be applied to other stakeholders who did not use tracking technologies to monitor their ESG practices. Banks would then have a practical way of providing concessional loans to support firms which are adopting sustainable practices. This would in turn spur further investment in the environment and sustainability.
This collaboration that I have just highlighted is very much in line with our goal to catalyse a green recovery through finance, and position Singapore as a key node for green finance and Green FinTech. I hope to see more of such collaborations in the future, as the Institute builds stronger partnerships with the industry and academia to tackle sustainability and other global challenges.

I have talked about tackling challenges from the past and the present. These are important, but they are not enough. We must also prepare the sector to tackle challenges of the future, some of which may have yet to manifest themselves. We do so by nurturing a pipeline of talent and imbue in them the foundational skills and the adaptability to tackle challenges that might arise in the future.

The task of nurturing future cohorts of FinTech workers is more pressing, given the surge in demand for individuals with such skills and experience. I am glad that the Asian Institute of Digital Finance has made it one of its core missions to train future FinTech talents.
Partnering close to 20 leading banks, FinTechs, Big Techs and other industry players, the Institution has put together compelling master’s and PhD programmes in Digital Financial Technology. The flagship PhD programme is Singapore’s first doctoral programme in FinTech.

Speech by Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic

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