With global cumulative investment in financial technology (fintech) forecast to exceed US$150 billion in three to five years, economies around the world are vying to attract fintech innovators and cash in on this growing industry. Singapore, too, has thrown down the gauntlet, with increasingly progressive regulations that encourage testing and collaboration.
Singapore’s thriving fintech ecosystem is a clear contender in the race for fintech dollars. A recent Deloitte report scored the city-state’s fintech hub highest, tied with London, after evaluating 21 of the world’s top global fintech hubs.
Why Singapore is built for fintech
Fintech innovators are drawn to Singapore for many obvious reasons. The island state is a renowned financial centre with world-class infrastructure and connectivity. Ultra-high-speed fibre infrastructure runs across the nation, while mobile subscription penetration exceeds 100 per cent – factors that are all key for fintech growth.
Singapore is also located among the fast-growing financial markets in Southeast Asia, making it an ideal test bed for fintech innovators looking to tap regional opportunities. While 96 per cent of Singaporeans have bank accounts, around 59 per cent of the adult population in East Asia and Southeast Asia remain unbanked, according to McKinsey & Company.
Deloitte scored Singapore highly for its business friendly environment, access to expertise, strong government support, and excellent regulations that encourage innovation. Singapore's approach is especially refreshing given that regulation is a notorious obstacle for fintech globally.
In August 2015, the Monetary Authority of Singapore (MAS) established the FinTech & Innovation Group within its organisation structure to regulate fintech. But its most exciting move to date is releasing proposed guidelines in June 2016 for a ‘regulatory sandbox’ for fintech experiments. This is meant to relax regulations to allow financial institutions and non-financial players to experiment and test fintech products on customers within a well-defined space and duration. It would both allow failure – the lifeblood of innovation – and limit consequences. Two months later, MAS also released a payments roadmap to encourage the universal adoption of electronic and innovative payments, among other goals, while addressing risks such as cybersecurity.
In addition, Singapore has put its money where its mouth is. Last year, MAS announced that it would allocate S$225 million (US$162 million) to a five-year Financial Sector Technology & Innovation scheme to fund innovation centres, innovative solutions by financial institutions and industry-wide projects such as the building of technology infrastructure. Many major institutions have already jumped at the opportunity, including DBS, Citibank, Credit Suisse, MetLife and UBS. MAS also nurtures innovation among new ventures by lending support to fintech accelerators such as Startupbootcamp Fintech Singapore while UOB has partnered with the Infocomm Development Authority to set up the startup accelerator FinLab.
Private sector funding is further fuelling the fintech ecosystem, with venture capitalists, angel and private equity funds pumping in money. IncubAsia Ventures is but one VC, which invests in early stage fintech startups. Life.Sreda is another fintech investor, which relocated from Russia to seize on opportunities in Singapore’s booming fintech market.
Collaboration is crucial to any fintech ecosystem, and Singapore offers an ideal ground for this to flourish. Startups can access capital and customer bases, while incumbents can tap the talent and agility of new ventures.
For example, the inaugural Singapore FinTech Festival in November offers a single platform that aims to spark co-creations. Established financial services groups are also keen on collaborating through their labs. To that end, OCBC Bank recently set up The Open Vault at OCBC, a new fintech unit that aims to\"leverage the creativity and nimbleness of fintech startups\".
Mature mobile and digital payments
Based on the current landscape, mobile and digital payments are likely the most mature fintech solutions. Singapore is home to a host of startups that operate in that space including goSwiff, Kashmi and 2C2P. Banks have also launched e-wallets such as DBS PayLah!, UOB Mobile Cash and OCBC Pay Anyone.
After the 2014 launch of FAST, an electronic funds transfer service enabling 24/7 real-time transactions across 19 banks, Singapore’s payments scene also accelerated. While utilisation of mobile devices for payments remains small, there is no doubt that it is on the rise – increasing 42 per cent from 2013 to 2016. The fact that KPMG found that most consumers believe mobile devices and wearables will\"quite likely\" replace physical payment cards is another positive sign.
In the Singapore Payments Roadmap report, KPMG made recommendations to speed up the evolution and efficiency of the country’s payments ecosystem, including focusing on strategic infrastructure projects, streamlining and strengthening the regulatory framework, and establishing a new governance model for payments.
The future of safeguarding fintech
In step with the fintech boom, safeguarding fintech use is an escalating priority. It’s also an area poised for sweeping change.
In recent years, banks have secured customer transactions with two-factor authentication solutions that deliver One Time Passwords via SMS or hardware token. These hardware tokens are now approaching the end of their lifecycle – they only last around five years.
At the same time, there are growing concerns over SMS authentication. The severity of fraud and cybersecurity incidents due to SMS insecurity has reached a point where even the US National Institute of Standards and Technology (NIST) has written formal guidelines advising against the use of SMS as a delivery method for second-factor authentication OTPs.
It comes as little surprise that Singapore is now seeing banks look for alternative methods of two-factor authentication – not only due to security concerns around SMS, but also because of the expense of maintaining and renewing hardware.
One alternative is a soft token, such as V-Key’s V-OS mobile SDK – a virtual smart card embedded inside an Android or iOS mobile banking app that can simplify the OTP generation and input process to a single button press, making it both more secure and convenient.
At the same time, banks are also looking to leapfrog two-factor authentication entirely with biometrics, which verifies a person’s identity against physical or behavioral characteristics. Solutions like V-OS can enable biometric verification in a mobile app, without relying on specialised hardware. Citibank and OCBC have already introduced biometrics, while DBS plans to roll out their own solution by year-end.
Winning the fintech race
With its attractive fundamentals and progressive government support, Singapore is clearly on track to cement its place as the leading fintech ecosystem in Southeast Asia. But the real winners in the race for fintech dollars will be those who not only prioritise fintech solutions and security, but also go further – looking past technological innovations and efficiency to deliver tangible benefits for end-users. For the true power of fintech lies in how it can deliver a great user experience, going beyond transactions to make life more convenient and even anticipate our needs.