Tech evolution

Following the first part of our special technology series last month exploring the evolution of fintech, Leo Long looks at the germination of the concept around the Asia-Pacific, revealing which jurisdictions are ahead of the tech curve

Perhaps there is no other region in the world where the differences between development with respect to fintech and other advanced technology services are so pronounced as in the Asia-Pacific. The region is home to some of the most advanced financial economies – and some of the least developed when it comes to technology.

But the overall picture is encouraging and a look at a cross-section of Asian jurisdictions shows just which markets are embracing the legal challenges endemic to regulating cutting-edge tech and those that may yet be struggling to keep pace.

In the past two years, mainland China has become a heavyweight in global fintech. Shanghai and Beijing were ranked as respectively the first and third to-be technology innovation hubs in the next four years, in addition to Silicon Valley, and Chinese companies such as Ant Financial (No.1), Qudian (No.2), Lufax (No.3), Zhong An (No.5) occupied the top seats of the world’s fintech companies in 2016, according to auditing company KPMG.

“We believe that fintech will make substantial progress in the next three to five years, in the areas of digital asset trading, retail banking, security settlement and clearing, and supply chain finance in China,” says Sofia Yao, a Shenzhen-based partner at Dentons.

The past year witnessed active transactions of these Chinese fintech companies at home and abroad, which include huge deals such as the US$4.5 billion Series B round of financing into Ant Financial Services Group in April 2016 and a US$1 billion investment into JD Finance in January 2016 by investors. After its investment in Thailand’s Ascend Money in October 2016, Jack Ma’s Ant Financial invested into Mynt in the Philippines in February 2017.

Most of these companies focus on mobile payment and lending based on social network or e-commerce platforms. “China is the world’s largest and most developed e-commerce market, which provides a large customer base to penetrate for online payment, especially mobile payment, which accounts for more than half of e-commerce sales in China,” says Wang Shengzhe, a Shanghai-based counsel at Hogan Lovells.

Chinese mobile payment in 2016 tripled to RMB38 trillion (US$5.5 trillion), about 50 times larger than those in the US, and the gap is expected to widen further, according to the Financial Times.

Insurtech is another fast-growing sector in China. “The emergence of insurtech helps the traditional insurance industry reconnect with its customers, rebuilds trust, and utilizes new approaches to underwriting risks and predicting losses,” says Wang.

As to cutting-edge technologies such as blockchain, there is both faith and fear. “Insofar as China is concerned, the legal framework regarding blockchain is undeveloped,” says Roland Sun, a partner at Broad & Bright in Shanghai. Sun has handled some blockchain deals, including the US$23 million Series A financing in JuZhen Financial, which is China’s largest financing in blockchain domain.

“While the Chinese government explicitly encourages the blockchain-based businesses to grow, no specific legislative effort has been made so far, apart from the People’s Bank of China’s (PBoC) plan to issue its digital fiat currency,” says Sun.