Singapore fintech focus puts investment industry on digital drive

Growing fintech sector spurs investment managers to innovate

Already boasting an advanced technological infrastructure, Singapore is looking to increase its attractiveness as a gateway to the Association of Southeast Asia Nations (ASEAN) financial markets by further pursuing growth of its fintech industry, underpinned by a supportive regulatory environment.

The city-state's aspirations of becoming Asia's leading fintech hub have struck a chord with asset servicing firms, as they build out their own digital transformation strategies to meet clients' demands for value-added services.

Fintech investment soars along with growth in funds under management

Key insights

  • Singapore's regulator is driving the fintech boom through industry collaborations while lowering market barriers
  • Mindful of their market share, investment management incumbents are attempting to upgrade their technological capabilities
  • Custodian banks are seeking to tap demand for data-driven services that can help inform clients' investment strategies

Investment in Singapore's fintech industry has grown in tandem with a large inflow of funds into the local asset management industry, creating favourable conditions for change in the dynamics of the wealth management business. Fintech investment has grown more than tenfold in recent years reaching USD 229.1 million at the end of 2017.1 Singapore's funds under management, meanwhile, grew at an annual average of 12.7 percent in 2017, spurred by higher valuations and continued inflows into Asian markets.2

A favourable regulatory environment has encouraged many fintech firms to set up operations in Singapore with a view to take a share of Asia's booming wealth management market. In response, established asset managers are enhancing their technological capabilities to retain business and respond to demographic changes which are bringing forth a new generation of digitally savvy investors.

Regulator leading fintech charge while lowering barriers to competition

The Monetary Authority of Singapore (MAS) has implemented a number of initiatives to boost the city-state's status as a fintech hub. The Singapore Fintech Festival has become one of the industry's biggest global networking events, the 2018 edition attracting over 40,000 participants from more than 100 countries. At the recent event, MAS and the Singapore Exchange (SGX) discussed Project Ubin developments, which was launched in 2016 as a collaboration between the regulator and industry to explore the use of distributed ledger technology (DLT) for clearing and settling cross-border payments and securities transactions. The partnership announced the successful development of delivery-versus-payment (DVP) capabilities in order to settle tokenized assets across different blockchain platforms, with further initiatives underway.3

A favourable regulatory environment has encouraged many fintech firms to set up operations in Singapore

MAS is also working on a program to fast-track patent applications for fintechs, reducing the time from a minimum two years to six months. The initiative is expected to help startups bring their innovations to market faster, provide reassurance to potential investors, and allow them to take their protected intellectual assets global.4 MAS has also moved to promote the industry through fintech agreements with more than 29 countries, including Australia, France, Hong Kong, Malaysia, Switzerland, and the United Kingdom. An initiative with the Dubai Financial Services Authority announced in August 2018 includes pledges to share information between the regulators and refer fintech companies to each other.5

Incumbents cautiously welcome fintechs

The proliferation of fintechs and their potential to disrupt has not gone unnoticed by financial industry incumbents

Encouraged by the favourable business environment and Singapore's proximity to ASEAN's emerging economies, a number of leading fintech firms have opened offices in Singapore, including China's Lufax, which launched a wealth management platform through its local subsidiary Lu International in September 2018. At the end of the second quarter of 2017, nearly 18 percent of Singapore's active fintech companies were engaged in wealthtech, the segment that focuses on wealth management and retail investment.6 The proliferation of fintechs and their potential to disrupt has not gone unnoticed by financial industry incumbents, with many managers uncertain about the future. Some 88 percent of financial institutions surveyed in PwC's Global Fintech study believed they were already losing revenue to innovators.7

Digital transformation continues

This wave of technological innovation has significant implications for asset managers as funds under management continue to grow. A recent McKinsey survey identified that one of the key success factors for growth leaders in that sector in the past five years was their focus on digitization and artificial intelligence as a key priority, with initiatives introduced across their organizations. Collaboration with new players was also noted as another success characteristic in the survey.8

Our asset manager clients are looking for partners who can support them in their transformation towards insight-driven businesses

Further investments in machine learning and artificial intelligence will not only streamline back-office functions, but also front-office applications. “Most…are starting to use them in their interactions with clients from a buyer-service perspective,” said Philip Hope, a partner at Deloitte specializing in the investment management industry.

Data adding new dimension to asset servicing firms' business models

While safekeeping and securities processing remain core custodian services, the industry is facing growing demands from clients to provide value-added data services, including analytical tools that can assist with investment strategy and portfolio management. “More and more of our asset manager clients are launching strategic data programs. They are looking for partners who can support them in their transformation towards insight-driven businesses," said Jamie Stevenson, Managing Director and   Global Head of Product Management, Data & Analytics at RBC Investor & Treasury Services. “Those that can deliver valuable insights and enable the digital transformation of their clients' business models will be the clear winners," he concluded during recent discussions in Singapore.

Innovation and the delivery of data solutions will be key in supporting a region that is expected to experience significant growth.

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Sources

  1. ASEAN Briefing (August 8, 2018) Singapore's rising fintech sector
  2. Monetary Authority of Singapore (July 4, 2018) MAS Annual Report 2017/18
  3. Nasdaq (November 19, 2018) MAS & SGX on How Project Ubin is the Way of the Future for Blockchain Interoperability
  4. ASEAN Briefing (May 2, 2018) Singapore announces new fintech fast track initiative
  5. Straits Times (August 29, 2018) MAS and Dubai authority sign accord
  6. Ibid. ASEAN Briefing (August 8, 2018)
  7. PwC (2017) Redrawing the lines: FinTech's growing influence on Financial Services
  8. McKinsey (October 2018) Will the good times keep rolling for Asia asset managers?