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Digital Awards 2023: The shifting sands of digital finance
Incumbent banks continue to hold ground against nimbler and hungrier players
The Asset 24 Mar 2023

Over the course of the Covid-19 pandemic and beyond, financial industry players have driven digitalization to new frontiers in a bid to stay competitive and enhance customer experience in increasingly tough and complex markets.

New challengers, from neobanks to fintech start-ups, have emerged to disrupt the old ways of doing things, ramping up the competition to win customer mindshare. The question is, can these younger and nimbler players hold up against the test of time and even challenge the position of more established institutions?

For now, the answer is no. That’s according to a recent report by Moody’s Investors Service, which sees tough times ahead for fintech firms globally. With higher interest rates drying up funding and incumbent financial firms forging ahead with their digital strategies, only the strongest fintechs are likely to survive in the coming years.

“Fintech momentum has slowed along with funding challenges and banks have upped their game in response to the fintech threat,” explains Stephen Tu, vice-president and senior credit officer at Moody’s.

Banks “have enhanced their digital offerings and expanded their capabilities organically, through partnerships or acquisitions. Moreover, they have access to stable deposit funding given their well-established brands and customer relationships”, Tu adds.

Indeed, the current market environment has not been kind to fintech firms and doesn’t seem to be getting any better in the short term following the collapse of Silicon Valley Bank, which was a big supporter of start-ups globally.

Challenging year

According to KPMG’s annual Pulse of Fintech report, 2022 was a challenging year for fintech funding globally with investment value dropping by 30% to US$165 billion last year from US$238.9 billion in 2021. The Americas, for example, experienced a US$40 billion drop in investments compared to the 2021 high. Similarly, data from CB Insights show that the number of fintech funding deals has dropped to less than 1,000 in the fourth quarter of 2022, from around 1,500 in Q1 2022.

Other significant challenges for fintechs include rules requiring firms to improve their KYC (know your customer) and AML (anti-money laundering) processes. This has been more apparent for those in the cryptocurrency and BNPL (buy now, pay later) segments which previously were largely unregulated.

A recent survey of fintechs conducted by digital customer experience solutions provider TDCX finds that performing KYC checks was the top hurdle facing fintechs today, followed by monitoring/measuring quality of service, maintaining sufficient operating hours, and compliance with data privacy regulations.

Despite the difficult conditions, Asia still appears to be a bright spot for fintech development at least on the funding side, with firms looking to capitalize on the region’s growth potential and relatively young population.  

Asia-Pacific saw a record US$50.5 billion in fintech investment last year, up from US$50.2 billion in 2021, driven by the emergence of B2B digital solutions such as microlending, SME lending, and B2B payments, KPMG data reveal.

Though the overall sentiment in the fintech community is expected to be weak in 2023, Moody’s believes firms with strong backing from large financial institutions will overcome the current hurdles.

“While a large number of nascent fintechs with weaker business models will disappear, a handful will survive and prove truly disruptive over time. In particular, fintechs that are part of larger conglomerates or serve a niche segment, such as Australia’s Judo Bank, Brazil’s Nubank, and Korea’s KakaoBank, are performing surprisingly well,” says Tu.

Over the course of several months, the board of editors at The Asset has taken note of these trends in Asia and has been carefully examining and understanding the various digital finance activities taking place in the region. As in previous years we are pleased to highlight this year’s The Asset Triple A Digital Awards winners who have excelled against a highly competitive and challenging market backdrop.

To see the full list of winning institutions of The Asset Triple A Digital Awards 2023 please click here.

To view the best digital procedures and initiatives across the region please click here.

For the list of stellar digital projects please click here.

For more information about attending the awards gala please reach out to us at celebrate@theasset.com.

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