The authors highlight a shift towards rearchitecting the financial services system, leveraging technologies like digital assets and artificial intelligence. This interview underscores the imperative of addressing global financial inclusion challenges through responsible innovation, while deftly navigating geopolitical complexities. Opportunities abound in serving the unbanked, advancing financial education, and harnessing AI for personalised services.
Pat Patel: From my perspective, there's a noticeable push across Asia and beyond to rearchitect the existing financial services system. This involves moving away from legacy infrastructure in payment and banking services. The focus now is on applying technologies to address various issues. The primary goal is to make the financial services system more equitable, transparent, faster, and cost-effective. The application of new technologies, especially digital assets, and artificial intelligence, plays a crucial role in enhancing efficiency. Additionally, the early stages of quantum computing are becoming apparent, amplifying the capabilities of artificial intelligence in data analysis for consumer and business services.
This overarching trend is gaining momentum, with regulators actively participating in the dialogue. A notable shift from the past, where policymakers seldom engaged with the industry. In Southeast Asia, for instance, we're witnessing the construction of payment bridges between countries with real-time payment systems. These bridges, such as those between Singapore and Thailand, Malaysia, and India, enable seamless transactions with minimal costs. Individuals can send payments using just a mobile phone number, providing a foundation for organisations to offer valuable services on top of these bridges. This signifies a significant shift in rearchitecting the financial services system.
This phase is akin to the Indian cultural belief in a cycle of creation, maintenance, and destruction. We are currently in the destruction phase, resulting in the culling of several fintechs. On the positive side, we anticipate a rebirth of fintech with a focus on new first principles, shaping how businesses are engineered or built in 2025.
Matthias Kröner: In our comprehensive exploration of the global political and economic landscape, which profoundly shapes our environment, it becomes vividly apparent that the next five years hold the promise of both desired and unintended transformations. As we delve into the external forces and overarching mega-trends currently in play, we encounter profound and far-reaching influences.
The persistent climate crisis, an enduring concern, carries profound implications for the fintech sector, particularly within the realm of payment systems. Concurrently, the relentless march of digital transformation is further amplified by the omnipresence of artificial intelligence. Geopolitical complexities, occasionally reminiscent of the Cold War era, present unprecedented challenges, particularly as we approach the pivotal year of 2024, marked by elections in over 70 states, including populous nations such as India, the US, and Indonesia. These geopolitical shifts have the potential to reverberate through the very fabric of our near-term development.
Maintaining a vigilant gaze upon this multifaceted landscape is essential, for it contributes significantly to the overarching narrative. The convergence of political events and financial regulation may signify the conclusion of what some have colloquially termed the 'golden era' in banking. Populist elements within governments may advocate for deglobalisation and protectionism, impacting all cross-border concepts and multinational operations, including crucial areas like cross-border data usage. Equally paramount is the evaluation of debt rates, such as corporate loans in China, consumer debt, and the United States' national debt.
Much of this is beyond the control of fintech ecosystem stakeholders. Nevertheless, these dynamic factors will indelibly shape our future landscape. Navigating these multifaceted challenges necessitates a delicate equilibrium, one that harnesses the potential of cutting-edge technologies like quantum computing, artificial intelligence the development of digital currencies, tokenized assets, or stablecoins, while prudently mitigating global risks and guarding against the potential misuse of these transformative technologies.
The juncture of all these elements beckons us to explore how technology can be leveraged to address daunting challenges, including climate catastrophes and the refugee crisis. It invites us to envision fintech as a potent force for good, capable of bolstering nations and communities, and as a means to counter the rise of political populism. This intersection underscores the vital importance of responsible innovation and conscientious application of technology as we embark on this transformative journey.
Pat Patel: Regarding cryptocurrencies, I believe we might witness the end of the crypto winter early next year. Digital assets could regain the potential they showed a few years ago, before the onset of the winter. This resurgence is certainly worth considering. Shifting gears to the broader fintech landscape, particularly startups, it seems we're approaching the end of a cull period. The fintech winter, largely influenced by a drying up of capital, might see some green shoots as we move forward.
Now, a concept I hinted at earlier is the idea of public digital infrastructure. About five to six years ago, India pioneered the India stack - a comprehensive framework comprising an identity layer, a real-time and interoperable payments layer, a data exchange for financial and non-financial information, and a consent architecture framework. These pillars are fundamental to any thriving digital economy. Looking ahead to 2024, I anticipate more countries exploring the development of their own versions of this stack within their markets. While India and Singapore have already embraced similar concepts, several nations lack a national public digital infrastructure. The coming year may witness significant movement in this space as more countries recognise its importance and seek to establish their own digital frameworks.
Matthias Kröner: Reflecting on this question, I've touched upon several mega trends that align with Pat's observations.
Regarding the end of the crypto winter, I must say, that we've observed this resurgence within our startup Tradelite Solutions. The Web3 community, particularly in the realm of crypto and tokenized assets, is regaining momentum. Two years ago, there was a frenzied investment atmosphere where anything and everything crypto-related received attention, regardless of purpose or impact. Subsequently, in 2023, a realisation set in - the lack of purpose and sustainable business models became apparent. However, we are currently witnessing a renewed interest, largely fuelled by Bitcoin's prominence and by granting the allowance for Bitcoin ETFs. Regulation, as always, plays a pivotal role, acting as both a market maker and closer in the financial services arena.
Another driving factor is the urgency imposed by the climate catastrophe. The need for industries, including financial services and fintech, to take proactive measures is evident, especially when political will and effective action from global forums like COP28 seem insufficient. Industries and consumers are compelled to drive change when political entities fall short.
Moreover, as we approach a politically charged year with geopolitical tensions, disinformation and cybercrime become a prominent concern. States engaging in disinformation and cybercrime activities during periods of heightened geopolitical controversies contribute to the overarching factors influencing trends.
Lastly, technological developments present both opportunities and risks. While we operate in an era of unparalleled technical capabilities, the same promise is accompanied by global risks that necessitate stabilisation efforts. Balancing on this edge requires careful consideration of these overarching environmental factors, laying the groundwork for our further discussions on specific sub-chapters within fintech and payments.
In essence, regulation, climate catastrophe, geopolitical tensions, disinformation, cybercrime, and technological advancements collectively shape the landscape we navigate. These trends set the stage for a nuanced exploration of fintech and its subcategories.
Pat Patel: I would like to emphasise a couple of additional points. In 2024, as we address the ongoing issues, it's crucial to note that approximately 1.4 billion people remain unbanked. Equally concerning is the challenge of underbanked individuals who possess financial products that are not entirely suitable for their needs. This nuanced perspective brings to light the complexity of financial inclusion issues, extending beyond mere unbanked statistics.
Moreover, a substantial number of individuals face high debt levels, rendering their existing financial products practically unusable. This creates significant pinch points globally, contributing to the urgency in addressing these challenges. The pressing need to cater to the financial needs of the unbanked and underbanked populations serves as a fundamental driving force for change.
Another noteworthy factor is the ongoing shift towards Web3. Much like the transition from Web2 in the late 2000s, we anticipate a gradual movement towards Web3. Currently navigating a Web2.5 landscape, the momentum towards Web3 is gaining traction, especially with the anticipated end of crypto winters in the coming year. This shift marks a secular trend, shaping the future trajectory of technology and finance.
Lastly, the active role taken by regulators is a pivotal factor influencing industry dynamics. Regulators are becoming increasingly vocal in their engagements with the industry, contributing both positive and negative perspectives. The synergy between policy, finance, and technology is a driving force behind meaningful changes. Acknowledging the impact of policy decisions on the financial and technological realms is crucial, and this intersection serves as a catalyst for substantial transformations.
In essence, the factors driving trends encompass not only technological and financial considerations but also the imperative to address global financial inclusion challenges and the evolving landscape of regulatory involvement. These multifaceted elements collectively shape the narrative of fintech and its trajectory into 2024.
Matthias Kröner: Certainly, Pat. Your insights are valuable, especially when considering opportunities and use cases within fintech. Particularly, addressing the unbanked is crucial, and the numbers, especially in Southeast Asia and Africa, highlight the severity of the issue. Latin America, with around 50% lacking access to fair financial support, stands out as an opportunity. Exploring how fintech can support local societies to enhance stability, and in turn, contribute to mitigating challenges related to the refugee crisis is a significant avenue.
The refugee topic, while potentially less prominent in Asia, is a pressing challenge in Europe. It places substantial pressure on societies and democracies, leading to increased support for populist and right-wing parties. Finding fintech solutions to this complex issue could be transformative and gain widespread support.
In summary, your perspective highlights the potential for fintech to make a positive impact globally, addressing critical issues and contributing to societal and economic development.
Matthias Kröner: I've observed a positive trend where regulators are increasingly open and proactive. It's not merely about imposing additional regulations but engaging in open dialogues and knowledge exchange. This is evident in organisations like Elevandi, where there are key discussions between regulatory bodies and industry representatives. Regulators openly acknowledge the overwhelming nature of these developments and seek collaborative solutions. It's not just about reacting to more regulations but adapting their organisational structure to effectively cope with these advancements.
Moving beyond regulation, the overall technological landscape is creating a widening gap between organisations ready to harness these advancements and those falling behind, often due to budget constraints. This disparity poses a real risk, leading to what's commonly referred to as a ‘tech death wave’. Organisations that fail to embrace technological evolution may find themselves obsolete. Moreover, this challenge extends beyond the positive aspects of technology, such as AI enhancing customer services, to the negative facets like cybersecurity threats. The readiness of financial institutions to combat cybercrime becomes crucial.
Pat mentioned the shakeout within the fintech industry, which might be digestible in the short term. However, in the long run, it may consolidate power into the hands of a few global tech giants. This consolidation raises concerns about monopolies and the ability to regulate such entities effectively. The challenge is exemplified by big social media companies disregarding European regulations on issues like hate speech. This trend could pose challenges in regulating their financial activities.
Looking at the startup environment, it becomes imperative for nations to encourage and support entrepreneurial generations. In Europe, particularly in Germany, there's a noticeable lag in financial support for startups compared to other nations. Encouraging startup initiatives is crucial for fostering innovation and economic growth. So, as we navigate these trends, there are multifaceted impacts on regulatory bodies, businesses, and the broader landscape, each presenting its unique set of challenges and opportunities.
Pat Patel: Please let me add some thoughts to the discussion. Businesses across various scales, from micro-SMEs to SMEs and the intermediate space between ME and corporate segments, have faced considerable challenges since the onset of COVID-19. The winter season has cast a chill over digital assets and fintech, and high-profile banks like Credit Suisse and Silicon Valley Bank have encountered struggles this year. The need to support this business community is pressing, and the rearchitecting of financial services infrastructure will play a pivotal role in aiding the next wave of organisations.
The overarching goal of these trends is to establish an equitable, fairer, transparent, and cost-effective financial services system. This is poised to have a significant impact on businesses. Governments worldwide share concerns about the difficulties faced by their businesses, particularly in the SME sector and micro-SMEs. The trends discussed hold the potential for substantial changes that will contribute to addressing these challenges. On the consumer side, the focus remains on creating a fairer financial world. Tackling issues like the 1.4 billion unbanked individuals globally and addressing challenges faced by the underbanked is crucial.
An alarming statistic points to around 110 million displaced individuals and 35 million refugees globally in 2023. By re-architecting the financial services system and leveraging technologies, especially in digital identity, these communities can be better supported. Digital identity offers a borderless existence, ensuring credentials can travel with individuals, unaffected by crises or changes in location.
The impact on regulatory bodies is an important aspect we haven't delved deeply into. Policymakers and regulators are becoming more active in discussions and project design to address challenges. However, the responsibility tied to the use of technology is gaining prominence. Policymakers, regulators, and governments are now giving serious thought to the responsible use of technology. This aligns with recent developments like the European Union's AI Act, emphasising the need for responsible technology application.
When considering the benefits for regulators, consumers, and businesses, the key takeaway is an improved financial system that fosters prosperity, equity, and economic stability. The existing challenge lies in the deep-seated legacy factors, including infrastructure, personnel, and processes. Embracing new technologies holds the promise of initiating positive changes in these entrenched systems.
Matthias Kröner: It's essential to note that when we initiated Fidor Bank around 15 years ago, during the financial crisis of 2008-2010, our objective was to create better banking. We aimed for transparency, inclusivity, and the avoidance of conflicts of interest that plagued the financial landscape at the time. Back then, terms like fintech weren't as common, and the movement was about creating ethical, value-centric financial services. Today, however, the focus seems to have shifted towards commercialisation and monetisation, perhaps overshadowing the initial purpose.
Financial education and inclusion involve a market of 1.5 billion people, mainly in emerging markets. While the tickets may be small, the fintech industry is uniquely positioned to serve this vast market. Financial education is essential for societal stability, just like health and nutrition. It stands as one of the most significant use cases to consider.
Pat Patel: As Matthias mentioned, we've touched on some aspects already. The 1.4 billion underbanked or unbanked individuals represent a significant opportunity. Addressing the refugee challenge is not just an opportunity but also a responsibility for fintech to tackle. Another potential lies in personalising services through advancements in AI and generative AI. This allows for the creation of more consumer-centric financial products, offering intuitiveness precisely when needed, aligning with the concept of embedded finance. Enhancing the last-mile service is interconnected with this strategy. Furthermore, expanding into Asia presents vast opportunities.
Expanding on Asia's growth potential, Southeast Asia stands out with a rising middle class and high digital penetration through mobile phones. This provides an excellent opportunity to offer financial products across the marketplace. India, having a robust year, is expected to continue its growth with over a billion people and ongoing work. Japan and China, often referred to as the sleeping giants in financial services, are gradually opening up. Despite challenges due to deglobalisation, there's an emerging opportunity for organisations to build connections from Europe, Africa, or the US into Asia. Though nascent, we anticipate a reversal of the deglobalisation trend, with regions and clusters of countries coming together in the coming year.
Matthias Kröner: Certainly. I'd like to emphasise the uniqueness of the current era, marked by unprecedented technological capabilities, geopolitical complexities, and the escalating climate crisis. This convergence, particularly the impact of the climate catastrophe, introduces a high degree of unpredictability. Looking ahead, the next five years appear challenging to predict, given the sustained uncertainty. Success in this landscape hinges on organisations embodying resilience, stability, and a dual commitment to flexibility and agility. While it is acknowledged that businesses should not exploit negative developments, addressing the challenges presented by geopolitical issues and the climate crisis is both imperative and a moral duty. Companies actively contributing to overcoming these challenges will find their place in this VUCA world. It's essential to be prepared and proactive, as ignoring the reality of these issues is not a viable strategy and may lead to adverse consequences. Therefore, my vision for the next five years centres around the mega-trends of agility, flexibility, and resilience.
Pat Patel: Looking ahead over the next five years, I foresee a golden age for fintech, marked by a return to first business principles, emphasising profitability over unchecked growth. This shift mirrors trends observed in the broader technology sector. In terms of market dominance, I anticipate Asia emerging as the leading Fintech market by revenues in 2030. The growth trajectories, however, will vary, with Latin America, and Africa experiencing the highest rates, albeit from smaller bases compared to Asia, the US, and Europe. While not traditionally considered glamorous, risk management will play a pivotal role in the coming years, redefining how organisations approach and utilise frameworks to mitigate risks.
Tokenization of assets is expected to gain momentum, especially in the banking sector, with both fintechs and government projects increasingly exploring this avenue. The shift towards Web3 is anticipated to materialise, with the concept evolving beyond a singular definition, incorporating elements of cryptocurrency and artificial intelligence. As we move closer to this Web3 world, the combination of AI and decentralised networks will likely define its essence. Another notable development is the growing importance of digital public infrastructure, critical for powering digital economies. Regions such as Asia, Africa, and parts of Latin America are anticipated to make significant strides in this direction, influencing more traditional markets like Europe and the US to reevaluate their infrastructure strategies. This encapsulates my vision for the fintech landscape over the next five years.
This interview was originally published in The Paypers` Global Payments and Fintech Trends Report 2024. The report compiles insights and expertise from leaders representing companies across the financial services spectrum and it delves into the latest innovations and trends in payments and fintech across key markets worldwide.
Pat Patel: Founded Elevandi during his time at the Monetary Authority of Singapore and has since led the non-profit organisation to expand sustainably across Asia, Europe, and Africa.
Matthias Kröner: Matthias Kröner is a highly respected thought leader when it comes to planning, building and operating disruptive and customer-centric banking business models.
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