Driving Sustainability in Finance

Driving Sustainability in Finance

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In my last blog post, I focused on digital banking and payments adoption in WEIRD economies (Western, Educated, Industrial, Rich and Democratic) and the threat to traditional models from new digital-only players. In this blog, I want to turn my attention to Asia and look at what the data is telling us about digital adoption in this region and the role of unbanked consumers.

At a macro level, there are noticeable statistics for the region. Not in the least, is the Cambrian explosion of fintech and digital-only providers in the financial services space. According to a recent BCG study, the number of fintechs in Asia-PAC grew by 67% in 2020 and had already grown by a further 29% by February 2021 to more than 6,000.

Payments and e-commerce providing a fillip 

Initially, this growth would have been spurred by the rapid adoption of non-traditional brands in the payments and financial services space. We are all now remarkably familiar with Alipay and WeChat Pay and their emergence out of social media and ecommerce platforms, which broke the connection between traditional banking players and consumer payments, paving the way for other fintech brands to arrive and expand.

RFi’s data shows that fintech adoption and usage is much higher in many of the Asian markets relative to other markets, with China and India leading the way among banked consumers.

RFi’s data shows that fintech adoption and usage is much higher in many of the Asian markets relative to other markets, with China and India leading the way among banked consumers. Indeed, fintech usage in China and India now accounts for over 90% of the urban banked population and this is growing rapidly in Hong Kong and Singapore.

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Source: RFi Group 

Ecommerce has proven to be a beneficial acquisition channel for payments companies in markets where more traditional payment mechanisms are less mature and there is greenfield opportunity, in many cases due to a large unbanked population.

Indeed, according to payments technology company PPPRO, e-commerce in China in 2020 accounted for 24% of all retail sales. When you consider RFi’s data and observe that fewer than half of the urban, banked Chinese population use a card-based payment regularly, you start to see where these non-traditional brands have made inroads.

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 Source: RFi Group, PPPRO 

Progressive licensing enabling access 

In more recent years, governments across Asia have turned to licensing and begun to develop and offer digital-only banking licenses. This has been particularly visible in Hong Kong, Malaysia and Singapore, with the latter recently granting banking licenses to four firms across consumer and SME banking. Among these new licensees are:

  • A consortium including Grab (the ride-hailing/ food delivery super-app) and Singtel which will offer bank accounts, credit cards and debit cards to consumers
  • Ant Group (the owner of the Alipay platform) which will offer wholesale banking products to SMEs

Financial factors no longer serve as the sole prism to view a company’s viability. Customers and consumers today resonate highly with organisations that align their values with their business goals, resulting in greater returns for those who execute their sustainability goals. It’s no wonder climate change and financial inclusion are high on the agenda of investors and executives focused on long-term achievements and realistic forecasted results.

“In the next 12 months, fourteen per cent of commercial businesses plan to take out financially sustainable solutions.”- RFi Insight

Environmental, social, and corporate governance (ESG) continues to steadily climb up the regulatory agenda, requiring sustainability needs to become a strategic priority for finance leaders. In the next 12 months, fourteen per cent of commercial businesses plan to take out financially sustainable solutions. What can leaders do today to ensure they can meet the demands of the ESG factors that will most certainly hold prominence tomorrow?

Adopting ESG is business-critical in the strife of a clean and sustainable economy. Finance leaders already play a balancing act, juggling business expectations and risk management, now they must add ESG credentials to the list. The global pandemic not only heightened awareness of how interconnected we are but also emphasised the importance of integrity. ESG provides the framework for companies to outline their core values and align their business models with the broader demands of society and the environment.

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