This interplay between the incumbent banks and nimble fintechs is certainly not confined to Asia, however it seems it is here that it is resulting in the most meaningful innovation. In the ‘Global Payments Innovation Jury 2017’ report, 64% of jurors (a panel of 70 senior industry executives across all major global markets) consider Asia as the top region for payments innovation, compared to just 14% for Europe and 12% for Africa. The report claims that this goes beyond a ‘China effect,’ as India pushes forward with its payments modernization agenda, and many smaller markets – where the reach of traditional banks has been limited – rapidly modernize payment infrastructures.
Creating an environment supportive of innovation
The transformation taking place in Asia is in line with global business trends toward greater openness; business models and strategies that are non-restrictive, partnership-driven growth, and increased transparency. One of the biggest developments enabling this move toward openness is the use of open APIs, which (among other possibilities) allow banks to integrate the services and capabilities offered by fintechs into their own platforms.
Singapore – one of the key regional fintech hubs – strongly encourages the use of open APIs, allowing different parties to ‘play well’ together and resulting in more well-rounded products that ultimately benefit consumers. Regulators, as is the case in many markets, recognize the benefits and are stepping in to officiate; collaboration rather than competition is the goal.
The 2017 Innovation Jury report also suggests that Asia is leading the way when it comes to enabling effective collaboration. Almost half (47%) of those jurors who took part stated that – regardless of their current base – Asia would be their preferred location to start a payments business today, reflecting the positive and opportunity-rich environment that has been created. Recent success stories from the region could certainly be a factor in jurors’ choices, but the collaborative environment and commitment of central banks in Asia toward modernization is also key.
Security remains of utmost importance
While collaboration between banks and fintechs in Asia, and the embrace of underlying technology such as open APIs supports a payments ecosystem that is both fast and open, security remains a critical aspect. ACI’s ‘Global Consumer Survey: Consumer Trust and Security Perceptions,’ which draws data from more than 6,000 consumers across 20 countries including Singapore, found that only 36% of Singaporeans trusted merchants to protect their personal data, and 65% said that they would stop shopping with a given merchant if they experienced fraud or a data breach.
The introduction of payment innovations can result in competitive advantages for banks and for retail businesses, but they also carry a degree of complexity and risk. At the same time, fraudsters are growing more sophisticated in their efforts to exploit and profit from weaknesses.
Machine learning – the use of algorithms to discover patterns in data and subsequently make predictions based on those insights – is one of the most exciting developments that will help to beat fraudsters. Machine learning algorithms enable the identification of patterns too complex for humans to notice, using vast data sets. In the payments industry, historical transaction information from fraudulent activity can be combined with data from genuine customer transactions to develop predictive models that can assess the probability of transactions being fraudulent.
Data scientists, risk analysts and software engineering teams need to work in tandem to make sure that machine learning algorithms and rules engines stay updated and responsive to emerging fraud trends. Or, in other words, when it comes to security, it is just as important to foster a collaborative environment within banks and other payments businesses, as it is between organizations in the payments ecosystem.
Technology – what is it good for?
Technology is of only minor interest to end users or consumers. What they are interested in is convenience. They want their interactions with their banks; or when paying their bills; or when shopping online, to be convenient, fast, and worry-free. As a software and solutions provider to 15 of top 20 banks in the ASEAN region, ACI strives to support and foster the payments innovation that has confirmed Asia as a global leader. That means a commitment to ‘play well’ with established banks, central bank infrastructures, and fintechs, as well as creating the sort of cross-functional fraud teams needed to respond to evolving trends and deliver on the promise of fast, open and secure payments.