Charting Asia’s Dominant FinTech Frontier
Since its cypherpunk beginnings, the blockchain industry has long positioned itself as something on the fringe of mainstream. Yet, today, distributed ledger technology experiments by governments, financial institutions and global corporations and broader digital asset adoption has reached a fever pitch.
Pandemic aside, 2020 has been a year of tremendous growth for the digital asset space. From China’s ambitious Digital Currency Electronic Payment (DCEP) to the launch of Cambodia’s Project Bakong, these initiatives have largely been spearheaded by traditional monetary institutions, a strong signal to the crypto’s growing credibility.
This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Amrit Kumar is president, co-founder and chief scientific officer of Zilliqa. His academic research has been widely published at conferences such as IEEE/IFIP and IFIP TC-11 SEC.
Interestingly, a lot of the most progressive developments are taking place in the East, in spite of significant disparities in digital literacy and technological maturity. Southeast Asia saw as many as 40 million new internet users this year amid the coronavirus, as consumers flocked to digital services such as ride-hailing, e-commerce and digital payments.
Whether it’s in developed or developing markets, Asia’s financial evolution remains steady and unfazed. From the rise of mobile payment platforms and QR-code enabled transactions to the uptick in e-wallet adoption, Asian economies are setting the innovation agenda across the sector. Infrastructural challenges or concerns surrounding cybersecurity have done little to hinder the digital transformation within the region. What is it about Asia that makes it so predisposed to pursue innovation at all costs and what will that mean for the future of digital assets in the year to come?
The fintech frontier
With a growing base of consumers, burgeoning financial infrastructure and the presence of some of the world’s largest tech companies, Asia is at the vanguard of the fintech revolution. For Asia’s developing markets, the absence of a deeply entrenched legacy finance ecosystem – coupled with high mobile phone penetration and limited access to traditional financial services – makes these emerging economies primed to leapfrog digital transformation. Eager to boost financial inclusion and reduce the use of cash, many governments in Asia’s developing markets have adopted a progressive stance towards the region’s innovation agenda.
Mobile payments have become the dominant and even the preferred mode of payment in countries such as Vietnam and Thailand, where over 60% of the respective populations are using mobile payments for everyday transactions. Cambodia’s Project Bakong is a blockchain-powered, all-in-one retail banking and mobile payments application. Supporting transactions in both the dollar and riel, the central bank-backed digital currency, is expected to help Cambodians make payments and transfer money between individuals using their smartphones. Introduced as a means of boosting financial inclusion in Cambodia, the retail central bank digital currency (CBDC) also serves to revitalize the use of the Cambodian riel in its digital form in order to challenge the domestic dominance of the U.S. dollar.
Asia looks poised to continue its trajectory towards digital dominance.
The Philippines also adopted a progressive monetary policy that has seen the legalization of cryptocurrencies since 2017 and, most recently, 14 crypto exchanges. Earlier this year, the nation’s Bureau of the Treasury, Unionbank and PDAX launched a blockchain app called Bonds.ph for the distribution of government bonds. The new mobile app will allow Filipinos, particularly the unbanked, to invest in the government’s new retail treasury bond and help the country raise funds to aid in its economic recovery and strengthen the COVID-19 response.
See also: China’s Xi Asks ASEAN Nations to Join in Building of ‘Digital Silk Road’
Amid the pandemic, Asia saw a significant uptick in e-wallet adoption within the past year. According to a report published by Allied Market Research, the global mobile wallet market was estimated at $1.04 billion in 2019 and is anticipated to hit $7.58 billion by 2027, registering a compound annual growth rate of 28.2% from 2020 to 2027. While high smartphone penetration and ease of mobile payments are the main driving factors for the adoption of digital wallets, the need for safety and security is often cited as a key concern among consumers.
When it comes to the region’s reputational standing with respect to tech innovation on a global stage, Asia is embracing the digital revolution on its own terms. Fueled by rising consumer demands for technology-enabled services and digital experiences, Asian governments have made the move to support the efforts of tech enterprises through planning, skills enablement and supportive regulation.
By prioritizing technology and investing in R&D, developed markets such as China, Japan and South Korea have built strong innovation foundations, and hold significant capital and knowledge to catalyze innovation in other Asian economies.
As the world’s most populous country, China is Asia’s anchor market, providing a connectivity and innovation platform for the rest of the continent. Leading the charge in the race to issue the world’s first global digital currency, China’s state-backed DCEP project was created with the goal of replacing cash and internationalizing the yuan by facilitating its use in transactions anywhere in the world.
See also: Zhou Xiaochuan: The Father of the Digital Yuan
The People’s Bank of China (PBOC) has already published a draft law giving legal status to the DCEP system, allowing the digital yuan to be included and defined as part of the country’s sovereign fiat currency. This draft law would also forbid any party from making or issuing yuan-backed digital tokens to replace the renminbi in the market. In doing so, China seeks to broaden its soft power by maintaining government control over the currency and creating less dependence on the U.S. dollar, while challenging the monopoly of existing digital payments players such as WeChat and Alibaba.
Singapore has also led research into CBDCs with its multi-phase Project Ubin, created with the aim of reducing cross border payment costs and speeding up securities settlements. Since its inception, the government has been actively working with the private sector in both the mainstream and blockchain sectors to explore how the technology can be utilized in a real-world environment.
As one of the earliest players in the space, the completion of Project Ubin phase 5 represents a significant step forward in digital asset innovation and acceptance in progressive Singapore. By looking beyond the feasibility of the technology – which they’ve since proven – they have now expanded to explore the utility of Ubin from a commercial viability standpoint. This is a promising sign that the Monetary Authority of Singapore (MAS) has moved beyond legitimizing the tech and are already looking at applications, identifying companies who are willing to entertain the idea of integration.
Adept at reaching tech-literate yet financially underserved markets, digital currencies and fintech can play an integral role in Asia’s emerging economies by enabling greater financial inclusion among the unbanked population, particularly in remote communities lacking access to traditional banking facilities or countries with a low trust in their banking institutions.
As technology-driven innovation takes center-stage in the next phase of global growth, Asia looks poised to continue its trajectory towards digital dominance.