Anyone who’s used an online payment system, applied for a business loan, or any other bank service, would agree that the world’s financial sector badly needs an overhaul for efficiency and innovation. Some nations, like Singapore, experience more difficult issues than others. However, prevention of global solutions are the result of these inconveniences. I believe startups have already began to launch a fintech revolution in Singapore.
Security breaches, inconvenient policies, and confusing regulations pose enough of a challenge, but other areas also need attention. For instance, banks tend to create proprietary systems rather than integrate with existing applications, which makes it difficult to operate seamlessly in a cloud-based world.
Singapore is Becoming the New Silicon Valley for Fintech
Thanks to its commitment to creative collaboration and innovation, Singapore is heavily invested in transforming its financial sector by supporting and encouraging fintech startups and entrepreneurs. The transformation won’t just benefit the firms, but could strengthen the entire economy by making it easier to do business across all borders.
Singapore doesn’t have a long history as a hub for innovative startups the way Silicon Valley does, but it’s creating a history right now. As venture capital investment in the tech sector has increased from below $30 million in 2011 to well over $1 billion as of 2013, we’ve seen huge promise for successful financial tech startups in the future.
Here are six reasons that Singapore is the most likely place where a fintech revolution will occur:
The government supports and funds fintech solutions
The government funds fintech initiatives through the MAS in the form of grants and rebates. So far this has funded $225 million SGD for fintech projects over the next five years.
Companies can also receive a 50% rebate on their proof of concept trials. In addition, Singapore’s government is working with junior-college students to improve their skills and increase their exposure to fintech-related courses.
Many colleges are strengthening their curricula in areas that relate to fintech innovation, like software development and app development. Fintech internships are available to students, and fintech industry leaders are actively sharing their knowledge and expertise.
The NUS sends 150 students to such places as Silicon Valley for a one-year internship. Grants in Singapore can be up to $40,000 USD.
Singapore’s central bank supports fintech solutions
The Monetary Authority of Singapore (MAS), otherwise known as Singapore’s central bank, threw a week-long party in 2016 to celebrate and showcase fintech startups, with speakers from around the world.
Ravi Menon, managing director for the MAS, said his intention is to create “a society that spurs innovation in payments technology, that gives consumers maximum convenience and confidence in making payments.”
In March 2016, MAS asked people to identify the problems they encounter in current financial systems that technology could solve. The organization received answers it formulated into 100 problems; now the MAS is working hard to incentivize the development of solutions.
Here’s an overview of some of the problems that fintech has the potential to solve:
- Identity authentication: Loan applications require expensive, original documents to be notarized, token-based authentication is inconvenient, and there is a lack of a central repository.
- Regulation technology. Fraudulent behavior detection is insufficient, there’s no common industry API platform, insider trading detection is weak, and the regulatory report system isn’t standardized.
- Trade finance. There’s no digital marketplace for SMEs to find available resources and applications, and no central resource to identify sources of credit for SMEs.
- Insurance. Processing claims is confusing, time consuming, and costly. Also, disclosure statements are not consumer-friendly, but as legally binding contracts they should be easy to understand.
- Financial literacy. There is no reliable tool to help consumers learn how to manage their finances.
- Financial inclusion for SMEs. No system is in place for financial inclusion and business financing for SMEs that are not currently in the banking system.
- Customer engagement. It’s difficult to measure customer satisfaction, and it’s inconvenient for travelers to go to a tax refund kiosk when they leave the country just to claim their GST/VAT refunds.
- Payments. Bank transfers and direct debit payments are a fragmented experience across Southeast Asia, students are inconvenienced by having to pay cash for certain services at school, and instead of integrating with existing platforms, banks are creating proprietary applications.
- Portfolio management. Pre-packaged investment options are not always adaptable to customers’ lifestyles, financial advisors assess investment profiles based on static questionnaires, and methods of shareholder reporting in the asset management industry are costly, create delays, and are not error-proof.
- Capital markets. Payment settlement and asset trading take forever, and interest rates are disseminated manually. This severely slows down the trading process.
The MAS knows that the best way to generate fintech solutions is to support and encourage fintech startups.
Specific ways the MAS is supporting and encouraging fintech startups in Singapore include:
- A plan to streamline online payment regulations to reduce the confusion in existing ewallet and payment startups in Singapore.
- Setting up stronger cyber security to prevent data breaches.
- Development of a way for people to pay one another using only one piece of information, such as a name, an email address, or a phone number so no one has to give anyone else a bank account number.
- A sandbox has been set up for fintech startups to experiment in without putting customers’ money or data at risk.
- Creation of an innovation lab called “Looking Glass” to experiment with MAS’s own fintech ideas and for consulting with fintech startups.
- Use of the blockchain to allow payments between banks across borders.
Entrepreneurs gather and collaborate in Singapore
If you’ve ever been to Singapore as an entrepreneur, you’ve probably heard of “Block 71,” a seven-story building next to the National University. It’s not just any building, though. Among the residents are about 100 startups.
The Economist has dubbed Block 71 as the “most tightly packed entrepreneurial ecosystem,” and this ecosystem is tightly nestled within a community of government-sponsored innovative hubs. Entrepreneurs in this community don’t just lock themselves in their bedrooms and pound away at their keyboards in an effort to compete with each other and get a leg up on the competition.
On the contrary, this entrepreneurial ecosystem collaborates in meetings, parties, and endless discussion of their creative ideas. Recently, the government provided entrepreneurs an additional building near Block 71 to house another community of like-minded startups. This shows Singapores dedication to improving the way finances work.
The government has changed policies
Officials from Singapore know the country can’t continue to rely solely on multinational corporations for investment, so the government heavily sponsors innovation and entrepreneurship.
For example, it now requires only hours to register a company, rather than weeks. There may not be any other nation in the world whose government supports its entrepreneurs more than Singapore. You know the government is serious when it changes its policies to make doing business easier.
Unprecedented financial support for tech startups
The National Framework for Innovation and Enterprise flooded the country with tech investors with the launch of a program that provided 85% of startup capital once investors put up just 15%. Who could resist?
This program doesn’t cover the cost of labor. However, startups still have to cover the cost of employees. So only those who are serious will be taking advantage of this incentive.
Singapore maintains one of the most hospitable environments in which to conduct business.
Perpetual investment: startups investing in startups
Plenty of successful startups in Singapore have begun to invest in newer startups. For example, Hian Goh co-founded The Asian Food Channel in 2005. Eight years later it was purchased.
Since then, Goh has created his own venture capital firm so he can invest in other promising startups. Some of Goh’s notable investments include a restaurant booking website called Chope. He also invested in a big data startup called Crayon Data, and a grocery delivery service called Redmart.
The World Needs a Fintech Revolution
The financial sector doesn’t just need a facelift, it needs a revolution … and Singapore has the potential to make it happen. Singapore fintech startups are in a unique position to make a massive difference. This same difference that will transform the way the world handles finances.
Potential for transformation will also substantially improve and further expand Singapore’s economy. Additionally, the government will start by making it easier for payments to be processed across multiple borders. SMEs form 99% of Singapore’s enterprises. These businesses will have more access to credit and business loans via fintech solutions like P2P crowdfunding. The financial industry contributes 12.5% of Singapore’s GDP. The development of fintech is no doubt going to help Singapore maintain its status as a global financial center.