Peering into the Future of Global Fintech: A Preview of Tomorrow's Trends

[Music] thank you so much Vince and thanks to AGM for hosting this important event and hosting us here um today I'm going to share with you some preliminary findings from the research initiative that Vince just introduced this is a joint initiative between the organization that I work for the Cambridge Center for alternative Finance which is based at the University of Cambridge in the UK and with the world economic forum and their Center for financial and monetary systems so I want to start with why is this research important uh why did we start this initiative at all um in as much as the fintech industry has seen huge growth in the past decade there is still a lack of pcal research and data on fintex themselves and from fintex the voice of fintex what they experience how they find the market uh how they experience different regulatory environments and how they're targeting customers the finch industry finds itself right now at a unique time you know after gaining so much ground in the past decade or even more the ecosystem has a lot of opportunities with the growing digital economy and they also have a lot of challenges to navigate you also with the growing digital economy uh and fchs right now are reviewing and revamping their business models to reach new users to incorporate and to use new technologies and at the same time regulators and supervisors around the world have increased their focus and the priority that they place on fintech and digital Finance to regulate fintech better to better protect customers uh to control for risk and to allow fintech to flourish and really contribute as much as it can to the economy so we see see a real need for timely and independent research to inform decision making and that's across ecosystem decision makers across ecosystem you know regulators and policy makers and finex themselves as they seek to expand to New Markets we really see I need to go beyond generalizations yes see global Trends but also to understand more nuances so who did we survey yeah we took a panel approach to research uh we assembled a panel with representation from six regions five main retail basing fintech verticals or fintech business models and over time we actually we envisage that these verticals could change uh as the industry continues to develop just before I go into the findings I really want to emphasize we really see this research AS Global and Regional it's really intended to serve a global audience so what are finex telling us I'm going to give you a small snapshot the full findings will be released in the report um which will be in January at the world economic Forum annual meeting in Davos uh really just six or seven weeks from now first the fintech industry is really showing strength and resilience right now one metric we used was customer growth and following some of the really big drivers that we saw during covid finex are still reporting strong customer growth uh in the past couple years so you can see the global average in 21 was 55% growth rate and it dipped a little bit in 22 to 52% but still a 50% customer growth rate is strong um I also uh want to highlight here that the Mina region since we're here in the Middle East North Africa region today is showing higher than average customer growth rate um very consistent so indicating you know a really strong growth rate here in in the region that's consistent and demonstrating strong customer Demand yet all is not growth as I said we'll be going Beyond generalizations uh we also asked fintex about the main drivers and hindrances to growth and macroeconomic factors and the funding environment together stand out uh it's not surprising to see responses in these areas given how intertwined they are uh factors like Global inflation High interest rates monetary tightening have a broader impact on Capital markets and the funding environment and as well as consumption behaviors what is particularly interesting is finding that this sentiment is really reflected globally it's not unique to one particular region uh as for the meanor region uh macroeconomic factors have come out clearly as the most cited hindrance to growth uh it was rated a bit more frequently than um the global average at 59% so as much as this is reflected globally finex have differentiated views about the current funding environment and its impact on its ability to grow so let's be sure to put this into context though you know the past decade has seen very high fun raising levels for the fintech industry you know we saw Acquisitions and unicorns dry valuations of fundraising very high um the past couple years the funding has gone down you know fintech is not immune to some larger patterns in in the global economy and capital markets and in Venture Capital especially as a lot of ftech fundraising was driven by Venture Capital um this context is important as we understand our research which shows nuance While most fchs are citing the current fundraising environment as a hindrance to growth there are still 34% uh of our panel that regard the funding environment as supporting growth funding dollars though and values have certainly differed by region and the fintech experience reflects this so let me give a couple examples you'll see already on the screen we have this example of Latin America the Caribbean this region saw the largest drop in funding to Tech in 2022 that's according to CB insights an hour surveyed finex in Latin America region disproportionately found fundraising as a hindrance to growth far more frequently than the global average now contrast that with subar Africa more African fexs in our sample found the funding environment as supportting growth we can possibly attribute that to the fact that in 2022 although funding had gone down still significantly higher than that region was seeing in 2018 2017 so even if it was a downturn you know from a few years ago um I find this so useful in in demonstrating the value of research to go beyond generalizations and this going to be so important as the industry becomes more Dynamic uh now in the Mina region uh funding is still cited as a hindering Factor um but as well along and even alongside the the lack of a skilled Workforce and you see that macroeconomic factors is is being cited the most frequently for fex in this region we also asked vintex about their user bases and about scaling services to new customer segments we actually asked a number of questions related to underserved customer segments most vchs are developing targeted products to different consumer groups and consumer education was found by fintex to be the most prominent hurdle in scaling services so this is more specific than growth this is about their ability to scale services to new customers what's so interesting about this is how consistent this was across regions across verticals and also levels of economic development we did analysis looking at advanced economies and emerging markets and we're seeing consumer education cited strongly in in all these markets which is interesting because consumer bases you know they really vary around the world cultural differences uh infrastructural differences um purchasing power and plenty of reasons and further B fintech business models are are different as well so we also see that other challenges cited are a highly competitive market uh which may be expected and also High compliance requirements and in the Mina region it actually deviates from from the global Trend High compliance requirements were the most commonly cited challenge to scaling services in region um although note not not the only challenge for sure so our research also asked our panel about diversity efforts and gender representation internally and fexs are reporting strong executive level female representation there's certainly room for improvement in the years ahead um it is outperforming the finance sector um One Source found firms in the in finance reporting 18% of their SE Suite identifying as female notice um this is a very strong average across regions you can see all the regions are reporting kind of close to 30 or 33% and you can also see Nina here in purple is is on par with the global average one interesting analysis that we were able to do do is a correlational analysis between female executive representation and orientation to female consumers we found that female companies with at least one female executive demonstrate a larger female consumer base and products to designed to Target female consumers so this is something that has been discussed and hypothesized but there's little or infrequent actual data on such a correlation so now we're at the end of the preliminary findings that I'm going to share with you today but we're not at the end really because our initiative is called the future of global fintech uh and we asked our panel uh one straightforward very straightforward question what do you fintax find to be the most pressing issues for the industry in the near future in the next 5 years and out of eight topics to choose from artificial IAL intelligence was the strong leader was followed by the digital economy embedded finance and open banking those are all quite close and near the top of the list this is interesting as all these topics will impact fintech business models differently so what AI means for digital lending models in the next few years will be very different than what it means for insurtech what open banking means in the next few years for digital payments trajectory will be very different than what it means for insured cheex trajectory now the prominence of AI holds true for almost all fin Tech verticals and one reason for this may be the likelihood that the impacts of AI could really be compounded as it affects fintech from different angles from challenges to business models to Consumer engagement to emerging regulations of AI in financial services that fex will have to respond to so I want to finish by drawing attention to this graph here I'm a researcher we love graphs uh and these are the uh these eight different uh topics and I want to draw some attention to those on the the lower part of the screen these are topics that are comparatively less important or were seen as comparatively less important to fintech in the near future but in fact this kind of uh really supports why we we started this initiative you know the the ranking on this graph is going to change in the years to come and the topics on this graph are going to change as well and one of the things we look to do in our research is you know gaining insights about them and gaining those insights will be useful for everyone across the ecosystem so I hope that that was an interesting snapshot uh please look out for the report in January and now let me turn it over to to the [Music] panel so much Jill for providing these insights good afternoon everyone my name is Gabriel inzerillo and I a financial regulator here at 0gm let me introduce the rest of our panelists Jill you've heard a bit from her so I'm going to turn it over to Drew propson from the world economic forum and Nelson Chow from the Hong Kong monetary Authority welcome everyone now we'd like to discuss a few key points because there were evidently some more surprising insights that came from that review from that research and through the panel of questions that you asked these fintex from across the world so I'll really kick it off with Nelson first hi Nelson sure yeah Nelson you're a very experienced former Banker um but more than that you're just a wonderful seasoned regulator you've been with the Hong Kong monitary for de how long now um almost 20 years almost 20 years exactly and out of those 20 years you spent seven years um basically as overseeing fintech and developing the ecosystem there now one of the me things we mentioned in the presentation is that fexs are essentially struggling a little bit in today's climate right they talk we talked about macroeconomic factors we talked about fiscal Prudence monetary tiing fluctua employment decreased funding so what do you do in that situation how can you help an ecosystem grow when there's all these adverse effects that are happening yeah sure I think U um I agree a lot with the um the result of the surveys and I think this is also what we hear on the ground uh funding source um and also regulatory um um um burden it's actually top of the list uh but if you look through the cycle sometimes um when we see um a funding shortage um it probably is not because of um a lot of the reasons F it's is only because that we have a funding Peak around end of 2021 or early 2022 was that money supply was just too there there are too much money supply and it actually changed the behavior of investors and the startups uh if you you money made people crazy yeah and yeah it is it was in fact if you look through the cycle if we remove those um um quantitative easing time or ultra low interest weight we are actually back to normal it's not new normal it's actually back to a more normal State um if history is is a guide and uh if you look at what happened um after Doom um in fact uh after that those tech company who survived have become the biggest um tech companies on earth now and some of them are actually the biggest company by market cap so I think it may not be a bad thing to see some of these um issues uh that we're facing but back to the um what central banks or policy maker in general can do uh we are both kind of on the on the same uh uh space um well what we did um um at that time during the the funding stress we talked to a lot of the startups and what do they want from us in fact surprisingly they are not asking us for funding well probably because they know that we won't give and um in fact they asked us to do matchmaking with them so that's why we um introduce on top of regulatory sandbox we do um some um proof of concept funding very tiny but we match make them with um the financial institutions so they have these references to work with more Banks and also Banks outside of Hong Kong so I think they what they need from us the policy makers or Regulators um is actually um to help them work with the banks to be a facilitator essentially yes Jill I'm going to come back to you for this next question um one of the things so as part of the Cambridge Center for alternative Finance you are literally in the business of capacity building you're in the business of education and one of the things that surprised me the most in this study is this mention that evidently the fintechs were were struggling with consumer um education consumer understanding of fintech products and so my question to you is who is responsible for educating consumers on use of these fintech products is it the fintechs themselves should it be you know Nelson and I who should it be so that this topic overall is a really important and interesting topic um and I think I would I first I want to be specific that you know the research is showing this is what the industry is identified as the key hindrance and challenge to scaling services to more customers and I think what that is kind of giving Insight on and demonstrating is um one this is this is my view you know having been the industry for you know almost 15 years now is the majority of fex you know they care about their customers uh they don't want to defraud them they want consumers to be educated on the products they're using and they want loyalty they want to keep them um now further to your question about kind of whose job it is uh this is it's a great question because uh Drew and I together we've been exploring this actually quite a bit over the past year we had a series of regional round taes uh where we brought together stakeholders mcross ecosystem and had kind of different presentations and also discussions on different digital financial literacy initiatives and we saw successful initiatives from the private sector from public sector public authorities and also Hybrid models and we actually wrote A Blog about it so you can read and one thing um that that has come out is it's it's no one uh part of the ecosystem or one actor's job consumer education is going to be really important for in digital Finance uh for regulators and policy makers they con care about having educated consumers resilience of course and also for the industry you know for the actors themselves for some of the reasons I said earlier so it's in everyone's favor to have educated consumers essentially yeah and the incentives are alive right in this particular area they are Drew over to you now this this was also one of the findings I found quite surprising so in in a former life I used to do Venture Capital before I became a regulator and I was always investing in fch firms and uh we always used to say that it was very very hard to invest in female Le female you know executive Le fintech firms because you take Finance not very women Le you take Tech also not very you know women L you merge them to a fintech it's going to be almost impossible and yet and yet we're seeing something like 31% of female female Executives within fintech firms what are some of what's happening to allow this to happen I so thanks so much for the question I I think this is the magical question right if we knew exactly what and we could point to one specific Factor we could really home in on this factor and and just make sure that we're giving it a lot of attention so we continue to see a similar trajectory and more women in in the field we don't unfortunately have tons of data pointing us to one factor but I do think if we look at the full landscape we can give some thought to maybe a Confluence of factors or a few few different components that would lead us to where where we are today so maybe I'll highlight a couple that I I think are important uh the the first one is awareness so I don't know when this past life of yours was if it was a few years ago or a long time ago uh but the fact that you even noticed that there weren't a lot of women in this space is huge I think when I was growing up it was it was very well known that leadership was was all men and and that's just the way it was it wasn't even talked about so the fact that we're talking about this is huge you can't fix a problem if you don't know what's there so I'll call it a problem but it's it's an issue or we know that we're better off uh with a financial system that's a bit more diverse right so awareness number one uh number two I want to say education but I think maybe a better better term or better phrase here would be uh knowledge Network so if we're looking at women and educational aspirations and where we are today we know that if we're just looking at enrollment for universities across the globe women make up about 54% of that so this demonstrates that women are seeking out better better educational opportunities and I'm not saying that to be an executive or an entrepreneur you necessarily need to have that undergraduate degree but it definitely does help with one a baseline education with that comes certain confidence that you can build something out and then also connects you to different individuals and resources such that when you do have a business you come up with some challenges you have people to go to or different resources available to overcome those challenges so awareness knowledge Network I'll say and then the third piece which is probably the most important right now or a key factor would be uh a flywheel so if you have women in leadership positions and executive positions uh you can't be what you can't see there's a lot of Truth to that phrase once we start to have women in these positions uh those coming into their first career their second career are able to see that this is an opport opportunity for them or something they might want to Aspire to or pursue so I think that the three of those together really helps in terms of fintech specifically it's also just really helpful for the bottom line to have a female executive in place especially because we know that fintech is really good at offering or expanding products and services uh to individuals at low cost to individuals who previously were underserved so if we're looking at uh you what how you expand the pie and looking at that market then makes a lot of sense to be targeting women and it's helpful to have women in place for that so again I think it's a Confluence of factors but that's what I would well it's it's surprising but it's very positive I have one final question which actually fits in with the your final slide on the presentation now unsurprisingly um artificial intelligence was actually mentioned as a thing that fexs were most um aware of that could change you know their lives and change their products in the next five years I think many people in the audience can actually relate with that because they're learning how to integrate AI into their own work into their own tools but nonetheless finance and you know by extension fintech is a highly regulated industry right so how can fintech companies ensure that their use of AI actually fits industry standards fits this sort of regulated mold Nelson I'd like to have you go first and then Drew I'd love for to have you comment I I would suspect uh you asked about five years later what will be the ranking I will bet that AI will still be on the top okay bullish on bullish the reason behind that is we are standing on the shoulders of giants um we all well G GPT do does you know did not emerge all of a sudden it's based on Decades of research works and hardworking um you know intelligent people uh behind that I still remember when I study artificial intelligence machine learning and E network it was a torturing experience because technology was not there but now you have the very high performance GPU you have the the storage and you have the data so um so I'm very bullish on that but um in terms of uh the regulatory uh requirements I would suspect AI is at a tiny um better positions because we regulator usually we just find someone responsible so if you are using we want to point the finger yeah and if it is a like a co-pilot scheme uh I think it's uh it's it makes perfect sense because we will still be able to find the individuals that is um making the mistakes okay okay Drew so I think your question was really in particular focused on the the regulatory piece and how you can kind of stay ahead of this right I I think would Echo everything that Nelson has just shared but I would also say that there's one for fintex it's great to try to have a seat at the table so see if you can be talking with your policy makers your Regulators we also saw in the research that most fentex do have a positive relationship or feel confidently about the regulators so take advantage of that opportunity to continue those conversations so you're at the table when as things evolve and then the other thing is I would say there are certain applications of AI that we know are are pretty solid it's great at pattern recognition so you can use it for fraud detection and the like um but it's more more of these kind of like nuanced new areas of generative AI that are are really under question here so there's nothing wrong with being the second mover sometimes there's a huge second mover Advantage if you're not sure I think trust came up in an earlier panel that is the foundation of the financial system you really need that for your company if you're not sure it's okay to hold back a little bit wait for things to happen put yourself in a good position so you're prepared to run when it becomes time to uh take advantage of the new regulation or or know the framework a little bit more solidly but that would be my advice wonderful maybe slow and steady does win the race ultimately sometimes ladies and gentlemen thank you so much for joining us for this session I would like to thank our panelists and the research is coming out when can we see the report uh January 17th 18th somewhere around there that week we all right so mark your calendars thank you so much thank you