Fintech’s Next Phase

May 2023

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© Euromonitor International
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2023. All rights
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Contents

Introduction

Fintech and funding

Fintech adding value to payments

Digital banking

Consolidating competitive landscape

Fintech regulation in focus

Conclusion

© Euromonitor International
 Introduction

© Euromonitor International
 INTRODUCTION 55

Scope
Fintech has been identified by industry leaders and through our global analyst network as one “Fintech’s next phase” refers to the greater
of the most important themes for our clients, particularly in the consumer finance, retail and integration of fintech with commerce. Fintech
travel industries. Fintech has evolved over the past few years to reach more industries and companies are innovating to increase access
to financial products and services, improve the
innovate in every stage of the payment process.
security of payments, increase funding, and
enhance the merchant and customer
relationship. In this next phase of fintech
adoption there has been consolidation within
the industry, and a growing call for an
established regulatory framework that can
encourage competition and protect
consumers.

Disclaimer
Much of the information in this briefing is of a
statistical nature and, while every attempt has
been made to ensure accuracy and reliability,
Euromonitor International cannot be held
responsible for omissions or errors.
Figures in tables and analyses are calculated
from unrounded data and may not sum. Analyses
found in the briefings may not totally reflect the
companies’ opinions, reader discretion is advised.

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 INTRODUCTION 66

Key takeaways (1)

Fintech is impacting how transactions are funded, most notably through the expansion of buy-
Consolidating competitive
now-pay-later (BNPL) platforms. This low- or no-cost option is expanding the products and
landscape
services available to a wide range of consumer income segments.

Fintech can leverage the information created from a transaction to reduce fraud and enhance
Digital banking gains
the customer/merchant relationship by offering targeted promotions and advertisements in
popularity
real time.

Digital banking can offer consumers better financial products and services at a lower cost in
Fintech adding value to
many markets, leading to mainstream financial institutions investing in fintech to offer similar
payments
products and services.

Funding overhauled by With a crowded competitive landscape, there have been more acquisitions among fintech
fintech companies, as well as by traditional payment players looking to adapt and remain competitive.

Regulation helped drive the initial growth in innovative fintech, but has not caught up with
Fintech regulation in focus recent products and services, leaving a void or self-regulation, which could have negative
consequences going forward.
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 INTRODUCTION 77

Exploring Fintech’s Next Phase

156bn
In total buy-now pay-later lending, in
USD

5.5tn
Additional m-commerce value
predicted by 2027 in USD

Fintech has shifted from being on the fringe of commerce to being incorporated into many
aspects of it through financial products and services. It has changed the customer journey
and has increased value in several aspects for merchants, customers, and financial service
providers. Payments is a key channel where fintech is applying its value and leveraging data
created to improve the user experience. Fintech has increased access to goods and financial
products and services for millions of consumers globally.
16
Percentage point decline in share of
paper payments over 2012-2022
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 INTRODUCTION 88

Drivers of fintech
Fintech has been driven by adding value to the payment process, a Global Banked Status 2017-2022*
more favourable regulatory landscape, and rapidly evolving Million people (15+)
technology being adopted by more and more consumers. The shift 4,500
of retail online has created the opportunity for more companies to
be involved in payments, and financial products and services. The 4,000
initial adoption of fintech by younger consumers has evolved to
reach more consumers, and has blurred borders in some regions. 3,500
Near universal adoption of mobile devices has lowered the barriers
3,000
to adoption for consumers in emerging markets, offering a low- or
no-cost alternative to mainstream financial institutions. The global 2,500
pandemic also served to drive alternatives to cash, as retail shifted
online out of necessity. Once the convenience and security benefits 2,000
of digital payments are realised, consumers are unlikely to return to
paper. Fintech, which was previously a more isolated ecosystem, 1,500
went mainstream in moving merchants online and providing
1,000
consumers with simple and convenient payment platforms. It also
deepened the connection between customers and merchants. The 500
rise of super apps in the Asia Pacific region also contributed in
getting technology and social media companies involved in 0
payments and financial services around the world. With lower 2017 2018 2019 2020 2021 2022
regulatory barriers, these companies were able to innovate faster Unbanked Population Banked Population
and reach more consumers. Note: * Of 47 researched markets
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 INTRODUCTION
Fintech uncovered
Fintech and funding
BNPL has increased the
number of consumers
who can access a
variety of products and
services.
156 bn
(USD) BNPL
lending value
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99
Fintech adding value to Digital banking Consolidating competitive Fintech regulation in focus
payments landscape
Digital banks are As fintech touches more
Fintech is adding value competing directly with Increased competition in payment value in markets,
to payments by traditional financial fintech has driven regulators are trying to
enhancing the institutions around the innovation, as well as catch up to track
merchant-customer world, and are also consolidation. payments, protect
relationship, providing increasing access to consumers and enhance
greater security, and previously unbanked or security.
leveraging the purchase financially underserved
data created during consumers.
digital transactions.
20tn 5.2tn 2015
Card payment M-Commerce PSD2 outlined
growth in USD value added by the EU
from 2017 to in USD from
2022 2022 to 2027
 Fintech funding purchases: BNPL

© Euromonitor International
 FINTECH FUNDING PURCHASES: BNPL 11
11

Increasing access to funding

Buy-now pay-later (BNPL) is not a new concept, but the fintech spin BNPL Gross Lending Value 2017-2022*
on the lending format has made it more accessible to consumers USD million
across an increasing range of products and services. The modern 180,000
format started in Scandinavia, and has been replicated around the
world in both emerging and developed markets. BNPL can provide 160,000

funding for consumers who are unbanked or financially

140,000
underserved, and increase the potential consumer base for every
merchant category. In many versions, this lending format shifts the
120,000
cost of financing away from the consumer to the merchant or a
third party. While ultimately it can prove more expensive than 100,000
traditional credit cards for merchants, it unlocks more customers
and is becoming expected by consumers. If two companies are 80,000
offering the same product, the one with a BNPL option provides
additional value to the customer. In several markets, the BNPL 60,000
landscape has been able to develop because there was limited or no
regulation for companies in the space. How regulation is developed 40,000
is likely to determine how much of consumer purchasing is funded
through BNPL. Regulation in the space is likely to increase the cost 20,000
of offering BNPL, which could deter merchants and consumers from
0
opting for it. However, putting guard rails in could prevent a wave of
2017 2018 2019 2020 2021 2022
defaults in the event of an economic downturn, which would ensure
that the lending channel remains an option for longer. Note: * Across 47 researched markets

© Euromonitor International
 FINTECH FUNDING PURCHASES: BNPL 12
12

Humm Australia’s take on BNPL

Characteristic
▪ BNPL is expanding to a wider range of
merchants, and is becoming a mainstream
means of funding. This increases the potential
customer base and lowers the funding cost for
consumers who might have used an alternative,
8.3
USD billion –
such as a credit card. BNPL in
Australia, 2022
Context
▪ Despite fewer regulations and due diligence
from BNPL providers, most say default rates are
comparable with or lower than financial card
7.4%
Alternative
default rates. This either means that risk is not financial service
priced correctly by credit providers, or that provider share
of consumer
default is less likely with fewer fixed payments. credit, 2022
Consequence
▪ While shifting the cost of funding to the 450
USD million
merchant from the consumer increases potential increase in non-
customers, the increased cost could eventually performing loans
be transferred to the product or service. This over 2021-2022
means that consumers who do not use the
Image source: Hummgroup.com option are indirectly funding others who are. Passport edition: Consumer Finance 2023ed
© Euromonitor International
 FINTECH FUNDING PURCHASES: BNPL 13
13

Klarna sets fintech example in Europe

Characteristic
▪ Klarna is one of the BNPL pioneers, with an
international presence. During the course of its
evolution, Klarna has emerged as an e-
commerce “one-stop shop”, offering payment
card function, discounts and delivery tracking, in
53%
Of Other
addition to its core BNPL offering. Personal Lending
is BNPL, 2022
Context
▪ Klarna is a well-established BNPL company, with
millions of Western European customers, and
has partnerships with key e-commerce players.
14 bn
USD in total
However, Klarna has recently been experiencing BNPL in Sweden
increasing competitive pressure from in 2022
companies entering the BNPL realm.
Consequence
▪ The current high interest rates and inflation are 30%
CAGR for BNPL
a threat to Klarna, whose growth has been in Sweden over
fuelled by attracting new venture capital while 2017-2022
making net losses. The end of the pandemic-
induced e-commerce boom will force the
Image source: Klarna.com company to adjust its value proposition. Passport edition: Consumer Finance 2023ed
© Euromonitor International
 FINTECH FUNDING PURCHASES: BNPL 14
14

BNPL reaches across geographies and merchant categories

BNPL has reached nearly every merchant

category, and has become a global funding
option that is increasing consumer spending
power.

More consumers can afford a wider range of products and services

through BNPL. It is reaching a range of categories, from daily
groceries to medical surgery.

© Euromonitor International
 Fintech adding value to payments

© Euromonitor International
 FINTECH ADDING VALUE TO PAYMENTS
Legacy players and new entrants alike leverage fintech to add value to payments
The emergence of major fintech players across the globe was
accompanied by breathless accounts of a future where traditional
payments players would collapse under the weight of their own
legacy technologies. The reality has, however, seen some fintechs
develop into international powerhouses, while many traditional
players shrewdly acquired smaller new entrants to add value to
their existing platforms.
Prime examples of fintech’s added value include fraud protection
algorithms, smart loyalty systems, integrated commerce, and more
holistic financial planning offerings. For legacy players, many of
these augmentations have been driven by acquisitions, incubator
programmes and, increasingly, open banking standards. For larger
and older fintechs, this often includes branching further into
payments as they mature.
Fintech value adds are not, however, without their risks and
drawbacks. Many of their mechanisms rely on the trading and
analysis of significant amounts of personal data and personalised
services. This leaves them particularly vulnerable in two ways: data
breaches and losses – a risk compounded by the ongoing
development of privacy laws – and consumer discomfort with data
sharing – a major liability in today’s more privacy-conscious era.
© Euromonitor International
16
16
Common value-added fintech solutions
Fraud Detection/Prevention
•New technologies enable more efficient fraud detection and
prevention, limiting consumer headaches.
Smart Loyalty
•Fintech enables issuers and merchants to create bolt-on loyalty
solutions that can be easily integrated across platforms and
payment methods.
Tailored Recommendations
•Consumer data can provide a means for more personalised
suggestions and tips, improving the utility of apps and tools.
Financial Planning
•Open banking standards and new financial entrants can introduce
consumers to new financial products and services in a familiar,
trusted setting.
Integrated Commerce
•Super apps can open the door for payment and shopping activities
to be comingled within a single app environment, increasing loyalty
and value.
 FINTECH ADDING VALUE TO PAYMENTS 17
17

Fintech integration in fraud fighting tools mitigates burden on consumers and merchants
Characteristic
▪ Issuers and networks alike have partnered,
purchased, and produced various new
technologies leveraging big data and AI to fight
card fraud both proactively and reactively. These
83.8%
Card not present
tools can then be placed in the hands of both fraud in the US
in 2022 as a
consumers and merchants. percentage of
Context total value lost
to fraud.
▪ Consumers can be alerted immediately about
potentially fraudulent transactions and take
action, increasing confidence in card payments.
12.1bn
USD lost to fraud
Fraud modelling must, however, be careful not in 2022.
to produce too many false positives, an action
which can rapidly alienate customers.
Consequence
▪ Most legacy players have been quick to 1.1bn
integrate with partners throughout this space in USD lost to fraud
fintech. AI is, however, evolving rapidly in the on counterfeit
consumer space, and will also empower cards in 2022.
fraudsters to fight back.
Image source: Euromonitor International Passport edition: Consumer Finance 2023ed
© Euromonitor International
 FINTECH ADDING VALUE TO PAYMENTS 18
18

Mercado Pago: Increasing access and improving the shopping experience

Characteristic Top Ways Brands Can Interact to Build
▪ Mercado Pago, a Latin American payments Loyalty
provider connected to e-commerce giant
MercadoLibre, has developed a significant
payments infrastructure that increases access to Say “thank you” for
being a customer
digital payments, as well as offering loyalty
programmes and other value added services.
Context Make my shopping
▪ Mercado Pago has been integrated by a number process more
convenient
of small enterprises to establish their first credit
offerings and connect with a wider swath of
customers. This has included providing payment Offers or gifts just for
links during the pandemic lockdown, facilitating being a customer
access to their services.
Consequence
Help me solve a
▪ One of the most commonly cited responses for problem/answer a
ways a brand can interact with consumers to question
build loyalty is making their shopping process
more convenient. Fintech has great potential to 0% 10% 20% 30% 40% 50%
continue to help merchants and payments
Image source: Unsplash providers meet this need going forward. Passport edition: Digital Consumer Survey 2022
© Euromonitor International
 FINTECH ADDING VALUE TO PAYMENTS 19
19

Payment players should strive to add value via fintech, but tread lightly

As personal data becomes increasingly

commoditised, both new entrants and legacy
payment players will continue to use it to add
value to payments. Responsible use of data can
greatly benefit a variety of stakeholders,
including consumers, merchants and payments
players.

Fintechs are a powerful tool for adding value to payments – which

consumers generally prefer to live in the background. Data must,
however, be used carefully, as privacy and convenience stand on a
knife’s edge.

© Euromonitor International
 Digital banking

© Euromonitor International
 DIGITAL BANKING 21
21

Rise of digital banks drive digital transformation of the global banking industry
Besides BNPL and digital payments, digital banks are also gaining traction Key digital banks in each region
globally. Benefiting from the increasing penetration of smartphones,
most current digital banks are third generation, which are mobile Region Key digital banks
first/only. Among the hundreds of digital banks in the world, profitable Asia Pacific
challengers show five key characteristics: strong ecosystems, close √ √ √
engagement, unsecured lending focus, lean operations and a
transformed, agile organisation. Furthermore, digital banks targeting Western
Europe
small and medium enterprises (SMEs) (eg MyBank, Judo Bank) and more √ √
mature age (35-45) consumer segments (eg Starling Bank, Kakao Bank) North America
also showed faster pace for break even, as those segments offer higher
profit margins. There were also unsuccessful cases (eg JP Morgan’s Finn
could not differentiate itself from Chase, Xinja shut down given a lack of Eastern Europe
lending and high deposit expenses). To defend against the challengers,
incumbents have been driving their digital transformation. To accelerate Middle East
time to market and focus on strategic priorities, both digital banks and and Africa √
some incumbents have also established partnerships with fintechs in
various domains, such as onboarding, credit decisioning, engagement, Latin America
digital services (eg chatbots), as well as accounting and invoicing for √
SMEs. The next-gen digital banks will demonstrate development in Australasia
embedded finance, hyper-personalisation, blockchain and 3-D
√
(metaverse/holographic) digital banking [1].
[1] Disruptive trends in digital banks in Asia Pacific and Australasia, part I to III, David Zhang and Source: Company websites √ Profitable (based on public sources)
Kendrick Sands, Euromonitor International, April 2023 Note: This list is non-exhaustive
© Euromonitor International
 DIGITAL BANKING
WeBank leveraging Tencent’s ecosystem for customer acquisition and usage
WeBank is a consortium digital bank
founded in 2014, operating a digital-only ▪ In addition to its own apps, WeBank operates
business model across China. It was
jointly invested in by multiple key
shareholders, including Tencent.
It is the largest digital bank globally by
number of customers. WeBank operates
a mobile first model, tapping the key
advantage of its parent, Tencent’s,
ecosystem – WeChat’s 1.3 billion
monthly active users. Moreover, it
leverages Tencent’s huge amount of
alternative data across multiple
industries (eg social media, payment,
games, e-commerce), for credit
decisioning.
Its fintech business provides embedded
finance services to non-financial
businesses in credit decisioning,
blockchain, cloud computing and big data
analytics.
Image source: WeBank, Flaticon
© Euromonitor International
22
22
Characteristic
mini programs in WeChat, enabling customer
onboarding and usage within WeChat.
Partnering with Tencent and universities, it
operates with advanced AI and analytics teams
362mn
Customers
to improve the user experience. (including 3.4
million MSMEs)
Context
▪ Prior to 2014, when China issued its first digital
bank licence to WeBank, users had to travel miles
to banks’ branches for account opening.
25%
Profit margin
Incumbents’ websites and apps were also
USD5 billion in
product-centric, with lengthy terms and revenue
conditions, and taking minutes for basic transfers.
Consequence
▪ Backed by Tencent’s ecosystem, especially WeChat, 1.5%
Non-performing
it reported a profit in 2016, only two years after load ratio (NPL)
inception. By end-2022, WeBank had acquired 360
million customers, including 3.4 million MSMEs. To
transform, a few Chinese incumbents, including
Bank of China, also established a WeChat channel. Passport edition: (Source: WeBank annual report 2022)
 DIGITAL BANKING 23
23

Monzo leads on user-centric innovation to drive customer engagement

Monzo is a UK digital bank founded in
2015. It received a full banking licence in
the UK in 2017. Monzo launched in the US
in 2022 and operates an embedded
finance model, providing banking services
through Sutton Bank. It rolled out SME
banking services in 2020. It aims to
challenge the incumbent banks by
differentiating through its strong
customer engagement measured by Net
Promoter Score (NPS).
Image source: Monzo, CMA
© Euromonitor International
Characteristic
▪ Monzo operates a mobile first business model,
eliminating branches using the cost savings for
innovation and competitive pricing. Also, it
hosts public roadmaps in forums, and invites
users to gatherings, prioritising development
+69
Net Promoter
based on customers’ votes. Score
(2022 Monzo
Context Annual Report)
▪ Protected by high market entry barriers, retail
banks in UK used to operate a banker-centric
model. The industry’s average NPS of incumbents
#1
UK Bank for
was negative over 2014-2017 (source: Bain), Service Quality
showing a large gap between banks’ service by CMA UK in
2022
quality and customers’ expectations.
Consequence
▪ Within seven years of receiving its licence, it had 5bn
Debit card
acquired 7 million customers, with high NPS (+69 transactions in
in 2022) in the UK. It is reported that the bank 2021 (USD)*
expects to break even in 2023. Incumbents such
as HSBC and Standard Chartered have responded
by accelerating digital transformation. Passport edition: Consumer Finance 2023ed
 DIGITAL BANKING 24
24

Digital banks changing the way of banking

The next-gen digital banks will accelerate development in

embedded finance, hyper-personalisation, blockchain and 3-D
digital banking, posing a strong threat to incumbents with no or
little digital transformation.

Benefiting from digital banking, consumers and

businesses can register bank accounts at home
or the office, accessing financing despite little
or no credit history.
Large non-financial businesses can also roll out
their brands’ financial services, powered by
embedded finance.

© Euromonitor International
 Consolidating competitive landscape

© Euromonitor International
 CONSOLIDATING COMPETITIVE LANDSCAPE 26
26

Large payment companies seek to catch up through acquisitions

The age of fintech start-up development of the 2010s is now being Key Acquisition Deals in Fintech 2021-2023
followed by growing merger and acquisition activity, mostly driven
Target Line of Deal value
by large payment service companies acquiring disruptive Buyer Target
country business (USD billion)
competitors. While traditional financial institutions are active in
developing their own digital offerings, M&A provides them with a Block Afterpay Australia BNPL 29
shortcut for obtaining top-notch technology. Through acquisitions, PayPal Paidy Japan BNPL 3
financial sector giants aspire to strengthen their value proposition
by integrating the innovative solutions and talent from start-up Mastercard Aiia Denmark Open Banking n/a
companies. American B2B
Nipendo Israel n/a
Express Payments
Several major M&A deals occurred over 2021-2022. The largest was
the acquisition of Australian BNPL service Afterpay by Block Inc, Visa Tink Sweden Open Banking 2
valued at USD29 billion. Other prominent deals include the Goldman Consumer
GreenSky US 2
acquisition of Tink by Visa Inc for USD2 billion, and the purchase of Sachs Lending
Aiia by Mastercard Inc for an undisclosed sum. Both of these Source: S&P Global
acquisitions target the open banking fintechs from Europe. This
showcases the scale of opportunities emerging since the
implementation of the PSD2 directive in the EU. Whilst there has
been a lot of recent M&A activity in the fintech space, the sector
remains far from being consolidated. There are likely to be more
M&A deals being driven not only by financial companies but also by
major tech companies, e-commerce players, etc.
© Euromonitor International
 CONSOLIDATING COMPETITIVE LANDSCAPE 27
27

Case study: Apple acquires fintech firm Credit Kudos to expand into lending
Characteristic
▪ Credit Kudos is a UK-based credit scoring start-
up agency that uses open banking technology to
access the credit worthiness of consumers. The
acquisition allows Apple to benefit from the
fintech’s expertise in providing alternative
150
USD million
lending services to its customer base. Value of
acquisition deal
Context
▪ The tech giant expanded into consumer
payments with the introduction of Apple Pay in
2014. Since 2021, Apple has launched a credit
156
USD million
card in the US and entered the BNPL market Value of global
with Apple Pay Later, an extension of its digital BNPL market in
wallet with an instalment payment function. 2022*
Consequence
▪ Fintechs play a fundamental role in 2022
the evolution of payments and lending. M&A
Launch of
activities, like acquiring fintech firms, offer card Apple Pay Later
networks, legacy banks and tech giants a
shortcut to compete with the innovative
Image source: Apple.com products and services of pure fintech players. Passport edition: Consumer Finance 2023ed
© Euromonitor International
 CONSOLIDATING COMPETITIVE LANDSCAPE 28
28

Consolidation likely to continue

While many companies are partnering with fintech companies,

several are also acquiring them to develop their payment value
proposition.

Acquisitions in the fintech space are likely, as

larger tech firms seek to differentiate their
product offering.

© Euromonitor International
 Fintech regulation in focus

© Euromonitor International
 FINTECH REGULATION IN FOCUS 30
30

Regulation needs to keep up with market development

The next phase of fintech was sparked
by supportive regulation encouraging Digital wallets
competition in financial services.
However, regulation has been slow to
keep up with innovation, which could
result in consumers being taken
advantage of. There is a balance BNPL
between consumer protection and
transparency which will need to be
reached. As of 2023, key regulations
have been adopted in selected markets
Key regulations on Fintech
Open banking
around digital wallets, BNPL, open development
banking, digital banks, and AML and CFT.
In some markets, a number of agencies
or departments are responsible for
regulating fintech, while in others it Digital banks
remains unclear who has the
responsibility. The primary incentives for
regulators to encourage fintech Anti-money laundering
development are enhanced payment (AML)/countering the financing of
security and transparency of payments. terrorism (CFT)
Note: This list is non-exhaustive.
© Euromonitor International
 FINTECH REGULATION IN FOCUS 31
31

Supportive regulations driving open banking progress globally

Open finance is applications/services built Characteristic
upon access to financial accounts and ▪ Open finance introduces competition into the
data authorised by consumers or licensed financial industry, encouraging innovation. It
businesses. Open banking, focusing on also offers customers greater convenience and more
banking data and associated services, is a
subset of open finance, which also covers
affordable services. Embedded finance allows
financial businesses to assist non-financial businesses
2015
EU released the
non-banking financial services, such as in rolling out white label services. Revised
pensions and tax. Payment
Context Services
Embedded finance is made possible with ▪ Although open finance offers strategic opportunities, Directive (PSD2)
the supportive legislation of open finance. including embedded finance, to businesses and
Embedded finance is also a subset of convenience to individuals, it also has brought in
2021
China released
open finance, spanning across banking data risks for both businesses and customers. the commercial
and non-banking finance. Moreover, rules were required to regulate relevant bank API
security
businesses. management
Consequence standards
▪ The EU led the development of global open 2023
US announced
banking regulations, and rolled out PSD2 in plans to finalise
2015. In Asia Pacific, Singapore and India led the open banking
game. Singapore pioneered the API rules in rulemaking
2016. China and the US followed, making
Image source: PCI booking progress over the 2021-2023 period. Passport edition: Consumer Finance 2023ed
© Euromonitor International
 FINTECH REGULATION IN FOCUS 32
32

New licences and regulations of digital banks promote competition and inclusion
The banking industry has high market entry Characteristic
barriers. Incumbent banks used to be ▪ Unlike traditional incumbents, digital banks
protected by licences, and lacked motivation operate a digital first/only business model,
to catch up with major tech companies (eg offering services (eg onboarding and transactions)
Alibaba, Apple, Google, Kakao, Tencent and and products (eg payments and lending) digitally.
Rakuten). Licensing of the third generation of Profitable digital challengers differentiate with
2014
China issued the
digital banks (mobile-first/only banks) began large ecosystems, strong engagement, etc. first digital bank
in China, and Europe in the 2010s, and licence to
benefited from maturing smartphone app Context WeBank
banking technologies. A few key digital banks, ▪ Thanks to the growing penetration of
however, still do not have banking licences
(eg Chime in the US). They partner with
smartphones in the 2010s, apps have become
the dominant channel for financial services,
2016
European
licensed banks to roll out their app-based outpacing growth in web and branch. However, Central Bank
banking services. the user experience offered by many incumbents granted a full
banking licence
has not met customers’ expectations. to N26
With digital bank licences and regulations,
Consequence
most regulators hoped to encourage
competition by introducing big tech ▪ Central banks in key markets including China, the 2024
Thailand to issue
companies, and increase financial inclusion UK and Singapore have issued digital bank licences three digital
using financial technologies [1]. and established regulations to bring tech firms into bank licences
the banking industry, and to drive digital
[1] Disruptive trends in digital banks in Asia Pacific and
Australasia, part I, David Zhang and Kendrick Sands, transformation and financial inclusion. Pakistan and
Euromonitor,
Image source: April 2023 Thailand have recently followed. Passport edition: Consumer Finance 2023ed
© Euromonitor International
 FINTECH REGULATION IN FOCUS 33
33

Emerging BNPL regulations

Characteristic
▪ Australia and the UK are notable examples of
where governments are attempting to regulate
the BNPL space. There are demands for
transparency and consumer protection, while
there are other existing regulations to which
2023
Among other
traditional banks must adhere. agencies, the
CFPB is
Context regulating BNPL
▪ BNPL grew in popularity during the COVID-19
pandemic, but has yet to be fully tested during
an economic downturn. These providers
2021
Determined the
essentially offered unsecured loans to consumers FCA would
regardless of credit worthiness. Credit regulate the
BNPL industry
worthiness should reflect the risk of default.
Consequence
▪ Governments face the risk of overregulating an 2023
The Treasury has
emerging industry, which could restrict future assumed the
growth. On the other hand, underregulating regulatory role
could lead to consumers being taken advantage in Australia
of with fees and collections, or significant losses
Image source: The CFPB, Treasury and FCA website for the BNPL providers. Passport edition: Consumer Finance 2023ed
© Euromonitor International
 FINTECH REGULATION IN FOCUS 34
34

Refining regulations to address payment security of digital wallets

Digital wallets have seen continued strong Characteristic
growth globally. A growing number of ▪ Payment via digital wallets offers great
merchants in emerging and developed convenience to consumers and businesses,
markets can accept digital wallet
payments. In emerging markets,
eliminating cash, and poses a strong threat to
card operators and banks. For QR payment, it
2018
Regulation
especially in China, mobile payment is also reduces the cost burden, instead of requiring all
largely through digital wallets, such as mobile
purchasing NFC phones and terminals. payments to be
WeChat Pay and Alipay. With the
Context cleared through
implications of market dominance for the central bank
▪ A growing number of cases of digital wallet scams
payment and data, as well as associated
risks of scams and money laundering,
and money laundering have been reported globally. 2023
Reviewed 2017’s
Given the growing adoption of digital wallets, there payments
central banks have been refining rules. will be more businesses and consumers impacted, regulations,
especially for digital payment without central suggesting
stronger
banks’ clearance/monitoring. authentication
Consequence 2023
Reviewed PSD2
▪ China’s central bank rolled out a rule in 2018 and gave advice
establishing its role in the clearing of all mobile in customer
payments. In the EU, the European Commission protection;
preparing for
made proposals to enhance customer PSD3
protection in 2023.
Image source: The Star Malaysia Passport edition: Consumer Finance 2023ed
© Euromonitor International
 FINTECH REGULATION IN FOCUS 35
35

Consultants and RegTechs to assist compliance with fintech regulatory development

To comply with the current and upcoming

fintech regulations (eg BNPL) and apply for
licences, businesses may partner with
consulting agencies and regulation
technologies (RegTechs).

Technology is a double-edged sword. Fintechs generate new business

opportunities but also present risks to companies and consumers.
Fintech regulations have to keep evolving with the latest innovations
in payment and banking, and against money laundering.
Image Source: Digital Regulation Platform
© Euromonitor International
 Conclusion

© Euromonitor International
 CONCLUSION 37
37

Key takeaways (2)

Fintech is impacting how transactions are funded, most notably through the expansion of buy-
Consolidating competitive
now-pay-later (BNPL) platforms. This low- or no-cost option is expanding the products and
landscape
services available to a wide range of consumer income segments.

Fintech can leverage the information created from a transaction to reduce fraud and enhance
Digital banking gains
the customer/merchant relationship by offering targeted promotions and advertisements in
popularity
real time.

Digital banking can offer consumers better financial products and services at a lower cost in
Fintech adding value to
many markets, leading to mainstream financial institutions investing in fintech to offer similar
payments
products and services.

Funding overhauled by With a crowded competitive landscape, there have been more acquisitions among fintech
fintech companies, as well as by traditional payment players looking to adapt and remain competitive.

Regulation helped drive the initial growth in innovative fintech, but has not caught up with
Fintech regulation in focus recent products and services, leaving a void or self-regulation, which could have negative
consequences going forward.
© Euromonitor International
 CONCLUSION 38
38

Fintech: How to win

Fintech is targeting a wider range of merchants with a wider range of products and
Finding the right fintech partner for
services. Rewards and services should be tailored to the merchant segment and the
merchants
merchant’s needs.

Regulation is coming, and the goal of regulation will be to protect consumers and prevent
Simplicity and transparency to ensure
widespread losses. Being transparent and simple from the start could ensure fintechs are
future regulatory compliance
ready when regulations are adopted.

With consumers more aware that additional value is being created through their
Understanding how consumer payment information, they expect to receive the benefits. This means effectively
expectations are changing communicating the benefits, and providing additional rewards or discounts to them on a
continuous basis.

With an increasing range of how consumers pay, and how the payment is funded, it is
necessary for merchants to be compatible with their preferences. Consumers have
Be compatible across platforms
demonstrated that if given a choice between two merchants, offering BNPL could be the
determining factor. The same is true of digital payment platforms.
© Euromonitor International
 CONCLUSION 39
39

Evolution of fintech
Economic downturn highlights vulnerability
of BNPL
Fintech products like BNPL across merchant
categories have yet to be tested by an
economic downturn, and could prove to
face higher default rates than other lending
channels. How they perform in a recession
could determine their long-term
sustainability.
Consolidation and regulation determine the
playing field
With a crowded competitive landscape and
new innovations coming online, acquisitions
are likely to continue in the fintech space.
Regulations being formed now will shape
which companies can operate in the space,
how they operate, and where the additional
value created will land.
Few unbanked consumers; fewer cash
payments
Cash use has been steadily declining since
alternatives have been created. Further
advances in the fintech field will accelerate
that decline and will see cash become a tool
of the past. Additionally, the barriers to
adopting financial services are decreasing
globally.

Short term (1-2 years) Medium term (3-4 years) Longer term (5 years)


  

© Euromonitor International
 CONCLUSION
Questions we are asking
Can mainstream banks adapt?
Banks in some markets are already pivoting
to offer the products and services of digital
banks, but how this plays out in all markets
has yet to be seen.
© Euromonitor International
What will the impact of CBDC’s be?
With more and more central banks offering
a digital currency, and receiving mixed
reviews, will there be a standard approach
adopted?
40
40
Who will put it all together?
There are several technologies under the
fintech heading but there is no single
company that can do it all. Will such a
company emerge?
FINTECH’S NEXT PHASE

For Further Insight please contact

Kendrick Sands Ivan Khoruzhyy

Consumer Finance Industry Manager Consultant – Services and Payments
Kendrick.sands@euromonitor.com Ivan.khoruzyy@euromonitor.com
• https://www.linkedin.com/in/kendrick-sands-825b867/

David Zhang (Feng)

Insight Manager (Asia), Payments and Lending
David.zhang@euromonitor.com
• LinkedIn: https://www.linkedin.com/in/zhang-feng/

Ryan Tuttle
Senior Consultant Services and Payments
Ryan.tuttle@euromonitor.com

© Euromonitor International
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