By Kenneth Bok, Head of Growth & Strategy of Zilliqa
When it comes to the financial services sector, slow and cautious seems to wins the race. Innovation in the industry has been gradual at best, in light of established infrastructures and stringent compliance requirements. With little pressure to differentiate themselves across the existing system of payment services and banking accounts, the resulting user interface is but a digital veneer––all surface and no substance as the sector continues to be characterized as both predictable and uniform. Though digitalization has prompted the rise of mobile banking and robo-advisory, characterized by an emphasis on automation and convenience, the underlying philosophy of the sector has remained the same.
With the world showing its capacity for change in the last two decades alone, prompted by the rise of widespread internet connectivity and mobile penetration, consumers too, are in need of something new. Despite the rate of technological process, financial inequality remains rampant with the World Bank estimating that around the world over 1.7 billion people are still excluded from the modern-day banking system. In response, the proliferation of Open Finance (OpFi) as a driving ethos for further technological development in the industry has been enabled by the advent of fintech and other breakthrough technologies. It is emerging as a promising disruptor of the existing financial status quo.
Closing the gap
In Asia alone, OpFi has an edge over legacy finance that has so far been slow to evolve to meet the needs of the over 1 billion people who lack access to formalized financial services. This absence is especially pronounced in certain markets in the ASEAN region with less than one in three adults in countries such as the Philippines and Vietnam having access to a bank account. Across the region where the situation is most acute, innovations in digital payments have allowed certain countries to successfully leapfrog digital transformation. With a largely blank slate to work from, mobile payments have become the dominant as well as 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. This number rises further in China, where 86% of the country’s population are engaging in mobile-enabled transactions.
In turn, such markets have seen significantly lower rates of credit card penetration, owing to costly merchant fees set by major card providers that have proved to be unaffordable for small businesses and their customers. The circumstances of our internet age were ideal for regional tech giants such as China’s WeChat or Malaysia’s Grab who then swiftly leveraged on the high smartphone penetration rate in the region, delivering digital solutions that were markedly more accessible and affordable than those offered by their traditional counterparts. As a result, e-payment systems have reached segments of society that banks have historically excluded, allowing for spin-off offerings including much-needed services such as microinsurance and micropayments.
Collaborative by design
In truth, an alternative vision of a financial industry has never been more timely or probable than today, with over 4.39 billion of the world’s total global population now online. On the digital frontier, projects are looking to even further dismantle existing barriers to collaboration, allowing existing financial institutions to easily and securely share customer data. To the West, throughout the EU, the second Payment Services Directive (PSD2) mandates that banks should allow merchants and businesses to retrieve personal data via APIs with the permission of users. This open sharing of information across a global, digital economy is a boon to fintech projects looking to allow for greater choice and convenience in an otherwise stagnant financial services industry.
Not one to lag behind, the Asia-Pacific region has seen similar developments with the launch of the ASEAN Fintech Innovation Network (AFIN) by the ASEAN Bankers Association, the World Bank’s International Finance Corporation (IFC), and the Monetary Authority of Singapore (MAS). Working with fintech companies and banks, AFIN aims to develop a global cloud-based platform that will connect financial institutions and the wider fintech community in a global marketplace, allowing them to collaboratively design and deploy digital financial solutions in a sandbox. With these frameworks in place, we can hope to see a more collaborative financial ecosystem, designed with the needs of a digital population in mind.
Bridging the old and new
Beyond OpFi, there’s also decentralized finance (DeFi) which looks to reconcile the existing synergies of OpFi’s philosophy of enabling greater access to that of its ethos of financial freedom. In moving away from today’s centralized monetary authorities, DeFi pioneers solutions that hope to eradicate intermediaries, ushering a new financial ecosystem that is more transparent, efficient, and secure. Enabled by blockchain, DeFi solutions prioritize a shared, distributed truth written in code, determined by algorithms rather than by human agents.
In trade finance, for instance, the application of blockchain can provide a single immutable record of transactions between parties, minimizing the industry’s reliance on costly administrative processes and third-party verification. By simplifying the tracking and validating process, blockchain-based deals between importers and exporters could be done at a fraction of their current cost, cutting out complex application procedures while creating a pool of data about potential clients and their transaction histories. With this data being easily accessible across shared platforms, new institutional investors may be emboldened to use it to offer their own financing and refinancing options to traders, thereby helping to bridge the gap of the estimated $1.5 trillion in unmet demand for trade finance. On the ground, DeFi also reduces the barrier to entry to a wider array of retail investors looking to tap into the world of digital assets, truly opening access to the new decentralized, digital economy.
While a wholesale transition to a blockchain-based financial system is unlikely to happen in the near future, the emphasis on equal access and open collaboration seemingly paves the way for a hybrid ecosystem. As the world transitions to truly cashless societies, out of the ecosystem of OpFi will come the tools for reaching billions of unbanked and underbanked. No longer a prisoner to its legacy, finance needs to evolve and move forward––now is the time to heed the call for open finance, establishing a more transparent, efficient, and accessible future.
About the Author
Kenneth Bok is the Head of Growth and Strategy at Zilliqa. With over a decade of cross-disciplinary experience the fields of entrepreneurship, finance, and deep technology, Kenneth is responsible for driving the enterprise adoption of Zilliqa’s blockchain platform. In 2017, Kenneth founded Blocks Pte Ltd, a distributed ledger technology research firm specializing in blockchain market assessment. Having been involved in the space since the initial Ethereum crowd sale in 2014, Kenneth has accumulated a wealth of industry knowledge on crypto-fund strategies, research and analysis, crypto regulations, and market investments. With his keen instinct of business opportunities, Kenneth has also been a seed-stage and angel investor in numerous notable blockchain projects, and is a regular speaker and writer across prominent industry platforms. Kenneth obtained his Masters of Engineering in Mechanical Engineering from Imperial College London along with a Master of Arts in Philosophy and Religion at the California Institute of Integral Studies.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.