China will emerge as the world’s leading export market in the payment sector in 2017, while Japan will become the leading export market for the overall financial technology (fintech) sector, forecasts the International Trade Administration (ITA).
The ITA, an agency within the US Department of Commerce recently published its annual report ‘2016 Top Markets Report Financial Technology’. As shown in figure 1 below, global fintech activity has increased substantially in the past couple of years, but the US still accounts for the major share of investment.
The ITA cites a forecast by Goldman Sachs that ultimately US$660bn in revenue could migrate from traditional financial services to fintech payments, crowdfunding, wealth management and lending.
As per figures 2 and 3, the ITA also produces projected 2017 ‘top 30’ rankings for both export markets for the payments sector in fintech and export markets for the overall fintech sector.
The differences between the two rankings primarily relate to overall financial development, says the ITA. The projected fintech payments ranking is independent of overall financial development, which is a rough proxy for economic development. It finds that emerging markets, such as Russia, Brazil, Mexico, Turkey and Indonesia, rank much higher in this index. The overall projected fintech sector rankings follow more closely with general economic development rather than solely market size.
The report notes that “payment services, with a 17.6% of the fintech market share, have the highest adoption rate among fintech products, followed by savings and investments at 16.7%, insurance services at 7.7% and online borrowing at 5.6%.”
It adds that while the payment ecosystem is currently dominated by banks, fintech newcomers are increasing the size of the overall payments sector and may be cutting into bank margins. The report suggests that the next payment frontier is online payments, particularly mobile.
It also highlights the main drivers of the fintech revolution:
Technological developments: This includes social networks, big data analytics, and mobile access coupled with electronic applications, marketplace funding models and people-based marketing. In this context, cryptocurrencies such as bitcoin and blockchain technology may prove highly disruptive to the way the financial services industry works.
Regulation: The report noted that fintech companies are benefitting from changes in the competitive and regulatory landscape since the 2008 global financial crisis.
Favourable demographics: So-called “millennials” who constitute a significant portion of the population in most countries are a major factor boosting fintech emergence. Early fintech adopters tend to be younger, urban and higher-income customers.
Transition from cash economy: The report highlights the importance of electronic payments as they reduce corruption, increase accountability and are quicker in response to a natural disaster. In addition, they also expand the consumer market, increase banking access to the unbanked, improve macroeconomic efficiency and encourage entrepreneurial activity.
In its report, the ITA also lists the most innovative fintech companies. It names San Francisco-based Coinbase as the leading digital currency company, while Adyen, FangDD, Klarna, and Qufenqui among others have been listed as leading payment sector companies.
Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit signed a memorandum of understanding in Brussels for developing digital trade chain (DTC).
ClearBank is likely to concentrate on services for fintechs, according to founder Nick Ogden who originally launched WorldPay.
Proof of Concept has been launched to determine if distributed ledger technology could help banks reconcile their nostro databases in real time.
The Middle East kingdom, which aims to lessen its dependency on oil revenue, plans to cut billions as part of its aim to achieve a balanced budget by 2020, claims a report.