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The Currency of Progress Zennon Kapron's Perspective on Asian Fintech Advances
Step into the dynamic world of Asian fintech, where diversity reigns and innovation is the currency of progress. Guided by the insights of Zennon Kapron from Kapronasia, we unravel the tapestry of financial development that stretches from the bustling business hubs of Singapore to the fast-growing economies of Thailand and the Philippines. As we dissect the transformative effects of digitization, you'll discover how the pandemic has unexpectedly turbocharged certain technologies and how this surge is reshaping the fintech landscape, offering newfound opportunities for financial inclusion and infrastructural evolution.
Prepare to have your mind opened to the complex relationship between government policies, the vital lifelines of SMEs, and the financial ecosystems that support them. With a keen eye, we observe the strategic maneuvers of traditional banking giants like DBS, as they rise to the challenge of fintech insurgents and retain dominance in arenas such as cross-border transactions. Yet, amidst the celebrations of innovation and adaptability, we confront the stark realities faced by these institutions in their quest to serve SMEs, and question the role of burgeoning digital banks in an already saturated market. Join us for a visionary exploration of Asia's fintech frontiers, where the present meets the future.
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Sheryl Chen:Welcome to the Money Pot. I'm Cheryl Chin, head of Content at Money2020 Asia. We are live at the Money Pot booth at Money2020 Asia 2024. With me today I have Rachel Morrissey, head of Content USA and Executive Producer at Moneypot. Rachel, how's the show looking? It looks beautiful. You guys have done an amazing job.
Rachel Morrissey:I'm so glad to hear. It's so amazing, it's so pretty. I'm like, oh my gosh, yeah, I'm always in Vegas. Vegas is not, as. It's not the same as Bangkok. They are all beautiful in their individual ways. I'm always in Vegas. Vegas is not, as it's not the same as Bangkok. Let me put it that way.
Sheryl Chen:They are all beautiful in their individual ways, there you go.
Rachel Morrissey:That's what we'll say.
Sheryl Chen:So today at Moneypot Live, we will be navigating the future of fintech in Asia with Capron Asia. This is actually a report that was recently launched by Money2020 and Capron Asia, so the genesis of this report started last year. So, because we want our content sessions at Money2020 Asia to be user-first as such, we structured our content sessions around three themes, which we'll dive into later, and what we did was we went through six months of research with the content team, with industry insiders, key ecosystem stakeholders, regulators across Asia Pacific, to find out the pertinent topics and trends of the financial landscape across Asia. So what we did with these little nuggets of wisdom that we got from our respondents, was we worked together with Zennon of Capron Asia to come up with this report, and today we have Zennon Capron, managing Director of Capron Asia, with us today. Hello, Zennon.
Zennon Kapron:Hey, thanks, thanks, Sheryl and Rachel. It's great to be here in Bangkok. I think back on my history with Money 2020, and it goes back a number of years, I've attended the US show, which I agree is incredibly impressive, but definitely a different vibe than what we have here. Oh, yeah.
Zennon Kapron:I remember going to the Money 2020 Asia show when it was in Singapore, and so what I'm really excited about this year is kind of the frontier nature of Money 2020 being in Bangkok. I think when we look at the solutions that are on the trade floor and the problems and the challenges that the countries in this region are facing, it's really frontier is a great way to describe it. So really excited to be here today and talk about some of the work that we did with you guys.
Rachel Morrissey:Yeah, I am incredibly excited to hear about how this report came about. You were talking a little bit about that, but also about what you guys have found and what guided you in this, Because I actually was at a different conference. As we often do go to other conferences, I was even speaking and one of the things that was interesting was people were surprised that I was at another conference and I was like, well, we do go and research all the time and we're totally trying to keep on top of what's being said and why it's being said. And they were kind of surprised and I was a little bit like what did you think we did? We try to do our homework. So that was actually really good. He came away going, oh, they actually do their homework.
Sheryl Chen:So hail to the homework I'm looking forward to this Yep, so maybe, Zennon, could you tell us more about the report and what were some key findings or insights?
Zennon Kapron:Sure, so I think when you look at the Asia region, the challenge is it's very heterogeneous, right? When you look at kind of the split, you have the developed economies like Singapore and Australia, and then you have the developing economies and then within each of those there is so many different dynamics between each of the countries. So when we look at financial inclusion as an example, I mean 98% of the population in Singapore is banked, but when you look here in Thailand or the Philippines or Indonesia, that percentage drops a lot down to 50%. But in the background, what's been happening across the region in general obviously after COVID and post-pandemic and just in general, is the digitization of everything. So from payments to lending, to financial products and services.
Zennon Kapron:So I think that kind of guided most of our research was this just trend towards digitalization, because it makes financial services more cost effective for individuals and especially in developing markets where financial inclusion is a challenge, that makes these things much more accessible. I mean you think about a place like the Philippines or Indonesia, effectively archipelago of hundreds, if not thousands, of different islands. It's very difficult to have financial infrastructure on each one of those places. So digitization and really the smartphones that are in nearly 75% of the region's population's pockets have enabled quite a bit of change with that, and then you layer on new technologies like AI. There's a lot of really exciting things that are happening across the region.
Rachel Morrissey:Okay, I have tons of questions here. So I've been covering fintech since 2013. And even back then, asia was leapfrogging and going ahead and they seemed to be doing that quite healthily until about 2019. Then the pandemic hit and every country had different responses or ways that they handled it, and I am very curious about what the effect the pandemic had, and everybody hates it. My boss is going to be like why is she mentioning the P word again? We've got to stop talking about the pandemic. But what effect did the pandemic have on the kind of the nature of adoption and what was happening there? Because it was a huge accelerant for contactless payments in the West and nothing else had been really to that point, whereas that wasn't really true here. There was a lot more that was going on that way, but there seems to be this less in the news about these hot Asian companies, and yet I still feel like there's a vibe of like Asia is a little bit ahead of the curve, and so I'm curious about what it accelerated and what it may have stalled.
Zennon Kapron:Yeah, so I came to Asia, and specifically China, in 2004. And so from 2004 to 2018, for 14 years I lived in Shanghai, and during the time that I was there, wechat, alipay were a huge part of the story, right Initially at kind of e-commerce online payments and then person-to-person payments and then offline payments as well.
Rachel Morrissey:Yeah, they felt like a juggernaut. No one would catch.
Zennon Kapron:Exactly exactly and still to a certain extent. I mean, the government has put regulations around that. But when you think about China itself, china was a very cash-heavy society, right For various political regions, historical regions. Most of the people were happy with cash right, like the physical nature of cash, and knowing that you had it and nobody could take it away from you was very ingrained in the culture there. But it's an excellent example of how, when certain dynamics are in place market dynamics are in place the population makes a change. Right, and you had 1.3 billion people that all of a sudden, you know, 50% of them shifted to digital payments through Alipay and WeChat Pay and to the point that at one point a couple of years ago, it was 75% of all retail transactions were digital. And the point there, at least at the very beginning, was addressing points of friction. So it was very difficult to make an online payment. If you did a card payment, you'd have to stick in your card, put in your PIN and a sign, so it was actually quite a slow process. So, with QR codes, with online transactions that Alipay and WeChat Pay enabled, it really addressed those points of friction.
Zennon Kapron:Now, when you look at what happened in Southeast Asia over the past five years or so. It was a forced transition. I mean, I involuntarily spent my pandemic time in Singapore and the most obvious thing and it's very trite to say for Singapore is the hawker centers. So these are the wet markets and these are really the last bastions of cash in pretty much any country in Southeast Asia, but certainly in Singapore, and it's amazing to see I mean, cheryl, you can probably attest to this too, being in Singapore Like now, even when I go to these wet markets, I don't take cash because 95% of the time they take QR codes or they take card payments. It's a tremendous change, right? Yeah?
Sheryl Chen:Yeah, and actually it's very interesting because, rachel, we were doing a briefing call together last week on QR codes with this other session that's happening on stage Bank, dynamon, paynet and the likes and they actually said something very interesting which my ears perked up when I heard that they were saying that QR codes. Actually it was forced during the pandemic because in Malaysia they had to scan the QR codes to check into places and then after that, after the pandemic, people are so used to paying via QR codes that they started paying cash, paying payments like e-payments, through QR codes.
Rachel Morrissey:Yeah, this sort of forced behavior for, like health checks had become so sticky because it had become so habitual that it was a very easy transition for them to go into digital payments that way. And it really increased the way that digital payments were processed and the adoption rate of that which I found sort of fascinating were processed and the adoption rate of that which I found sort of fascinating. And then I was reading in both ours and in their report that, like the adoption rate for QR code payments across Asian markets was something like would be like 529% by 2030. I was like 49% by 2030. I was like so in the next six years, 520, that's an incredible. That's the ski jump. It's done. That's crazy, that's amazing.
Zennon Kapron:Yeah, and the other element of that, in particular in Malaysia as well, is the subsidy payments during the pandemic time were paid out through three principal digital wallets.
Zennon Kapron:So if you wanted to get your subsidies, you had to do that, and I think when you look at the digitization across Asia, there's a lot that's government-driven, because they recognize the benefits for consumers Because cash is expensive. I mean, we've done some studies in the past that cash can cost 7%, so that's including printing, recycling, transporting, securing all of these elements, and so for governments, there's the pure element of moving to cash. That lowers that cost. And then for merchants, qr codes present a very easy. All you need is a smartphone. You don't need any expensive point of sale equipment, and that was indeed what happened in China when it was probably around 2010 that we started to see QR code payments there, and what I remember distinctly from our office, there was a cafe that we would always go to for lunch and they would just have an iPhone next to the point of sale terminal, the till, and they would just scan a QR code and it was free.
Zennon Kapron:Right, you're all of a sudden up and running, which is really important again for the financial inclusion aspects.
Rachel Morrissey:That was another point that they made. Was that a lot of these, as you said, these wet markets that there was no merchant fee for these QR codes. This really increased the adoption by the sellers. So it was both a customer behavior, but it was also a merchant behavior that could change. And MSME, the micro, the really small businesses they could convert to this and really employ this.
Rachel Morrissey:I'm curious about that, too, because years ago I was in Kenya and there was a both Google and MasterCard were cooperating in an innovation center there to build a digital product off of M-Pesa in order to empower all of these micro businesses to be able to digitize their records and gain sort of a credit history that would enable them to borrow a little bit against that so they could then expand inventory at certain times and really kind of grow these micro-businesses and just be a little more stable for their families. And one of the things that was interesting about that was this idea of them actually trusting the system and going from this, what was a dark market of cash, to something that was actually well known, because a lot of people didn't want the government to know what they had. And I'm curious about that with some of this other stuff is what are you seeing as far as that kind of transition and how governments are responding to the availability of the data? That kind of gives them a better sense of where things are going.
Zennon Kapron:Yeah, the availability of credit data across Asia, just by the nature that a lot of this is informal and cash-driven, has been really inadequate for lending purposes. So, when you think I mean just going back to the China example again we met whilst I was there many merchants that were using lending services from my bank so that's the Ant Financial digital bank that they had and they would start off with lending 100 RMB, and then 500 RMB, and then 1,000 RMB to effectively build up a credit score within the application itself, and that's kind of what we're seeing across Southeast Asia as well. Certain countries, obviously like Singapore, have a well-established credit database. So every individual and me you can tell from my accent I'm American, so I've had a credit card since I was eight years old, probably 15 years old, it just feels that way.
Rachel Morrissey:Yeah, I had seven, since I was but my credit history, I may not have one.
Zennon Kapron:I can't remember a time. My credit history is very deep there, right, and even in Singapore I was shocked. When I first got to Singapore, I got a $20,000 credit limit off a credit card. You obviously don't know who you're lending to in this case, but in a lot of these other markets, like in Indonesia or the Philippines, having a deep credit score, these are very thin file individuals or businesses, and I think the businesses people outside of the region don't appreciate the role that SMBs play in Asia.
Zennon Kapron:In many countries in Southeast Asia, smbs represent 98, 99% of all of the businesses and high double-digit contribution to GDP growth in many of these markets. And all of the big companies that we know today used to be S&Ps at some point and they've grown to what they are today. But it's so critical. These S&Ps across the region are such a critical basic plumbing and infrastructure of everything else. Everything else builds on top of the success of the S&Ps and the government's recognized that as well.
Zennon Kapron:So you talk about transaction fees, for this is we're seeing a lot of consolidation around real-time payments networks, right, and for SMEs that's a critical lifeline because then you're not paying. You know, 2% to one of the card networks or to an acquirer, you're paying a fixed fee or a very lower fee for some of these other options. And going back to Malaysia, as in standby, the uh Malaysian regulator has been very forceful on saying, okay, we're going to lower these rates for the SMBs because they it's it inhibits their growth, and so I think this, whether we're looking at just basic payment acceptance or lending, the government's recognized that these companies are the lifeblood of the economy and so really need to grow.
Rachel Morrissey:So this is an interesting part, because there is this relationship between government and business, and it seems to vary a lot per market in Asia. This does not like you said. It's a heterogeneous system. This is not one market that we're talking about, so when you are thinking about that, just with that in mind, I'm also thinking about some of the traditional players and how they're reacting to some of this change. How are they taking advantage or finding new business routes through some of these adoptions and what's been their response to some of this? How are you seeing shifts in the traditional banks?
Zennon Kapron:I kind of separate the response of traditional organizations in two ways. First of all is the core business, and so DBS is a great example of this. I mean, we've seen a lot of innovation around cross-border payments, remittances right, and so you know, for me sending money back to the US or for somebody else in Singapore sending money back to the Philippines, there's probably hundreds of choices of channels for money to move back. So DBS has kind of recognized that and in their core, cross-border payments is one of their core businesses. So they've launched DBS remit and so that you know it's fee, fee free, they get a spread on the FX, but it definitely competes in that space and as, as you know, when these other players like Revolut and Wise have come into the market, the DBS has managed to protect and even gain market share through these other products and services.
Zennon Kapron:But there is particular places they don't play as well, like SMBs. It's impossible for a large bank, either on a national level or a regional level, to support SMBs like they need to be treated. So when you look at how a bank traditionally engages with customers, if you're a large corporate or if you're a high net worth individual, you get the white glove service and you have your own relationship manager and everything else. And then that really starts to taper off once you get into the SMB side and then the retail side. But SMB's needs are much higher than retail customers, right, so they need a little bit more handling, but it's just not cost effective for the traditional organizations to do that.
Zennon Kapron:So the second swath is kind of the areas where it's very difficult for a large bank like a DBS to compete. Right, they just don't have the cost model and everything else to be able to service SMBs. We see other players coming in to do that and the traditional banks really haven't responded so much. They've known that this has been happening, but they're happy to give that up because it's not something they could service anyways. So you have the things that fit within their core business that they can service, that they are doing a very good job of innovating and adapting around that.
Rachel Morrissey:But then there's the other parts where they consciously have decided okay, we're just going to let that go to the fintechs or to the digital banks. This is interesting to me because, as an American, you know and the American system of banking, we have the bigger banks but then we have huge amounts of layers of financial institutions that are traditional. So a lot of the smaller banks do kind of specialize in especially SMB servicing for their local, you know, their really tight local, like their city or their community. Are there opportunities like that? I mean the neobank, are we even calling it that anymore? But the neobank was sort of this answer that was coming in. Are we seeing digital banks grow or a system like that grow in Asia? That wasn't here, I don't know, 20 years ago.
Zennon Kapron:And it's really interesting to see, across the region, the growth and failure of some of these digital banks.
Zennon Kapron:And our thinking on this is again in a market like Singapore, where 98% of the population is banked, do we really need another bank?
Zennon Kapron:Probably not. That being said, Trust is doing very well in that market, but in other markets like Australia. So Australia's market is heavily VC driven, so a lot of VC money went into digital banks and that's where we've seen the market kind of play out, insofar that over the past five years there's been a number of banks that have been acquired or shut down or just ceased to exist because they couldn't raise additional capital, because it was very market driven. In places like Hong Kong, it tends to be more conglomerates and Chinese corporations that are just pumping more money into them to keep them afloat. But really our view and we talk about this a little bit in the report as well is that specialization is really important for that, and so in Australia, the digital banks that have survived are SME banks, right, and the digital banks that are thriving in other markets are focused on a particular niche that is underserved and you know I can speak as an SME based in Singapore.
Zennon Kapron:The support that we get from our traditional bank is not particularly amazing. I won't mention the name of the bank, but you know. So we're actually going with a digital bank as well, because we pay $25 a month. For what? So you can keep our name in a database. We're not getting anything out of that, whereas the digital banks like Anex Bank, as an example in Singapore free account. You actually get interest on the balances in the account. We don't need a lot of service. As an SME, we're actually quite low maintenance, but what we're getting from the traditional banks is very limited and very expensive.
Sheryl Chen:Wow, Like time just whooshed by and we actually I feel like we actually could do another episode we could do another episode. But you know what like, because we have to wrap this up. So maybe a final question would be, Zennon what do you envision the future of fintech in Asia to look like?
Zennon Kapron:I think we haven't even discussed the report yet, so we definitely need more time for this. I think I don't have a singular vision for what's happening within the market. I think what we're seeing we haven't even said the A word. It used to be the B word blockchain, but now it's AI right a word. It used to be the b word blockchain, but now it's ai right and in these I I think what is really compelling to me is the uh technologies that are coming to market.
Zennon Kapron:I always thought about blockchain. I mean, I remember in 2017, 2018, going to cybos and everybody was watching blockchain, blockchain, blockchain, and it was always a solution searching for a problem. But ai is truly a solution to many problems that are out there, and so I'm really excited by what we're going to be able to accomplish with that, and so the experimentation that we're seeing around that. I think it's very difficult to understate the impact that AI will have in delivering financial services across Asia, whether that's in developed markets or in developing markets, the ability to affect customer service, asset allocation, payments, everything. There's an application everywhere, and so that's what I'm really excited about is that we have a set of needs within the market across consumers, smes, the rest of the economies, both in developed and developing markets, and then we have a set of technologies coming to market that could really move the needle on everything that's happening in this space. So that's, I don't have a singular vision of what it looks like, but I'm super excited about seeing what comes next for individuals and businesses within the region.
Rachel Morrissey:Well, we're definitely going to have to have you back for an episode two where we actually discuss the report. Maybe we'll even get to the A word. Is that what we're calling it now?
Sheryl Chen:The A word there's like the ABCs of FinTech, right Exactly.
Rachel Morrissey:So, cheryl, do you want me to read us out, or do you want to read us out?
Sheryl Chen:I can do this, do it. Go for it, and that's it for this episode of the Money Pot. We want to thank Zennon for gracing our show today. So Zennon is speaking at Money 2020 Asia and Bangkok, thailand, now, along with 250 other speakers, so you can be part of The Money Pot at Money 2020 show. Please send us your pitches to podcast@ money2020.com and don't forget to follow us wherever you listen to podcasts. Thank you for listening and we love our fintech nerds!
