Navigating the Fintech Frontier: Key Trends Shaping 2024

As financial networks look to become increasingly interconnected within and cross borders, the imperative to ensure their seamless and stable operation grows more vital, says Penny Chai, VP of Business Development, APAC at Sumsub.

Digital growth in Asia Pacific (APAC) is skyrocketing, with the region set to lead global non-cash transactions by 2023. However, despite this digital surge, a significant challenge persists - the digital divide. According to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), more than two billion people in the region lack access to digital technologies.

Moreover, the rapid digitisation has also given rise to more sophisticated fraudulent activities. The proliferation of digital infrastructure has paved the way for advanced methods such as deepfakes, underscoring the importance of addressing both digital expansion and the evolving landscape of digital threats to ensure a secure and inclusive digital future for all.

As the region navigates through these complexities, the fintech sector remains resilient and set for continued growth. As a matter of fact, according to Boston Consulting Group (BCG),  APAC is poised to become the world's leading fintech market by 2030, outpacing the United States (US) with an impressive projected compound annual growth rate (CAGR) of 27%. With 2024 approaching, three trends will likely play out in the industry.

Stronger efforts to support the increasingly connected financial ecosystem 
As the APAC fintech ecosystem undergoes dynamic expansion, financial activities are expected to rise as more people gain access to financial services and embrace digital transactions. Notably, as of 2023, APAC is on track to comprise more than 50% of global non-cash payment volumes and likely register an accelerated 19.8% CAGR for 2022-2027.

APAC is also forecast to be the region with the highest growth (19.8%) of digital payments by 2027, exceeding regions such as Europe (10.7%) and North America (6.5%). This surge in transactions, both within and beyond the region, is breaking down borders in fintech interactions, as seen from the surge in cross border payments. 

As financial networks look to become increasingly interconnected within and cross borders, the imperative to ensure their seamless and stable operation grows more vital. The establishment of rules and regulations governing crucial areas such as data transparency and verification will likely follow suit.

An example of this includes the adoption of the Travel Rule in APAC following the Financial Action Task Force’s recommendation in efforts to enhance transparency among virtual asset providers who are engaging in transactions. Just in 2023, APAC countries like Hong Kong and Japan have incorporated the Travel Rule into their legislation, joining the bandwagon with countries such as Singapore, South Korea, and Australia. However, it is crucial to apply these rules to all financial activities, not just crypto, to strengthen trust and security for the future.

A stronger call for industry players to tackle evolving risks 
The dynamic evolution of technologies, notably Artificial Intelligence (AI), has undeniably propelled industry innovation. Taking the fintech sector as an example, AI has interestingly become a valuable tool, aiding in monitoring and fraud detection. Yet it also serves as a double-edged sword, as seen from how fraudsters have been misusing it for illicit activities.  A recent report revealed a staggering 1530% surge in deepfake cases in APAC from 2022 to 2023. The report also found that crypto and fintech are the two sectors most impacted by deepfake globally, making up 95.4% of all deepcake cases in 2023.

More critically, fraudsters are continuously adapting, finding ways to evade these safeguards. This dynamic creates what we refer to as an 'AI arms race,’ where overcoming challenges posed by deepfakes and AI-generated crimes may become increasingly difficult.

The evolving nature of risks is something that will be a huge focus for the industry. One can anticipate more stringent rules, especially regarding identification for fintech companies. Identification tools such as network analysis and transaction monitoring will likely become more commonly adopted, and governments are placing emphasis on the need for Regulatory Technology (RegTech) solutions for fintech companies.

For instance, the Monetary Authority of Singapore (MAS) is committing up to S$150 million for technology and innovation in the financial sector. Specifically, MAS will focus on promoting RegTech adoption for smaller financial firms.

From reactive to proactive regulatory stances, compliance will take a front seat 
Learning from recent anti-money laundering (AML) incidents in the region, countries have recognised the importance of being proactive in implementing necessary regulations to safeguard the future of fintech, rather than adopting a reactive approach to regulations. As a result, one can expect more regulatory developments in the region in the upcoming year — establishing essential parameters for fintech companies to abide by.

Again, Singapore led the regulatory developments by establishing most recently a new stablecoin framework to regulate cryptocurrency. Compliance will thus become an inescapable priority for companies in the fintech industry.

That said, the compliance process is inherently rigorous, involving intricate procedures and strict adherence to regulations, making it a hurdle that companies often seek to avoid. As such, using automated solutions that assist companies with documentation and streamline compliance processes will become a tool that companies will increasingly consider.

Paving the future path of APAC fintech
The path to driving the growth of the fintech industry involves striking a delicate balance between innovation and growth, while ensuring that the risks of malicious activities are minimised. Achieving this balance requires the collaborative efforts of businesses, governments, and regulatory bodies, particularly when managing emerging technologies such as AI and governing its use cases.