A broad majority of businesses in Singapore said that they expect a major or moderate impact from key areas of fintech that include embedded finance (81 per cent); environmental, social and governance (ESG, 81 per cent), cryptocurrencies (69 per cent); DeFi (76 per cent) and the metaverse (82 per cent), according to a report by financial services technology provider FIS.
These key areas of fintech will continue to attract investment from firms in the coming year. According to Kanv Pandit, Group Managing Director, APAC, Banking Solutions at FIS, this is a response to the Singapore government’s “ambition to solidify the city as an international fintech and innovation hub.”
“The global economy is facing serious headwinds into 2023, with Singapore bracing itself for a downturn. That said, Singaporean businesses have made it clear that increasing investments into key areas such as embedded finance, Web3 and ESG are critical to capture growth opportunities,” said Pandit in a press statement.
The inaugural 2023 Global Innovation Report asked business leaders in financial services (banks, insurers, capital markets firms, and fintech companies) and non-financial businesses (retail, restaurants, travel, gaming, digital content, and enterprise technology providers) in Singapore about their business strategies and experience with embedded finance, Web3 as well as ESG frameworks.
Conducted between July to September 2022, it surveyed a total of 2,000 executives in nine countries, including Singapore.
Also Read: Embedded finance can help legacy banks grow loan book, go to market quickly: Finbox CEO
Popular sectors in fintech
The report gave a breakdown of the popular sectors in fintech and how businesses view them.
Starting with embedded finance, it stated that new use cases across banking, lending and investing are emerging. Additionally, the drive to deliver embedded financial services is rapidly accelerating in Singapore.
As embedded finance is defined as when consumers have unique, tailored financial services delivered to them at the point of need by non-financial companies, the tool enables speed and convenience in payments of goods and services in an online platform.
Based on the survey, 41 per cent of financial services firms said they will significantly invest in developing embedded finance products within the next 12 months. Thirty-seven per cent of the firms that are investing in embedded finance believe it will improve their brand, image or reputation as key reasons why. Meanwhile, more than half (55 per cent) of non-financial businesses say they are already offering or developing embedded finance services.
Web3, with its various elements, dominated the conversation in the finance sector last year, despite 2022 being a challenging year for the crypto sector. This year, the study shows that growth and investment in digital assets and the underlying technologies are primed to continue at a strong pace.
A majority of financial services firms (56 per cent) recognised DeFi to be a major growth opportunity for their organisation. Yet the same percentage (56 per cent) cited poor user experience as a barrier to adoption, with 54 per cent needing to better understand the risks involved before they will participate.
Also Read: Embedded finance can help legacy banks grow loan book, go to market quickly: FinBox CEO
Lack of clarity around crypto regulations, flagged by 30 per cent of financial services firms and 27 per cent of non-financial businesses, is amongst the biggest barriers to greater crypto adoption.
Fifty-three per cent of financial services firms are actively researching potential opportunities in the metaverse, while 39 per cent of non-financial businesses say it will be strategically important to have a presence in the metaverse in the next 12 months.
At a media briefing event, when asked by e27 about building trust in Web3 technologies, especially in a time when there are many negative publications on the crypto industry, Pandit said, “We have certainly seen the emergence of the underlying technologies as holding immense promise, and the use cases are diverse. The industry has gone through maturity and continues to mature in a very rapid fashion.”
“Therefore, if you look at the sort of the negative aspects of it, they’re centred around digital asset speculation. [But] there is definitely a case to be made for digital asset valuation and exchange within the form of stablecoins or just tokenisation,” he continued.
Apart from embedded finance and Web3, ESG was also one of the most touted sectors in 2022, and firms are looking forward to capitalising on opportunities in ESG in 2023.
Seventy-three per cent of financial services firms in Singapore, versus 66 per cent globally, say ESG offers an opportunity to improve their competitiveness in the market. The two biggest challenges around ESG are insufficient internal data or tools (37 per cent) and a lack of external technology to support ESG (37 per cent).
Also Read: Why blockchain is instrumental for the future of trade finance
To address the gaps relating to data, 66 per cent of financial services firms say they are investing in technology to improve their ESG reporting and disclosures, while 61 per cent are investing in technology to provide more granular ESG ratings of assets and securities.
For these businesses, innovative technology that helps to report ESG metrics will play an essential role in further elevating this segment.
But is there any other value ESG provides to these businesses apart from image-building and publicity?
To answer the question, Pandit said that we could expect regulators to require ESG reporting, compliance, and audit from businesses in the near future.
” … Probably sooner than we expect it to be, ESG reporting, compliance, and audit will probably be as important as financial reporting,” he stressed. “There is definitely that image and reputation thing, but there is also an emerging consensus that this will become a regulatory focus.”
In the short term, the ongoing recession might also impact the sustainability of the ESG sector. However, in the long run, regulators are expected to put ESG at the forefront.
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