14 June 2024, NIICE Commentary 9230
Varshini S
FinTech refers to any creative ideas that enhance financial service operations by proposing technological solutions according to varied business scenarios. The ideas might lead to new business models or even new firms. Fintech fundamentally aims to make financial services faster, simpler, and more accessible to both individuals and enterprises. Fintech in simple words is using technology efficiently to make financial services easy and better. There are many distinct fintech applications, such as Mobile Banking and Payments; Budgeting and financial management tools; cryptocurrency and blockchain technology. Using online payments is a form of fintech and also investing in online cryptocurrency or on any stocks is a form of fintech. Fintech is widely used by most of us. Some examples of these include Mastercard, Visa, Bitcoin, and Dogecoin.
Fintech can provide a variety of benefits, like improved convenience and efficiency lowered costs, increased access to financial services and many more. Fintech is a fast-expanding business that is having a significant influence on how we manage money. This is relatively new and already has a stronghold in most of the developing as well as developed economies. It helps countries in fostering economic growth, collaboration and influence over others. The USA is the leading country to foster more than 2400 fintech companies followed by the United Kingdom and Singapore and the list goes on.
Singapore’s Fintech leap
Singapore, a tiny island nation strategically positioned in Southeast Asia, has risen to become the third leading country in utilising fintech, all within a few decades of independence. Thanks to its ports, which have supported commerce and the economy for more than a century, it was able to accomplish this feat in a short period of time. Leaders such as Lee Kuan Yew helped Singapore realise its full potential by leveraging these ports, which opened up to foreign markets. This helped Singapore create contacts and attract investors, allowing them to expand and thrive. They also used their possibilities effectively, spending their earnings on infrastructure, people, education, and technology. They were no strangers to embracing new technology. They were willing to take chances, which is how they got to their current position.
Through the “Smart Nation” initiative, which he launched in 2014, former Singaporean Prime Minister Lee Hsien Loong welcomed several fintech startups to invest and launch their businesses. From that point on, this industry took off, raising the nation’s GDP and enhancing its economy. Additionally, the government began to invest more and more in this sector. In 2023 alone, the Singaporean government made a USD 2.2 billion investment. The Monetary Authority of Singapore (MAS) plays a vital role in regulating and developing this sector, ensuring financial stability and consumer protection. The Financial Sector Technology and Innovation (FSTI) 3.0 plan, introduced by MAS in 2023, funds projects that promote the use of new technology. The Ministry of Finance and GovTech collaborated to create the National Know Your Customer (KYC) utility, which has successfully completed a proof-of-concept project for blockchain inter-bank payments. The Application Programming Interface (API) playbook provides rules for designing financial services. The Financial Sector Technology and Innovation plan supports industry-wide projects, including decentralised recordkeeping in trade finance.
Fintech: A soft power tool for Singapore?
Soft power as Joseph Nye said, is a nation’s ability to influence others through attraction and persuasion, rather than coercion or force. Fintech may also be used as a tool for soft power because it does not inflict physical harm to anybody. This appeal and persuasion benefits not just themselves but also the countries they influence. With that stated, Singapore also employs this as a kind of soft power. Singapore, for example, has various advantages over other Southeast Asian nations, such as being a financial hub, having a meritocratic system, smart country plans, and a strategic position that provides it with an advantage in attracting investors, and its own investment plans have all worked in its favor.
Singapore has built a strong environment that encourages fintech innovation through beneficial regulations, a competent workforce, and an entrepreneurial culture. This environment has allowed the country to attract not just capital, but also people and technology, solidifying its position as a fintech hotspot. Singapore’s success has inspired other Southeast Asian nations to explore and develop their own fintech sectors. Indonesia boasts a rapidly growing fintech sector, emerging as a potential rival to Singapore’s leading position in Southeast Asia. Singapore’s well-established financial infrastructure and its initiatives like the ASEAN Financial Innovation Network (AFIN) have significantly contributed to the region’s overall economic growth.
Furthermore, Singapore has partnered with Malaysia, Indonesia, and Thailand to grow the fintech sector. This has aided them as a platform for diplomacy, strengthening ties and reliability, with discussions of setting up a cross-border QR code payment method. However, Singapore would most probably not use fintech to control other Southeast Asian countries because it is basically a neutral country and it is pretty strong in that suit. That is why it tries to create a balancing act between the US-China rivalry in the Indo-Pacific region. So it’s difficult to determine if Singapore would use this to acquire control or dictate over others, but rather to persuade and garner their support. This power allows it to have a voice and maintain its sovereignty, while China’s influence in the region is undeniable, Singapore’s focus on fostering regional cooperation and economic development provides a strong counterpoint.
Singapore employs fintech as a soft power instrument, but not in the classic sense. It does not go so far as to control others, but rather utilizes it to strengthen diplomatic connections and raise finances. This resulted in several collaborations from various nations, most notably the United States and the United Kingdom, which are the top two countries in terms of fintech adoption. The UK and Singapore recently had their 9th annual financial discussion, during which they agreed to strengthen partnerships in fintech and sustainable finance. They talked about managing risks and possibilities in fields including AI, cryptoassets, and central bank digital currency (CBDC). They also committed to exchange best practices for appropriately regulating these developments.
In contrast, the United States has provided significant funding for Singapore’s fintech industry. Singapore is also an essential asset for both China and the United States, as it is a Southeast Asian economic powerhouse.
The global fintech sector has experienced a slowdown in funding recently due to macroeconomic pressures like rising interest rates and inflation, along with technological disruptions. While emerging technologies like blockchain hold promise for the banking industry, integrating these advancements presents challenges. Despite a recent global slowdown in fintech funding, Singapore’s strong foundation in regulations, talent, and innovation positions it well to navigate these challenges and emerge as a leader in the next wave of financial technology. By continuing to leverage fintech diplomacy and fostering regional collaboration, Singapore can solidify its role as a key player in shaping the future of finance within Southeast Asia. This collaborative approach, coupled with its commitment to innovation, will be crucial for Singapore to maintain its competitive edge and further its influence in the ever-evolving fintech landscape.
Vashini S is a Research Intern at NIICE, she is currently pursuing her MA in International Relations at Loyola College, affiliated to the University of Madras, India.
