Lost in Translation: Why Asia Fintech Companies are Not Expanding into Europe
EYES have been turning to Asian fintech in recent years, as the sector has grown to make its presence seriously felt. But while great innovation has been in evidence in China, Hong Kong, Singapore and elsewhere in Asia, very often this fintech success does not translate to European markets. Why is that when Asian fintechs look to expand Europe is not their destination of choice?
Much of Asia’s fintech growth has been built on providing financial services to the unbanked. The region boasts high levels of smartphone ownership and, with digital payments being in great demand during the pandemic, fintech has proved a valuable solution. One example of strong fintech growth is Singapore. Aspiring to become the world’s first ‘smart nation’, the city-state has a coordinated strategy to develop its fintech industry, offering businesses grants to cover digitisation costs, as well as fostering a favourable environment for investors. Funding for fintech in Singapore soared since 2016 to reach over $1 billion in 2019. It was one of the countries identified in the recent Kalifa report (Kalifa Review of UK Fintech (publishing.service.gov.uk) as a serious competitor to UK fintech and is one of the locations, alongside China, Hong Kong and South Korea, with which the UK Government has established fintech ‘bridges’ in an attempt to attract Asian fintech to Britain.
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Yet, despite such initiatives, many Asian entrepreneurs are shunning European markets in favour of other locations – the US, where it can be easier to acquire a licence; India, with its vast population and favourable
regulatory regime; or Latin America, where getting established is less expensive and regulation is also less restrictive. Others have had their fingers burned when trying to expand into European markets, withdrawing when profits have been slow to materialise or operations too hard to get established on the ground. Some complain that Europe is not a place where they can reliably and profitably do business.
So, what is it that Asian fintech leaders want that Europe is not providing? Most will claim they seek a market with a favourable tax regime offering good tax advice locally. Locations that are easy to reach and whose markets are ripe for the product on offer are clearly attractive. Friendly and helpful regulators are a bonus, as are efficient and speedy licensing processes. And skilled local management and senior talent who can provide the right level of governance are desirable.
Of course, these elements can be found in Europe. But, in practice, many Asian entrepreneurs privately complain about the exacting tax systems of many European countries compared with less onerous processes that are common closer to home. In terms of location, some jurisdictions in Europe only operate in their local language rather than English, which has proved a barrier to some Asian incomers. In fact, cultural issues are a frequent problem. A product designed for Asian markets may not translate into an attractive or relevant offering for a European consumer. Equally, I have heard Asian fintech bosses say they can hire European managers with the right experience, but often they may have little understanding of Asian culture. The result is poor communication between elements of the larger group and much time lost.
Regulation is another sticking point. Not so long ago, many European regulators still promoted accelerators and sandboxes that welcomed and encouraged innovation. Since the onset of Covid, many of these have been limited. Then, when it comes to being granted a licence to operate, it can take up to three years to be authorised on certain activities in some European countries. To sidestep this long wait, some Asian business owners have sought to acquire existing licensed companies, but even this can be a slow process, with the change of ownership taking six months or more to be approved. All of this can be added to the fact many markets in Europe are saturated, with a host of fintech companies already aggressively competing against each other. When German fintechs are struggling to come to the UK, for example, what chance does an Asian business have?
However, all is not lost for the transition of ideas and innovation between Asia and Europe. Some regulators are working hard to ease the process for foreign entrants to their markets. The Irish regulator, for example, asks for a business plan and will advise within two or three weeks whether they need further information or if the business is likely to be declined. This sort of fast feedback saves both time and money and is very appealing to enterprises that are keen on expansion.
And, while the coronavirus has slowed investment in fintech around the world, regulators in many jurisdictions acknowledge there is a need to respond quickly to give this vital sector a renewed boost. This is true in Europe as well as elsewhere, which could mean Asian fintech firms find a more welcoming reception in European markets in the months and years ahead.
Anil Uzun is CEO of Gobaba Ventures
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