It has the potential to transform the region into an integrated market of over 45% of the world’s population with a combined GDP of US$17.23 trillion
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Asian economies are now discussing a regional trade deal called the Regional Comprehensive Economic Partnership (RCEP) to achieve greater trade liberalisation. The RCEP is being negotiated between 16 countries including China and Japan. The deal will prove important for financial technology (fintech).
If completed and agreed upon, it has the potential to transform the region into an integrated market of more than three billion people (over 45 per cent of the world’s population), with a combined GDP of about US$17.23 trillion, which is about a third of the world’s current annual GDP.
According to a CNBC commentary by Dilip Rao (Managing Director Asia-Pacific, Ripple) in February, such a move would trigger further growth in cross-border flow and require banks to be equipped to handle the surge.
Consumers in ASEAN and the rest of Asia will continue to demand more efficient, convenient and affordable financial products and services. Rao notes that the region has the perfect combination of an established banking sector, fast-growing economies, increasing interconnectivity and widespread enthusiasm from regulatory and governmental backing for fintech.
In November of last year, Singapore’s Minister Goh Chok Tong said besides physical infrastructure, the region’s private sector also builds a web of linkages through trade and finance. Trade is the lifeblood of the region.
Also read: The Malaysian fintech ecosystem is on the brink of a revolution, and everyone is in on it
Tong said the region has, over the years, made great strides toward regional economic integration to spur growth and development. But there is scope to do more. Regional economic agreements like the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) promise to spur inclusive growth and productivity in member countries.
On fintech specifically, he said that for financial services globally, the advent of digital and mobile technology innovation presents tremendous new opportunities as well as challenges. Fintech is transforming all aspects of banking and financial services from capital markets, commercial lending to retail banking. It has immense potential to improve efficiency, security, convenience and financial inclusion.
In a piece for Asian Trade Centre in March, Dr. Deborah Elms, Executive Director for the Asian Trade Centre of Singapore, commented on the need for more efficient and effective ways to manage digital policies at the regional or international level. She observed that ongoing efforts in Asia the regional level, through the RCEP trade negotiations, are helping digital components that could create sensible broader frameworks for fintech and other industries.
Elms also argued that another promising area of focus for financial service firms is cross border mobile payments as part of the e-commerce negotiations for RCEP. It is not possible to get smaller firms to participate in e-commerce if they cannot be paid for their goods and services.
She said that mobile payments provisions were not well developed in the TPP, as the agreement closed some time ago (substantive work on most chapters finished as long ago as two years). In the world of fintech, two years ago is a lifetime. Hence, there is ample scope for RCEP countries to consider new provisions to let smaller firms buy and sell goods and services across borders using mobile devices.
I think there’s no doubt the RCEP will play an important role in supporting fintech in the region. To most effectively promote fintech integration, my suggestions are to build into the RCEP agreement mechanisms that involve negotiators, regulators and the private sector in structured follow-up of reviews of barriers to trade in financial services, with accountability and processes.
If done thoughtfully, the RCEP has the potential to advance financial inclusion and data improvements across the region. My hope is that it will be executed well, and it’s one of the reasons I’m so bullish on the future of the fintech opportunity under the RCEP as a whole.
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