FinTech – the Key to Unlock Landlocked Countries in Asia

Financial technology – or FinTech – encapsulates everything related to the emerging digital and financial services sector of recent years. It is an industry where technology and digitalization are used to provide more efficient usage and delivery of financial services. FinTech is about innovation, but it is also about interaction and financial interconnectivity between people. This interconnectivity requires digital, soft and hard infrastructure development. However, this offers an investment opportunity on its own. The FinTech revolution is rapidly disrupting how we see finances all around the world, making old subsectors obsolete, but also creating a wide range of new opportunities.

We can observe that this sector is evolving towards a network where several FinTech centers – or hubs – can blossom, regardless of geographical barriers. Big companies no longer need to be geographically condensed in one city, allowing a worldwide web of FinTech hubs to develop. This de-territorialisation of the financial sector offers great opportunities for landlocked countries.

As landlocked countries are lacking territorial access to the sea and are geographically remote from international markets, they face special trade and development challenges. Landlocked Developing Countries (LLDCs) are impeded from exports and imports and are therefore prevented from fully integrating into the global trading system and major global supply chains. The key to the development of LLDCs is finding a sector which offers high skilled job opportunities, high value-added trade, and does not require high transit costs. FinTech can offer this. Hence, the FinTech Revolution is a natural fit for LLDCs in Asia, helping them to leapfrog to new forms of financing, modernizing the countries along the way. Digital, IT and hard infrastructure needs to be put in place. This in turn would offer great investment opportunities in and of itself.

While the Asian continent has been the ultimate frontrunner of FinTech applications, landlocked developing countries in Asia have remained largely unaffected by this. Whilst the global average adoption of FinTech is estimated at 33 per cent, in China and India however, we see adoption rates of respectively 69 and 52 per cent. Through developments in payment platforms and big data management, a new financial ecosystem is emerging. This development however, has been relatively limited to the two giants of Asia. Until now, other Asian countries – especially LLDCs – have been missing out on FinTech. With over a billion Asians still left unbanked, enormous opportunities lie ahead. In order to get these people financially interconnected, large-scale, visionary enterprises have to be initiated where the public and private sector combine their forces. As a means to obtain the status of the Asia’s next FinTech hub, landlocked developing countries have to bring their financial, regulatory and technology infrastructure to the 21st century.

Asian LLDCs have very commodity centered export economies. This fact has helped some LLDCs achieve exponential GDP growth in recent years, however this also posed several problems of itself. The biggest problem has been the overreliance of the national economy on a handful of sectors mainly limited to raw materials and unprocessed products. Development in digital and financial services would offer a great opportunity to diversify the labour market towards financial and IT-services, addressing the job needs for all inhabitants of LLDCs.

As the FinTech sector is still relatively young, many startups in the financial centers of the world are eager to challenge the incumbent financial actors to their utmost limit, creating a highly competitive environment. An extrapolation of this culture to LLDCs would offer opportunities for SMEs to partake in the FinTech revolution whilst also creating an incentive for the creation of high-end service jobs within LLDCs.

The Grand Duchy of Luxembourg, being a small landlocked country in Europe, was able to reorient itself after the crisis of the metallurgy sector from an underprivileged country to one of the richest in the world. This shift is mostly due to an embrace of the high-tech financial sector in combination with strong political stability which was enhanced by active advocacy for regional and multilateral organisations including the EU and the OECD. Whereas during the early 1970s steel represented around 30 per cent of the total added value of the Luxembourg economy and more than half the total added value of the Luxembourgish industry, only thirty years later, 83.4 per cent of total value added to the national economy stems from the service sector. This success-story could serve as a model for other landlocked countries in Asia.

Global initiatives are currently taking steam with regards to FinTech – the Bali FinTech Agenda being the prime example of this. Several international and multilateral initiatives and organisations are developing strategies with a strong focus on FinTech concepts for the Asian LLDCs, such as the International Think Tank for LLDCs in Ulaan Bataar supported by the UN, and the CAREC Institute supported by the ADB. Additionally, the Belt & Road Initiative offers a window of opportunity to enhance regional financial cooperation and integration through policy cooperation and interconnective infrastructure projects.

On the other side of the Eurasian landmass, the European Union put forward its EU-Asia Connectivity Strategy, which emphasizes technological connectivity as one of the focal points of its blueprint for the future. Financial and digital developments are strongly embedded in both strategies, offering a platform for a more regional based approach of economic cooperation. It needs to be stressed that the momentum of regional cooperation and economic integration is already in place, and great opportunities lie ahead to shape this process.

Given their relative lack of bargaining power, it is very hard for an Asian LLDC to develop a FinTech strategy and concept individually. Therefore, EIAS is working with its partners to initiate a regional framework concept of FinTech hubs for LLDCs in Asia. Through this framework, a platform can be established from which resources can be converged and focused into an approach benefitting all Asian LLDC’s collectively.

EIAS Editorial Board