The predictions were grim. As businesses from London to Lahore closed their doors in April, economies around the world went into free fall. The World Bank announced that global remittances could decline by 20% by the end of the year.
Given that remittances fell by just 6% during the financial crisis of 2008-2009, the prediction was alarming, but it made sense. The industries suffering the most from the impact of Covid-19 are the ones most dependent on migrant labor. Construction and hospitality have been disproportionately affected during the crisis.
Yet even as remittances from high-street shops plummeted and during the peak of lockdown ceased entirely, digital remittances boomed. A generation of European consumers are waking up to faster, cheaper ways to send money abroad using only their smartphone.
Covid-19 lockdowns have accelerated the switch from offline to digital at an unprecedented rate, as people accustomed to sending money in-person over the counter have found money transfer shops and offices closed.
At Azimo, monthly new customer numbers are around 50% higher than they were before the crisis. The average amount sent to the Philippines, a key Asian remittance market, is up 20%. Azimo transfers to Philippine bank accounts doubled during the first few months of lockdown as more customers make the switch from using cash-pick-up locations and bring their money online.
This offline-to-digital acceleration is not limited to remittances. Many other European financial-technology businesses, such as Onfido, have experienced massive growth during the Covid-19 crisis. This may herald a breakthrough in mass fintech adoption of the kind seen in Asia.
During the last two years, consumer adoption of fintech-powered services in Asia has more than doubled. Fintech adoption has reached 67% in South Korea, Singapore and Hong Kong, and 58% in Australia. In China, the fintech adoption rate is an astonishing 87%, according to the EY Global Fintech Adoption Index. The US lags behind on just 46%.
For perhaps the first time, European fintech companies are casting their eyes east toward Asia for inspiration, rather than west toward Silicon Valley. And they are right to do so, because Europe is in a much better position than the US to follow Asia’s lead as a fintech powerhouse. With a fintech adoption rate of 71%, the UK is hot on China’s heels.
It is not only consumers who benefit from fintech adoption. As economies across Europe plunge into recession, we should be doing everything we can to reduce barriers to trade and commerce, particularly for small and medium-sized enterprises.
In fact, SMEs have the most to gain from the fintech revolution. Global fintech adoption among SMEs lags at just 25%. While consumers have embraced fintech with open arms, thousands of businesses around the world are being overcharged for banking and money-transfer services that were cutting-edge in the 1970s.
It is therefore essential for governments and regulators in Europe to help fintech reach its potential. They must bring down barriers to entering the market for new financial service companies, and make it easier for established firms to innovate. For too long, banks and incumbent money transfer providers have enjoyed protection from competition, reaping enormous profits at the expense of consumers and businesses alike.
In terms of regulation, Asia again provides the model. This year, Hong Kong regulators granted licenses to eight virtual banks. Singapore is set to follow suit. None of these virtual challenger banks are live, and yet traditional banks are already anxiously reducing their charges and improving their products. The mere specter of competition from the fintech sector is bringing down the cost of crucial financial services for ordinary people
It is also worth noting that the Asian fintech success story does not stop at adoption. Where innovation was once the preserve of Silicon Valley, the US is now playing catch-up to its Chinese counterparts.
Money transfers and payments are the cornerstone of the Chinese fintech ecosystem, with 95% adoption in the major Chinese cities. Mobile payments in China totaled a breathtaking US$41.51 trillion in 2018. It is now possible to send money to a loved one or pay for almost any service in China using social-media apps like WeChat.
While Facebook grapples with regulators and privacy concerns in its battle to build a new digital currency, a Chinese grandmother can run her entire financial life through a single app.
While Chinese-style centralization is unlikely to appeal to European regulators or consumers, Europe must look to Asian fintech companies as it comes to terms with the impact of recession. By reducing friction in digital remittances, payments and banking, governments across the continent can kickstart the journey back to growth.
As Covid-19 cases continue to rise around the world and lockdowns remain present or likely to return, we need all the fast, affordable digital services we can get.