The broad adoption of financial technology or fintech could dramatically lower the cost of banking services. Not only will this enhance financial inclusion, it could potentially also help mobilise untapped savings, enable more efficient financial transactions, and make credit more readily available and affordable to small businesses. Emerging Asia fares poorly in financial inclusion even among emerging markets. •  Less than 15% of Asian SMEs have bank credit lines, compared to 24% in Latin America and 28% in Eastern Europe. •  In Indonesia, for example, only about one out of every three persons aged 15 and above has an account with a financial institution. Ironically, Emerging Asia’s relative under-development could turn out to be an advantage. The innovative adoption of digital technology by the financial industry is enabling these economies to leapfrog into more advanced channels for providing banking services. •  A growing number of Asian customers, especially in countries like China and India with rapidly developing technology infrastructure, are using mobile banking apps for payments and funds transfers, even before customers in more advanced economies. •  In India, bank accounts can be linked to biometric identity cards issued under the national Aadhaar initiative, enabling millions who otherwise lack the formal documents required to open a bank account to have access to basic banking services. Of course, technological innovations pose threats as well as opportunities to Asian banks. As in the US, a number of fintech entities in Asia are making inroads as lower-cost alternatives to banks.
When the crisis struck Asia in 2008, there were fears of a drying up of trade finance as European banks started deleveraging and cutting back from the region. As it turned out, Asian banks stepped in decisively and trade finance volumes recovered strongly. •  Between 2008 and 2013, trade finance volumes at Chinese and Hong Kong banks have more than doubled while those at Indian banks rose more than half over the same period. •  Eurozone banks have since recovered some of their market share, but the Asian banks remain significant players. This afternoon I would like to discuss three key forces that will shape the course of banking and finance in Emerging Asia over the medium term: •  economic growth;  •  financial regulation; and  •  technological innovation. Economic growth Let me begin with growth. The near term economic outlook for Emerging Asia will be shaped by two themes: the ongoing recovery in the G3 economies and the slowdown in the Chinese economy. •  The underlying growth momentum in the US appears intact despite a disappointing start to the year. BIS central bankers’ speeches  1  •  The Eurozone is recovering from a double dip recession and financial stresses have abated. •  In Japan, domestic demand is strengthening, following the negative consumption tax shock of last April. •  However, China, which had been supporting global demand in recent years, is experiencing a deceleration in growth amid a property downturn and softer exports.