The ‘app economy’
How Asia can ride the digital wave to spur financial development
THE “app economy” provides potential risks and benefits for developing countries. The right policies are needed to bring out the best in these emerging economic trends.
As the digital economy, internet and smartphone technologies rapidly transform the way people communicate and do business, policymakers must act quickly and proactively if countries are to reap its potential rewards.
For the digital economy to benefit everyone, policy actions must minimise emerging risks and prevent unintended consequences.
They must address the potential for the rapid economic spillovers made possible by digital technologies and help ensure citizens can enjoy safe digital lives.
The statistics make clear the emerging trends.
According to 2018 data from the International Telecommunications Union, more than half of the world’s population now has internet access, mostly via smartphones, which today are the default platform for distributing digital services.
In Asia and the Pacific, smartphone penetration has reached 61 per cent, which is higher than the global average.
This has enabled the rise of the so called “App Economy” as a means of distributing content, new products and services or even entertainment.
Internet access in India reached almost 50 per cent by early 2019, driven by the availability of low-cost smartphones and wireless broadband service.
In the Philippines, 68 per cent of people have a smartphone.
The potential applications of digital innovations are immense. Many of these will affect the financial sector.
Five trends are shaping the digital wave: intelligent systems, big data, cybersecurity, shifting regulations, and digital workplaces.
In addition, three innovations can help illustrate the transformations possible in financial services.
The first innovation is distributed ledger technology, with the best known example being blockchain.
Central banks in Japan, Thailand, Singapore, and Cambodia are researching or experimenting with wholesale digital currency using this technology.
Second is artificial intelligence and machine learning, which could result in machines executing repetitive tasks with precision while automatically learning and improving user experiences without explicit programing.
Meanwhile, the private sector is also leveraging “big data” to establish new connections, enhance efficiencies, and improve customer service and value.
For example, one of the largest banks in Singapore and Malaysia has been successful with its customer-focused big data initiatives.
The third is the open application programing interface (API)—allowing one bit of software to communicate with another.
This can allow businesses, including in the financial sector, to make certain functions and data available to both internal users and the outside world efficiently and effectively as well as safely and securely.
Amid all this change, cyber threats have grown in scope and scale, particularly in financial services.
Research estimates that cybercrime may have cost the world $US600 billion ($F1.3 trillion) in 2017—nearly twice the $US337b ($F728.2b) lost from natural and man-made disasters in the same year.
Governments, businesses, and individuals must therefore stay abreast of the latest techniques for keeping ahead of cybersecurity threats.
Indeed, financial institutions are getting better at mitigating risks as they continue to take firm steps to improve defenses.
Regulators and supervisors should also strive to shift priorities towards preventing the adverse effects of cyberattacks on financial systems.
Governments in India, the Philippines, and Nepal, for example, are using technologies called “regtech” and “suptech” to strengthen their regulatory and supervisory roles.
The application of these technologies is particularly important to financial services.
Some central banks are also utilising regulatory sandboxes to test new approaches to identify gaps.
This includes the Philippine central bank, which earlier in 2019 invited Cantilan Bank to participate in its sandbox as Cantilan Bank migrated its core banking system to the cloud.
In addition, the impact of digitisation on workplaces needs to be analysed.
Technology will increasingly allow routine tasks to be performed by robotics and machines, which will affect the types of jobs available.
Upskilling of workforces to equip them for future jobs will therefore be essential.
On the plus side, digital technology can enhance development across Asia, and ADB is striving to take advantage.
Between 2010 and 2018, the organisation supported 315 projects through loans and technical assistance that included digital components, across all sectors and regions.
Typical digital components included systems for smart energy grids, smart water, intelligent transportation, and remote health services.
In the finance sector, we have explored digital solutions for identification and know your customer, core banking in the cloud, as well as microfinance.
Future priorities include building out networks, supporting ID and payment systems, and facilitating the Internet of Things in infrastructure sectors.
To help policymakers in Asia navigate the challenges posed by digitisation, they might consider policies in the following three areas.
First, careful policy action is needed to minimise risks and prevent unintended consequences.
This can allow consumers, companies, and policymakers to balance enabling innovations with policies that address the accompanying risks.
Information security, data, consumer protection, and financial stability must take priority.
Second, quick and innovative policy efforts across countries must address the potential for rapid economic and financial spillovers arising from fast digital technologies.
As Asian financial markets are increasingly interconnected to global and regional financial markets, digital technology will accelerate the potential spread of financial contagion.
The existing ASEAN+3 finance process can be used for regular policy discussion for Asia’s fintech policy development and financial stability.
Finally, countries need to adopt inclusive digital strategies to tap the full potential of digital technologies so that everyone can enjoy productive and safe digital lives.
No one should be left offline in the digital economy.