By Kim Soung Eung

From communication to commerce, technology touches every aspect of our lives; and likewise affects how we engage in banking and financial services. Online banking, in the context of Cambodia’s society, was not a thing until COVID-19 happened. Only when the world was hit by the pandemic were people forced to opt for digital solutions in place of cash payments, due to the fear of infection.

Many financial technology (Fintech) solutions, thereby, experienced a boost in activity levels. Coming with this trend is the notion to rethink the world of digital finance. Hence, what does the future hold for financial services, and how can fintech improve urban living?

This article aims to explore the possibility and diversity of fintech solutions that would be indispensable in driving a smart city. On this account, key definitions and concepts of financial technology will be introduced. The paper will then discuss the roles of Fintech in future cities by presenting two promising aspects of fintech solutions: (i) smart payment and (ii) smart banking.

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Financial Technology

Though there is no formal definition, short for financial technology, Fintech is a term used to generally describe financial services and products that are delivered with technology. Often widely perceived as a brand new concept, depicted as blockchain, Fintech is more than just a cutting-edge technology of financial services that has just emerged.

It also encompasses simple financial applications that have long existed since the late 19th century; examples of such include deposits and withdrawals through automated teller machines (ATMs), and payments via credit and debit cards. In short, Fintech refers to everything from digital payments, to digital wallets, “to crowdfunding platforms, to robo-advisors, to virtual currencies.”

Financial technology has evolved from simple everyday banking services to personal finance and trading via mobile devices. Nonetheless, integral to these services, be it the complex distributed ledger technology that backs the blockchain or the simple mobile banking, is the effort to provide consumers with convenient and efficient financial solutions.

The Roles of Fintech in Future Cities

Contactless payment has become the new normal payment method on account of COVID-19. The majority are opting for scanning QR codes or transferring through mobile apps from smartphones for its convenience and flexibility. Nonetheless, a trend that happened rapidly following the outbreak will undoubtedly not cease, but rather grow promisingly, in the post pandemic era. Global cashless transactions are estimated to triple in volume, from 1,035 billion in 2020 to 3,026 billion in 2030.

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And the fastest growth is expected to be in the Asia-Pacific region, which amounts to 60 percent of the total projection in 2030. Cambodia is no exception to this aspect, with digital payments expected to double in value from USD 4 billion in 2022 to USD 7.4 billion in 2026.

A look at numbers shows an acceleration in smart payment growth as people begin to embrace technology and seek a time and cost-efficient payment system. Thus, pertaining to the future of cities, in an effort to foster the efficiency of urban living through smart cities, the adoption of smart ecosystem payment is inevitable. On that account, we will introduce the roles of fintech in future cities by dividing it into 2 main categories: (i) smart payment; and (ii) smart banking.

Smart Payment

With the growing urban population comes cumulative payment flows in the economy. Hence, unlocking a smart city undoubtedly requires smart payment solutions that can handle large money flows (streams of transactions) efficiently. That is, for a city to become smart, its payment system infrastructure must likewise be smart.

The question lies in how payment systems can be intelligent. It would need to be not only secure and transparent but also seamless and instant.

This is when Fintech comes into play. Digital payments can be a one-stop solution that eases the movement of money in the fast-moving urban space. Fintech can enable a convenient and quick payment method with just the tap of a card or a mobile phone. By doing so, Fintech connects all the players in the city to a single central point under the context of payments, including consumers, merchants, governments, financial institutions, and NGOs.

Use cases of digital payments for the city governments are collections of taxes and transit fares, healthcare and social services, tourist places, penalties, subsidies, and benefit programs. Meanwhile, consumers and merchants can use it for sales purposes.

Furthermore, transactions through electronic payment (e-payment) ensure not only convenience to accommodate the fastmoving population, but also security. Digital payments are secure for the reason that it utilizes secure and encrypted one-time password (OTP) as well as other multilevel authorization and authentication requirements, such as biometrics (voice, fingerprint) or facial recognition.

Thus, the future of payments will be highly dependent on technology to make the payment process easier, quicker, and safer. Living in an inclusive smart city with a smart payment infrastructure, inhabitants do not have to worry about the hassle associated with cash payments. Such cases include not having enough cash or small changes in their pockets; having to spend time waiting to pay or get the change when you are already running late for a meeting or spending time and travel expenses to pay for obligatory payments such as tax and fines.

These concerns can be tackled by the introduction of smart payments. Manual physical payment activities would be eliminated, whilst cards or smart devices are employed to assist users in transaction completion. In short, in the future cities, not only will digital payments become prevalent, but also self-service payment solutions. Such Fintech payment solutions may include, but are not limited to, the following:

Online payment via mobile phones through an app in which payment gateways can be connected to a bank account; an ATM to make payments with a debit or credit card; or a pay-as-you-go (PAYG) or tap-and pay machine in which NFC and/or QR Code are enabled for making cashless payments. Such payment tools include cards and smart devices such as smartphones or smartwatches.

Smart Banking

Big Data and artificial intelligence (AI) are anticipated to become important tools in designing products that are tailored for each consumer with distinctive habits and lifestyles. These tools, likewise, are important for the banking sector where human work would be minimized as much as possible for operational efficiency and consumer value proposition purposes. The adoption of AI in the banking and financial industry will introduce the users to a whole new experience of engaging in banking services and products.

As much emphasis is placed on efficiency maximization and human-centered design in smart city projects, customer-oriented and personalized services and products of the banking sector should also be accentuated.

Rather than branch visits for an over the-counter (OTC) discussion with staff to decide on a one-size-fits-all product or service subscription, AI technologies should be deployed to deliver a tailored-made product and compelling customer journey for the users. Technologies, such as Big Data; AI; Machine Learning, can be applied to banking products in the same manner as big media corporations - YouTube; and Netflix - use to automatically generate personalized content recommendations for users.

The promising prospect of contactless payments presents respective banking and financial institutions (BFIs) with free and accessible data through customers’ past transactions history. These data, along with AI technologies, can then be harnessed to recognize customers’ spending patterns as well as to predict their preferences and potential needs. By replacing conventional market research with AI-based applications, BFIs can design and introduce new products that align with the customer demand at a faster pace, improving user experience.

Scenario

Eden, a customer, pays for her coffee using her smart devices - a mobile app and smartwatch. The bank app, through previous transaction history, recognizes her spending habits and suggests an automatic payable feature when she is at the coffee shop she goes to regularly. Eden can then either use biometrics (voice, fingerprint) or facial recognition to complete the transaction. Moreover, with the data, the bank app can recommend Eden analytics-backed personalized saving offers or plans that are based on her spending patterns.

A real-case example is HSBC bank which recorded a 40 percent surge in usage after employing a data-driven AI model to propose personalized reward programs related to travel; shopping; and so on. In short, technologies play a pivotal role in providing better experiences for both the banks and the customers.

AI-based automation and analysis, beyond operational efficiency, can assist banks in creating targeted products that are in line with customer needs, enhancing customer experiences, which translates into increased sales and firm values. Whereas, customers can enjoy more diverse and fitted products, earning greater satisfaction.

Conclusion

It is almost impossible to visualize a smart city without smart finance. Payments, the movement of money, are imperative to the economy; and economic growth, in turn, drives a country’s development. Thus, to develop a smart city, having a smart financial infrastructure that would assist the urban population concerning the urban living experience is a must.

Fintech solutions may need no complex or high-end technologies; yet, at its core should be making our lives simpler, quicker, safer, and smarter. With that intent, fintech solutions should be designed to provide speed, cost, and operational efficiency for the cities and their inhabitants.

A smart city is a connected city whereby financial and banking services are seamless and contactless whilst security and safety are ensured. Looking forward, Fintech is the driving force of an inclusive and sustainable smart city.

[This article is written by Kim Soung Eung and this article appeared in the latest edition of Digital Insights, a collaborative project between EuroCham Cambodia and the Konrad-Adenauer-Foundation Cambodia (KAS).]