FinTech firms in Southeast Asia show strong growth aspirations amid funding challenges
KUALA LUMPUR: A strong 87 per cent of financial technology (fintech) firms in Southeast Asia and a corresponding 73 per cent in Malaysia are planning to expand their footprint beyond their current markets, according to the Asean FinTech Census 2018 study by EY.
About three-quarters (77 per cent) of fintechs believe that they will be able to compete internationally, with 87 per cent of the respondents planning to expand outside their home or current market in the next 12 months.
Fintechs in Malaysia reveal a similar direction, with 73 per cent of respondents planning to expand beyond their home markets. Outside of Southeast Asia, the preferred destinations for growth and expansion are the US, UK and China.
The survey also found that 61 per cent of fintechs in Southeast Asia are planning to achieve revenue growth within the next 12 months as their immediate future goal, with 46 per cent of the respondents expecting to achieve a compound annual growth rate (CAGR) of 30 per cent for their revenue.
Funding remains an issue for the fintech firms surveyed. With most of the firms in the earlier stages of development, more growth-stage equity and capital are needed.
However, over two-thirds (68 per cent) of the respondents have a runway of less than a year to plan and raise funds for growth. In fact, 45 per cent of the respondents rely on self-funding. While most (76 per cent) of the respondents agreed that there are enough funding channels available, 52 per cent still found it difficult to obtain funding on their own.
Shankar Kanabiran, partner and MalaysiaFinancialServicesBanking and Capital Markets advisory leader at Ernst & Young Advisory Services Sdn Bhd explained that as with most start-ups, fintech firms may find themselves limited by funding options.
“Venture capitalists and banks are often the first port of call for fund-seekers, although most will not take on the credit risk of companies with a track record of less than three years.
“That said, there are many incubator and accelerator programs, and even government channels that FinTech firms can leverage for seed funding. They should also look to access the wider network of business opportunities and investors who can help them to scale and be a source of funding too.”
In Malaysia, 19 per cent of FinTech firms believe there is high support from the government in terms of funding support, while 50 per cent say there is medium or moderate support, and 27 per cent indicate low support.
According to the respondents, the government should make funding more accessible (43 per cent), come up with more assistance schemes (29 per cent) and have a wider range of criteria (29 per cent).
The study also revealed that fintech firms find talent shortages an acute issue, with over half (60 per cent) saying that there was a lack of start-up or FinTech talent in the markets they operate in.
The skills gaps are in technology andsoftware,productmanagement, and sales and marketing. Most of the FinTech firms are still relying on personal connections (57 per cent) and recommendations (48 per cent) to hire talent.
Respondents also believe that the government can do more to enable the growth of the sector, in particular, increasing tax incentives for angel investors in early stage investment (78 per cent) and introducing policy reforms to make it easier to hire employees (78 per cent).
In terms of regulation, 45 per cent of Malaysian respondents have expressed that it is either moderate or difficult to conform to local financial sector regulations, while 75 per cent have asked for more support from regulators and policy makers to assist FinTech start-ups get off the ground.
When exploring a range of potential growth enablers which they believe will be most effective, Malaysian fintechs have identified three key areas: increased tax incentives (90 per cent) for angel investors in the early stage; policy reforms (90 per cent) that make it easier to hire employees, such as payroll reforms and skilled migrant visa; and government mandated open data protocols (open Application Programming Interface (API)) (85 per cent).