Emergence of FinTech startups in Southeast Asia

KUCHING: A large unbanked population, high penetration of smartphones and mobile internet, and government support are creating a perfect storm for FinTech startups in the Southeast Asian region.

Over US$300 million has been invested in FinTech startups since 2007 in the region, with around US$150M invested in 2015 alone. Payments and Investment Tech are the top funded sectors in the region,Tracxn’s FinTech Southeast Asia 2016 report reveals.

Published in collaboration with East Ventures and Lenddo, the report analyses FinTech activity in six countries - Singapore, Indonesia, Malaysia, Thailand, Philippines, and Vietnam.

The most active venture capitals (VCs) in the region include Golden Gate Ventures, 500 Startups, and East Ventures. While their portfolio investments compete in sectors like Payments, Personal Finance, and Lending, and they are all investors in Omise, a payment gateway for the region based in Thailand.

The largest funding round in the region was in cross-border multicurrency trading platform M-DAQ, which secured US$82 million in funding from EDB Investments in November 2015. The region has seen a steady spike in the number of funding rounds year on year (y-o-y), touching almost 60 in 2015.

Of the total approximately 140 rounds of funding since 2011, 59 took place in 2015, with a significant increase in late stage funding y-o-y. Singapore took a lion’s share of latestage funding rounds, accounting for more than 60 per cent of total number of series rounds.

“Southeast Asia is definitely an interesting market for FinTech. In Southeast Asia, many countries like the Philippines and Indonesia have a large, unbanked population. An interesting context is high mobile phone penetration rate and social media adoption.

“FinTech services that focus on mobile payments aren’t just offering a different service, they are solving a societal problem and levelling the previously unbanked up directly to banking 2.0,” saidWillson Cuaca, founding and managing partner, East Ventures.

The Monetary Authority of Singapore ( MAS), Singapore’s central bank and financial regulatory authority, has been at the forefront of FinTech innovations in the country.

In mid- 2015, MAS formed a group to facilitate the use of technology and innovation in the finance industry.

It also plans to invest S$ 225 million ( approximately US$ 166 million) over the next five years in the sector as a part of the Financial Sector Technology & Innovation ( FSTI) which is intended to drive a Fintech ecosystem.

Besides, MAS has also been pushing initiatives like open Application Programming Interface ( API) architecture, innovation in a “sandbox” etc. MAS has been successful in encouraging established banks and financialinstitutions to experiment new concepts in Singapore like Finlab from UOB, The Open Vault from OCBC.

According to Altona Widjaja, vice president, at OCBC Bank, “It’s time for the banks to cocreate with external ecosystem partners like Fintech startups. In Singapore, there’s a concerted effort by the government bodies and ecosystem partners to create an environment for innovation to thrive.

“The market infrastructure and regulatory support would vary with each country in SEA, but there’s a high chance of replicating the initiatives in other SEA countries especially in Malaysia and Indonesia.”

OCBC Bank is one of the first in Southeast Asia to have launched an open API platform for developers to integrate the bank’s products and services when building applications and programmes.

Unlike Singapore where FinTech would revolve around convenience and new innovation, rest of SEA would be focused more on financial inclusion and services that capitalise on financial inclusion.

Developing countries like the Philippines and Indonesia have low banking penetration, and large populations, forming a significant addressable market.

High smartphone and mobile internet penetration in these region is seen as the FinTech enablers.

As Willson said, “Fintech services that focus on mobile payments aren’t just offering a different service, they are solving a societal problem and levelling the previously unbanked up directly to banking 2.0.”