Fintech is on the rise in Southeast Asia, find out how fintech startups are changing the regional financial landscape.
All eyes have been on Southeast Asia nations for fintech growth in 2019 as Southeast Asian nations have been reported among the hottest spots for fintech opportunities.
But before we continue, let’s clear up the definition of what is fintech.
Short for financial technology, fintech refers to the converge of technological innovation in the delivery of financial services, such as digital payments, investments, financing, insurance, advisory services, among some.
Note that these services are not new, and are often offered by large banks and other traditional financial players including insurance companies and brokerage firms.
What fintech startups are doing is revolutionizing the financing process in Southeast Asia by enhancing inefficient products and service channels, as well as opening up opportunities to once-excluded customers.
According to the McKinsey Global Institute (MGI), the region has 266 million financially excluded people, inclusive of those that derive of access to bank accounts and other basic financial services like credit cards and insurance.
Businesses in Southeast Asia, on the other hand, counts up to 30 million SMEs underserved by the financial system, which collectively face a credit shortfall of US$175 billion.
Combining this gap in financial access with growing economic activities and internet access in the region, many founders and startups have turned to the digitization of these financial services.
A report by CB insights has also shown an optimistic outlook for companies in the space of fintech stating that fintech in Southeast Asia is reaching new records for deals and funding.
CB Insights notes that in 2018, funding to fintech startups across Southeast Asia grew 143% year over year, hitting a record of US$485 million across 68 deals.
Compared to 2017, the dual growth in deal count and funding comes as major investors such as China’s Ant Financial and Japan’s SoftBank have been making bigger deals in the area.
At the same time, over one thousand fintech startups have been built in the last few years, among which over 490 are found in Singapore.
This is unsurprising as Singapore sees strong support from the government in building the city-state as Southeast Asia’s fintech hotspot, leading particularly in the development of smart cities and hyper-connectivity.
It is home to some of the most well-funded fintech companies, including cryptocurrency trading startup Quoine (total funding: US$123 million) and M-Daq which provides Over The Top (OTT) forex applications. The startup secured a total of US$98.7 million in funding, including a massive USD$87 million series C round in 2015.
Indonesia, the largest economy in Southeast Asia is also generating fintech startups at a great pace. The country has a population that is very open to alternative payment methods and a total of 262 fintech companies. About 78 fintech companies are operating in the payment segment, while 20 and 30 companies are in the lending, savings, and investments segments each.
According to government statements, Vietnam plans to become a cashless society by 2020. The country aims to reduce the number of cash transactions to less than 10% of total payments in consumer-ends such as supermarkets, shopping malls and distributors.
The plan includes proposals to develop and increase new payment methods in rural and remote areas of the country to boost financial inclusion as to at least 70% of Vietnamese over the age of 15 owning a bank account by the end of 2020.
In the blockchain sphere, the Thailand market is becoming increasingly crypto friendly. The Stock Exchange of Thailand (SET) plans to apply for a digital license which will enable it to operate a cryptocurrency exchange.
Of course, fintech is not only about bank, insurers and new fintech startups – many online digital platforms can also add a financial dimension to them.
In Southeast Asia, ride-hailing startups like Grab and Go-Jek are looking to build the super app and has also expanded into digital payment platform through GrabPay and Go-Pay.
Peng Tsin Ong, a Managing Partner at Monk’s Hill Ventures said, “this is not only because every service ends with a transaction, but because it broadens the amount of information that can be collected by these companies.”
Venturing into fintech positions these companies to expand their understanding of customers and improve both their financial and non-financial products.
For example, Grab can not only track its user’s movements, schedules but also their financial habits, which opens doors for new products and services. Grab’s CEO Anthony Tan has spoke of Grab’s plans to use the information to create alternative credit ratings that could then be tied to banking products.
Meanwhile, with such a disruptive force into the financial industry in Southeast Asia, banks have also begun relying on open innovation to stay competitive.
Singapore’s largest bank DBS has spent US$3.7 billion on technology over the five years up to 2016, launching digibank, the first mobile-only bank with 82% of requests automated using artificial intelligence in India.
“Southeast Asian companies have raised some capital and are now putting efforts into scaling across the region. It’s time to bring products to market and produce numbers for the next fundraising round,” said Markus Gnirck, the co-founder of tryb Group.
Bolstered by increased funding, large foreign investors, and continuous innovation, fintech startups in Southeast Asia are still growing as they expand and extend this habit of expenditure among the people in Southeast Asia.
Is a cashless society in sight for Southeast Asia?
Or is a digital platform going to win in fintech?
For now, it’s still too early to say but one thing for sure is that the innovation in fintech is disrupting the lives of unbanked society for the better.
Formation Group has launched its debut fund worth US$357 million of commitments in partnership with former Facebook chief financial officer and San Francisco 49ers co-owner Gideon Yu serving on the investment team, according to filings with the SEC.
The maiden fund is set up to bridge innovation between Silicon Valley and Asia, whereby it will focus its investments on a number of early and growth stage companies.
In addition to providing capital, Formation Group will also provide operational support and relationships to bring these opportunities to fruition.
“Our investment in Bowers & Wilkins is a prime example of this strategy, in which we enabled a small Silicon Valley startup (EVA Automation) to execute an unprecedented acquisition of an established, profitable, 50-year old iconic brands in Bowers & Wilkins,” according to a spokesperson from Formation Group.
Besides, the firm’s founding managing partner Brian Koo was a former founding partner of Formation 8 and a founder of InnovationHub. He currently serves on several boards including NextVR, Memebox, and YelloMobile.
While Gideon Yu is the chairman and chief executive officer of Bowers & Wilkins. Previously, he was also a General Partner at Khosla Ventures and Treasurer and SVP of Finance at Yahoo.
The company’s offices are located in Palo Alto, Korea, and Singapore. The portfolio also includes on-demand delivery Honestbee, and ride-hailing service Go-Jek and South Korea’s Dayli Financial Group.
By Vivian Foo, Unicorn Media
The new fund will be used to co-invest with Singapore-based enterprises, helping local enterprises to internationalise their business operations and expanding into oversea markets via acquisitions.
Its joint investment policy focuses on Asian markets, encouraging local firms to partner with other Asian companies to engage in activities such as extending product lines, brands or value chains, in addition to gaining access to markets, channels, and technologies.
Specifically, the fund will support firms that intend to grow by acquiring their regional peers, but which may not have sufficient capital to proceed with its acquisition.
In this way, the fund will hold opportunities for smaller local firms by allowing them to link up with Heliconia as a consortium partner that is able to co-invest in the target company alongside the Singapore acquirer.
Heliconia will come in purely as a financial investor and will not compete over the acquisition’s ownership. Firms that have not identified an acquisition target can also opt for Heliconia’s help to source deals by tapping its extended networks, which only large private equity funds can maintain.
However, to draw on the funds, firms must meet the criteria of being headquartered in the city-state and to have post annual revenues no higher than S$800 million ($564 million). These conditions place their investment focus firmly on middle market enterprises.
“The creation of the fund is part of an effort to develop a smart financing ecosystem here, in Singapore,” said Finance Minister Heng Swee Keat. “More funding support is also being targeted at infrastructure developers to help them undertake more oversea projects.”
By Vivian Foo, Unicorn Media
Singaporean CapBridge and investment manager Gordian Capital has formed a partnership to launch a pre-IPO fund – the first sub-trust fund in a series of CapBridge Investment Trust which is said to be a rules-based trust investing in private securities.
The pre-IPO Fund is targeting a US$100 million fresh capital to provide growth-stage startups and pre-IPO companies an opportunity to tap into additional funding as well as to provide accredited and institutional investors a greater access to venture capital-level returns.
CapBridge’s Co-founder and CEO Steven Fang explained, “Venture Capital consistently outperforms other asset classes and has some of the best returns in the investment industry. Traditionally, accredited and institutional investors have had limited access to these venture capital-backed growth companies.”
Established in 2015, CapBridge is an online capital-raising platform that enables institutional and accredited investors to invest in growth-stage enterprises companies via venture capital financing and pre-IPO placement. The firm has also formed partnerships with the SGX and Clearbridge Accelerator.
“While rules-based processes are applied in the trading of publicly-listed investments, this is the first time, as far as we know, that a rules-based structure is being applied to investments in venture-backed securities issued by private companies,” said Dr. Steven Fang.
“Given the efficiency of a rules-based trust structure, we believe that the Pre-IPO Fund has the potential to expedite pre-IPO capital raising, making Singapore an attractive fundraising destination for growth companies,” he further adds.
In a way, CIT enables qualified institutional and accredited investors the access to quality, diversified portfolios in a cost-efficient and effective manner with no management fee to carry. Over the next five years, the platform will target investments in venture-backed enterprises in pre-IPO investments.
The fund following a rules-based structure is typically defined as a fund that aims to generate exposure to a to a specific segment of the equities market but operates without consideration of stock market capitalisation or portfolio weighting. In the case of CIT’s Pre-IPO Fund, it is aimed is to increase exposure to securities issued by growth-stage companies.
“The rules-based nature of CIT ‘automates’ the selection criteria and removes the need for active discretionary management, which reduces the fund’s expense load,” Steven Fang explains.
The Pre-IPO Fund will also invest exclusively in convertible instruments issued by companies curated on the CapBridge platform. This will allow the company to preserve capital and maximise returns, allowing for a measure of downside capital protection and potential capital gains.
Commenting on the deal, Mark Voumard, the Founder and CEO of Gordian Capital Singapore Pte. Ltd said, “We are delighted to be working with CapBridge to help support the venture capital ecosystem in Singapore.”
By Vivian Foo, Unicorn Media
JOY Ventures, a new Israeli investment firm, has recently initiated a US$50 million vehicle centered on the emerging field of neuro-wellness, in addition to the inauguration of its office in Herzliya Pituach.
Founded by the Israeli-Japanese Corundum Open Innovation Fund, JOY Ventures will invest in developments offering scientifically validated technologies offering anti-stress and mood alteration solutions in addition to neuro wellness solutions, that can be turned into marketable products.
Additionally, the new fund will be headed by Avi Yaron, a serial entrepreneur, Founder of Visionsense and the inventor of a state-of-the-art instrument for complex brain surgery along with Beer-Sheva-based Incubit Technology Ventures’ Idan Katz.
Speaking on the vehicle, Yaron said, “Originally developed to make things easier for human beings, technology actually intensifies the tension we live in. For this reason, we decided to invest in neuro wellness by leveraging the large body of research and neuro developments in Israel.”
JOY Ventures will adopt a two-track approach, funding research grants of at least US$1.2 million per annum to academic research in the emerging field, startup companies, and technological incubators for entrepreneurs.
“We’re establishing a new ecosystem in the new industry of neuro-wellness,” Yaron said. “Our emphasis will be on the development of scientifically-proven products whose goal will be to help people manage and overcome chronic conditions.”
“Many years of being involved in the development of brain surgery technologies, made me realise the human need for joyful and relaxed moments and how critical they are for our health,” Yaron explains. “Many neuro researches show that the modern life intensity contributes to prolonged hostile emotions of sadness, anger, anxiety, guilt and more. These emotions, in turn, generate stress and collect a heavy toll from our health.”
By Vivian Foo, Unicorn Media