Asia’s age of innovation: New fintech deals top US$1 billion

Photo: Liquid Pay
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Asia has overtaken America in the financial technology market, driven by the industry’s Chinese powerhouse and multiple billion-dollar businesses. This success will inspire the next wave of opportunities in Southeast Asia. 

By Tan Zhi Xin, edited by Francesca Ross

Asia surpassed the United States (US) on fintech investment in 2016 with a volume of US$1.2 billion (46% of all arrangements). American deals reached US$900 million (38% of global volume) over the same period.

 

Fintech deals in Southeast Asia backed by venture capital (VC) firms rose by 29%. Seed and angel stage investments were the main driver of this growth. This is due to an exponential expansion in the number of fintech start-ups since 2012. The increased rate of Internet penetration and smartphone technology fuels this boom. Southeast Asia also saw its first Series D financing as merchant payments platform 2C2P closed on a US$8 million cash injection.

 

There is huge potential for the industry to grow in Southeast Asia

 A breakdown of deals shows Southeast Asia’s fintech industry is still in its infancy. Over half of all deals are completed in Singapore, followed by Thailand and Indonesia. Payment or mobile wallet applications, such as 1Pay and 2C2P, are currently the most common development areas.

Source: CBInsights

Density of the top 75 fintech companies in Southeast Asia, by category

Categories No. of companies

Payment/Mobile wallet

32

Financial comparison

11

Retail investment

8

Bitcoin/Blockchain

6

Financial lending

6

Financial/Business tool

4

Accounting software

3

Personal finance

3

Investment researcher

4

Insurance

1

Source: Techsauce Media

The local regulators are also playing a huge role in encouraging fintech innovation. Singapore alone has put US$161.55 million (S$225 million) into supporting this new technology. Financial lending is a key area to watch in this sector. Just 27% of the total population of Southeast Asia have a bank account, leaving 438 million people unbanked. Fintech companies can tap into this with new platforms and products to drive further growth.

The Monetary Authority of Singapore (MAS) is providing practical support through regulatory sandboxes. These give developers the opportunity to experiment and launch innovative products within controlled boundaries. This has produced products like insurance app PolicyPal which just began a six-month testing period. Malaysia and Thailand have launched similar facilities.

Indonesia’s regulators have taken a more pragmatic approach with new rules to protect customers. Aria Widyanto, vice president of Amartha Mikro Fintek, told The Jakarta Post “This regulation obliges fintech businesses to be registered and supervised by the OJK (Financial Service Authority), which in fact will boost (investor) confidence further.” The Indonesian authorities hope that with increased confidence and protection investors will encourage new technologies to emerge.

China remains the global leader in fintech development 

China is the undisputed leader in the fintech market. The country’s large and tech-savvy population means its internet finance sector was valued at over US$1.8 trillion in 2015. This is driven by gaps in the provision of developed financial services. The US market is comparatively saturated and leaves little space for newcomers.

Just eight out of the 27 fintech unicorns – startups valued at more than US$1 billion – are based in China, but they have a combined value of US$100 billion. They have also raised US$9.4 billion of funding. The US has 14 fintech unicorns which are worth around US$31 billion.

The top four of the world’s unicorns are all Chinese – Ant Financial (valued at US$60.0 billion), Lufax (valued at US$18.5 billion), JD Finance (valued at US$7.0 billion) and Qufenqi (valued at US$5.9 billion).

Fintech investments in China have surged to US$8.8 billion between July 2015 and June 2016. This is a whopping 252% increase since 2010. “China fintech sectors such as payments and insurance are now beyond the tipping point”, say market experts from Ernst and Young. Rapid urbanisation and an explosion in online and mobile phone penetration are driving this growth.

China’s influence on the market reaches into Southeast Asia

China’s presence in the Southeast Asian fintech market is formidable. Garena, a Singapore-based platform provider partly backed on China’s Tencent, is currently preparing to launch its initial public offering (IPO). The company benefits from Tencent’s ability to pull deep insights from consumer data and its IPO could fetch up to US$1 billion.

initial public offering (IPO)is also expanding in Southeast Asia. The company’s management has recently invested in Thai payment provider, Ascent Money; Philippines-based digital payments provider, Mynt; and Singaporean multi-currency trading startup, M-Daq. Its next joint venture is with EmTek, Indonesia’s second largest media conglomerate and Bukalapak, e-commerce giant. Malaysia is likely to be Ant’s next target.

Arthur Wang, Partner and Head of China Banking at KPMG China, explained “After experiencing significant success domestically, larger fintech players in China are beginning to look globally to fuel their continued growth and expect collaboration to be a critical part of their success”.

An Asian Silicon Valley spirit will fuel growth

In the next decade, Southeast Asian start-ups will be able to leverage Chinese experience and know-how in areas such as mobile payment, digital financial innovations, risk control and cloud computing. This will allow them to grow and develop at a faster rate and quickly expand the industry. Indonesia’s cautious approach is sensible considering citizens’ finances are likely to be the industry’s main target but, across the region, this must be balanced with an openness to new ideas.

The future of fintech in Asia is a Silicon Valley 2.0 that is distinctly Asian. The centre of innovation has already shifted from the West to the East, bringing more jobs, tax revenues, higher stock prices, and a comparative advantage and more. A new Asian era has begun.