I had the privilege of attending a talk on ASEAN Fintech organized by technode and Kaishi partners, with below my notes from it. In all, I thought that it was an insightful, objective discussion that covered many of the key trends in FinTech today – payments, lending, insurance and wealth management. In particular, I was excited about the focus on lending and insurance as I feel that these areas could potentially bring a lot of empowerment and benefits in the Southeast Asia region, and are what I spend a lot of my time on.
Panel Speakers
- Mr. Kai Loffler, Digital + Innovation – KPMG Digital Village
- Mr. Salman Jaffer, Technology Lead, TMS – Refinitiv (Thomson Reuters)
- Mr. David Yin, Corporate Development, Wecash
- Mr. Liu Xi, CEO, FOMO Pay
- Mr. Samir Chaibi, Investment Manager, GREE Ventures
Q&A Notes
- What is the best strategy? Being a SAAS (Software-as-a-service) provider or having a standalone app?
- DY: Wecash setting up own credit hedge fund, own collection company (use AI etc to predict who to call next)
- As a standalone app, it is hard to grow exponentially forever, so adopting Aliplay’s playbook, if something can be built inhouse that works the next step is to build a platform solution
- SC: It depends on where you are in the stack. There are a lot of opportunities in lending etc. and we can attempt to answer the question by thinking of how eCommerce evolved
- It is amazing how eCommerce has allowed us to buy a huge variety of items online but there is still a need for services such as payments and shipping (i.e. eCommerce enablers)
- Similarly for FinTech and specifically for lending, some examples are credit scoring and collections, with Africa being a good example of a place where such models exist
- SJ: The challenge of having an app is that it’s still taking a tribal approach, where not only will you be competing with a lot of other companies, it is also hard to scale
- SAAS will be the future, but there are some key requirements, such as the need to have open APIs (people need to, with a secure key, access them)
- LX: It depends on the stage at which your company is it
- Early-stage companies should just leverage on SAAS – e.g. if you need to use a payments gateway, you can use Visa or Mastercard at first and only when you have adequate time and resources do you consider building own infrastructure, which allows more customizing and hence cost savings
- DY: Wecash setting up own credit hedge fund, own collection company (use AI etc to predict who to call next)
- What are your thoughts on the general FinTech investment landscape?
- SC: Vietnam is on the radar, with Myanmar to a smaller extent, while Thailand has gotten a lot more attention from CVCs (corporate venture capital)
- DY: Cambodia and Myanmar are still at a very much earlier stage of the investment curve, as even the payment industry is not developed, while contrastingly
- In Singapore, the payments industry is saturated and lending is just about kicking off
- Indonesia is a little more ahead, as wealth management and insurance are already budding
- In the Philippines and Vietnam, the payments industry has just started developing and will probably be much later before we see more traction in lending and insurance
- SJ: In Singapore, all the money going into real estate
- One hot area is the idea of a Neobank or challenger bank, which could be explored in the local context
- SC: Similar way to how emerging markets leapfrogged computers to use mobile phones, it could be that ASEAN consumers don’t use traditional banks and go straight to using these banks, where we can see the unbundling-rebundling thesis building out and companies going into doing full stack
- From a recent conversation with a large P2P lending company, the contact mentioned that although they are a lending company, they are still very much like a bank because a lot of profits come from lending
- LX: Recently there is a lot of attention on the issuance of virtual banking licenses in Hong Kong and although 30 entities applied, fewer than 10 went into the final round of deliberation by the Hong Kong Monetary Authority
- Virtual banking sounds like the exit/ultimate goal for startups
- The U.K. is issuing such licenses, as does Bank Negara Malaysia
- The problem in Southeast Asia is that banks do everything and hence it will be challenging for startups to try to compete with them. They should think about how to perhaps collaborate with the bank
- DY: Echo LX, that there are two sides to it. There is a lot of room for challenger banks to play in as banks are inefficient. Singapore is not exactly representative
- Gave an anecdote of how he used to work at a bank that was proud to own a satellite but whose own office had blackouts twice a day and the country had ATMs down for 3 hrs at a time
- There is a lot of opportunity for disruption and FinTech companies need to work closely with banks as there is a lot of entrenched interest because it is hard to take over the full stack
- Banks and FinTech startups are starting to change the collaboration structure. The narrative has changed to more partnership-like, for example, banks running incubator programs
- What you think is the role of tech giants like Grab and Go-Jek?
- LX: The big players are trying to do everything (e.g. Sea, Lazada) but based on personal experience working with them, if it is not their core business, they may not be not as competitive as FinTech startups which are more agile and big companies might do better just by acquiring
- Acquisition cost for online users is getting expensive and so offline traffic might be cheaper (e.g. Grab’s focus on merchants)
- DY: When a company gets too big, it might be hard for them to dominate any verticle, so there could potentially be more return by spending $10M acquiring than developing the same capability in-house. It could also be that buying makes the acquiror feel a sunk cost effect and hence will spend more time and effort on it
- Superapps are going to be good at some verticals close to their core and Grab has kinda moved away from trying to do everything themselves to more of a platform
- For FinTech players, online always seem to be lowest hanging fruit the problem is that in most markets, especially Southeast Asia, people who are digitally connected makes up just 10% of the population
- Capturing them will get expensive quickly once saturation is reached, so any company has to be creative to get more customers (e.g. through offline)
- If there is a need or want to stay online, then social media might be a good channel
- SC: There is no doubt that companies need to go offline because 99% of things are done offline. No matter how big Lazada etc. are, online is just the tip of the iceberg, especially in Singapore
- In 2017 Gree ventures sold Kudo (at the time an offline aggregator) to Grab. One of the main reason why Grab made the acquisition was because Kudo was able to make the offline model work. Now there are many similar companies across SEA
- LX: The big players are trying to do everything (e.g. Sea, Lazada) but based on personal experience working with them, if it is not their core business, they may not be not as competitive as FinTech startups which are more agile and big companies might do better just by acquiring
- European FinTech giants are entering Asia – how are Asia companies responding?
- SJ: There is a lot of investment from Ant Financial etc. in Asia as they understand the market well
- Some measures to compete with these giants are: hiring the best talent, potentially win by discounting (e.g. Didi vs. Uber), branding
- SC: The region is for local and/or Chinese players to lose, as he does not see large FinTech coming to win it
- They are making same mistakes as when American companies went into China. There were case studies in business school on this topic and he would not be surprised if the same result played out for European companies entering Asia
- DY: He used to work for a European FinTech trying to enter the region and they just don’t really understand the region (e.g. they ask why people use Wechat instead of email to communicate)
- These companies will be hindered because of data. In Europe, people and companies are more concerned about security, which is good, but in Southeast Asia, there is a lot of data, very much less scrutiny over security and privacy and it is unstructured, hence companies need to use data in more creative ways
- SJ: There is a lot of investment from Ant Financial etc. in Asia as they understand the market well
- What will it take for FinTech startup in the region to be a unicorn?
- DY: The first and important question is whether there is a big enough addressable market. He is a bit skeptical about that for the region
- Southeast Asia does not have a large enough market to make the economics work
- In general, there is no science to the valuation of FinTech companies in the region. The first few companies that went public didn’t too well and so that has not been good for other companies either looking to go public or raising money
- DY: The first and important question is whether there is a big enough addressable market. He is a bit skeptical about that for the region
Further reading