Fintech is widely defined as an emerging technology to facilitate and automate the delivery and application of financial services among both private and business customers. These days it covers a broad range of areas from payment systems to asset management to crowdfunding to insurance. Among the target audiences are not only regular users but also small businesses and unbanked households who used to be excluded from the global financial system. So it’s hardly surprising that Southeast Asia (SEA) has grown into one of the hotspots of the fintech revolution_._
In 2018 only 47 percent of individuals in the region had bank accounts. Meanwhile, barely a third of local small and medium-sized enterprises (SMEs) had access to credit. Fintech companies embraced the opportunity and brought positive results in the Asia-Pacific area, unleashing numerous financial services for the unbanked and startups and mostly at a lower cost.
Currently, Southeast Asia’s fintech market is among the most promising and dynamic in the world. To understand how it’s developing, we’ve collected all the information regarding the current business environment, main field verticals, fintech regulation system, market participants, and opportunities for you in one place. So, no matter if you’re thinking of starting your own business or wish to expand to the SEA market, this article will come in handy.
The State of Fintech Innovation in Asia: Leading the Global Financial Paradigm Shift
The Asia Pacific region has seen a rapid growth of fintech products over the last decade. Meanwhile, backed up by positive government initiatives and investors' increasing appetite, this tendency seems poised to proceed into the future. In 2019, the amount of investment in fintech Asia Pacific projects reached $12.9 billion across 547 deals, and though it doesn’t go beyond the 2018 results ($22.7B), it only proves that the SEA market is maturing.
In China, fintech investment initiatives are mainly centered around forward-looking technologies and lines of business since more established areas are dominated by market majors. Regtech is one of the promising sub-segments attractive to VC investors, as it presupposes the use of machine learning (ML) and artificial intelligence (AI) technologies for detecting fraud and assessing risks, as well as Data Science for better service personalization. Currently, fintech companies that adopt these tools more broadly to advance operating efficiencies, process data, and streamline wealth management, are in great favor among the investors.
Another factor that drives the proliferation of fintech ecosystem in the SEA market is a large unbanked population and its openness to new technologies. In 2019, around 87 percent of individuals in China and India declared the adoption of fintech apps and so crowded the top of the global list, while in Hong Kong and Singapore, this proportion is 67 percent. In the same report, China is once again described as an early forerunner since the adoption rate of money transfer, and payment solutions in the country reach 95 percent, in contrast to the 75 percent rate globally. Chinese consumers prefer fintech applications over traditional means for in-store mobile payments, non-bank fund transfers, and peer-to-peer (p2p) payments. Additionally, China has the highest adoption rate among SMEs — 61 percent, followed by the United States with a 23 percent rate.
A Brief Look at Fintech in Asia by City: Key Numbers and Regulations
Most governments throughout the region have recognized the power of fintech futures and pledged to support the industry growth to leverage the many advantages it can bring to financial inclusion, technological advancement, and economic progress. Considering that some cities have been more pushing than others, we’ve collected some of the most important numbers and innovations for the top three Asia Pacific financial markets:
- It’s a home for over 43 percent of all startups in the ASEAN fintech network (The Association of Southeast Asian Nations);
- Fintech companies in Singapore raised $1.21 billion in 2019;
- Singapore tops the Technological Readiness Ranking since it provides fintechs in Southeast Asia with exclusively favorable terms for technological development;
- It’s ranked second after New Zealand in the global ‘Ease of Doing Business’ study conducted by the World Bank Group.
When we think of fintech, Singapore is a top-of-mind city-state, and after reading the facts mentioned above, it’s hardly surprising. It has dominated the regional industry market for a few years now and remains strong in the face of increasing competition.
Its government has been among the most engaged globally, and except for new standards and fintech regulation, Singapore’s state sector took on various initiatives. It’s worth mentioning the Global Trade Connectivity Network (GTCN) to digitalize trade financing, Project Ubin to investigate the use of distributed ledger technology (DLT) and blockchain for clearing and settlement activities, and the initiation of annual Singapore Fintech Festival that has grown into one of the biggest fintech events globally. Fintech firms in Singapore continue appearing and maturing, and the volume of external investments is yet another proof to that.
- It’s a preferred place for 20 percent of fintechs in the ASEAN region;
- Around 99 million unbanked people in the country represent a great opportunity for fintech startups in Indonesia;
- By 2050 Indonesia is expected to become the fourth-largest economy globally.
The country has one of the biggest populations in the region and, as a result, one of the largest potential consumer bases for challenger banks. In 2018 the government introduced a unified regulatory approval system to make it easier for fintechs in Indonesia to register their operations.
Lending and crowdfunding are the most popular fintech segments, with over 99 players and over five million borrowers. Such popularity of this type of fintech startups in Indonesia is explained by the availability of various business models (peer-to-peer P2P and institution-to-peer I2P), online-to-offline O2O approach, and innovative technology that allows matching different risk tolerance of lenders with appropriate risk levels of borrowers.
Hong Kong, China
- Hong Kong fintech hub is included in the top ten of regional financial technology hubs;
- There are four fintech unicorns in Hong Kong with an $8.5 billion valuation;
- The city was ranked as the 4th most innovative economy in Asia;
- In the first half of 2019, Hong Kong fintech ecosystem raised $152 million demonstrating a 561 growth as compared to the same period in 2018;
- It’s listed 10th in the Technological Readiness Ranking for its connectivity, openness to innovation, new regulations, and standards that create a supportive environment for fintech startups.
Hong Kong is definitely one of the most powerful financial centers in the Asia Pacific region, and its startup ecosystem is one of the fast-growing in the world. However, it’s no surprise since it is ranked first in the Index of Economic Freedom. Consequently, fintech development in Hong Kong is safe and easy.
Governmental initiatives and commitment are the main factors for such rapid growth. Recently, the Hong Kong Monetary Authority (HKMA) introduced eight initiatives to pass the city into the era of smart banking. Some of the efforts were: the Faster Payment System (FPS) to promote the use of mobile retail payments; Virtual Banking licenses to facilitate the launch of non-traditional financial service providers; Open API policy framework to streamline the development and wider adoption of interfaces; Crypto Exchange framework to address concerns related to KYC, AML, and market manipulation. With the upgrading of the entire banking system, Hong Kong is sure to keep the lead and to retain the title of the financial capital of Asia.
Fintech ASEAN Landscape by Verticals: Services and Products In-Demand
Exploring fintech developing countries, we’ve already mentioned some business models or product types that are popular within a particular city or area. However, it doesn’t illustrate the current industry tendency and opportunities for market players and new entrants. To our partners and clients, we advise to take the next ones seriously:
- The digital lending business model comprises the largest number of firms — 32 percent. Lending fintech companies in Asia are mainly focused on peer-to-peer business financing, consumer loan services, and invoice trading. The most well-funded firms are Ant Financial, WeLab, PolicyBazaar, freee, and Akulaku.
- Digital payments own 26 percent of the market and include such sub-segments as p2p transfers, international money remittances, and payment gateways. The most prominent fintech examples are Grab, Paymt, Gojek, MoMo, Omise, and Acudeen.
- Crowdfunding products represent 21 percent of the market and embrace the following sub-categories: donation, rewards, and equity crowdfunding. Among the best fintech companies for fundraising are GoFundMe, Cropital, FundedHere, MyStartr, Demohour, and others.
Lending and payment categories are also the leading categories in most developing and emerging markets globally since they are the most prevalent in everyday life. Among other business models that we haven’t mentioned are: AI/ML/Big Data (15%), personal finance management (11%), and insurtech (8%).
What You Should Know About Fintech Regulation in Southeast Asia
Considering the dynamics of recent financial technology developments in the Asia Pacific region, we’d like to cover the underlying guidelines that fintech regulators require for you to have an overview of what should be included or anticipated at the initial stages.
Some of the standards apply to only one country or another, but it’s worth mentioning that these regions are seeing after each other and are coherently working towards meeting the demands for quick and safe financial services.
- <strong>Cross-Border Privacy Rules</strong> (CBPR) program introduced by Asia-Pacific Economic Cooperation (APEC) enforces the APEC Privacy Framework to guarantee the security of personal data while it’s moved across borders. The CBPR system bears analogy to the European CDPR or the EU-U.S. Privacy Shield; however, it’s not obligatory and doesn’t change the country’s specific regulations or laws. Interested companies should be certified by an independent accountability agent, and they should adopt appropriate security arrangements in response to the severity and probability of the potential harm, make it possible for users to access and edit their personal information, and ensure consistent protection under various legal regimes. The CBPR program is currently supported by the US, Japan, Canada, Mexico, Australia, the Republic of Korea, and others.
- <strong>Payment License from the PBoC</strong>. In 2018, to promote the competition in retail payments, the People’s Bank of China (PBoC) enabled competent foreign-invested enterprises (FIEs) to qualify for payment licenses under the actual regulatory system applicable to locally-owned businesses. Once the permit is obtained, companies can offer online payments, issue and accept pre-paid cards, and collect funds on the part of designated bank card outlets via points of sale or other devices. Interested organizations should have at least RMB100 million paid-in capital for nation-wide license and RMB30 million for operating within a particular province, implemented AML systems, as well as established business operations and disaster recovery programs. Moreover, companies are required to handle and analyze all personal and financial data accumulated in China inside the territory of China.
- <strong>E-Payment User Protection Guidelines by MAS</strong>. In 2019, the Monetary Authority of Singapore (MAS) updated its requirements to protect e-wallet users and prevent security threats, frauds, and errors. Fintech companies in Singapore are required to notify consumers about all e-payment transactions and provide additional opportunities for individuals to approve the remittance before the execution. In the case of an ‘erroneous transaction,’ financial institutions should use all reasonable efforts to recover the sum. Meanwhile, users are obliged to use strong passwords, promptly install mobile operating systems updates and security patches, utilize anti-virus software, and report unauthorized transactions immediately.
- <strong>NPG in Indonesia</strong>. The National Payment Gateway (NPG) — known as Gerbang Pembayaran Nasional (GPN) — was introduced by Bank of Indonesia (BI) in 2017 to provide banking customers with a secure and efficient payment system. In fact, the NPG is developed to provide an interrelated and interoperable ecosystem to be shared by financial institutions and thus bring down the cross-bank transaction costs. In the foreseeable future, all payment processing services should be joined to the NPG, and the latter is expected to handle all cashless transfers with the Indonesian territory. Recently, Artajasa and Mastercard have officially signed a partnership agreement to support and enhance the NPG ecosystem capabilities.
- <strong>Payment Systems Act in Thailand</strong>. To ensure efficiency, security, and social confidence, the Bank of Thailand (BoT) and the Ministry of Finance (MoF) introduced the Payment Systems Act (PSA). This document obliged all current and new service providers to register or obtain a license to offer payment services. The application criteria for fintechs in Thailand are rather straight-forward and acceptable since the main goal of the law is to consolidate existing payment regulations and rules, as well as bring particular standards into step with international requirements.
Top Fintech Companies in Asia to Keep a Close Eye on
Forty-two firms from the Asia Pacific region were included in the Fintech100 in 2019. And what’s important, seven of them made it to the top ten, demonstrating the growing leadership of the region on the global fintech market. So, let’s take a closer look at the top five front-runners:
#1 Ant Financial
- Country: China
- Total Funding: $22 billion
- Focus: Digital Payments, Wealth Management, Lending, Investment
Ant Financial is a sub-organization of Alibaba Group and one of the biggest companies worldwide. The business ecosystem comprises Alipay — a payment and lifestyle platform with over 1 billion users, Ant Fortune app for wealth management, Mybank — an online bank for individual entrepreneurs, small and micro enterprises, and Zhima Credit solution to serve the underbanked and provide them with access to credit financing. Additionally, the company offers Ant Financial Cloud — an open platform that enables all, from small to largest, fintech companies to build more secure, economic, and efficient IT systems.
- Country: Singapore
- Total Funding: $9.9 billion
- Focus: Digital Payments, Insurance, Lending
Grab is one of the most popular fintech startups in Asia and the second most innovative company globally. The team pursues three far-reaching objectives: to create scalable economic opportunities, to provide access to safer everyday services, and to ensure financial inclusion to the underserved. Currently, it’s one of the biggest fintech companies in SEA, and the financial ecosystem includes: GrabPay is a PoS for merchants and an e-wallet for instant payments and fund transfers, GrabInsure with affordable insurance solutions, GrabFinance — a lending product for enterprises, merchants, and drivers, as well as its own loyalty program for customers.
#3 JD Digits
- Country: China
- Total Funding: $4.87 billion
- Focus: Asset Management, Digital Payments, Insurance, Lending
JD Digits utilizes AI, IoT, Blockchain, and Data technologies to enable traditional industries to perform with extra efficiency and at a lower cost. The company has created leading China’s fintech ecosystem for consumers and enterprises, and currently, their business areas are Digital Asset Management, Intelligent Cities, Digital Marketing, Digital Agri-Husbandry, and Digital Finance. The last-named category embraces wealth management, instant payments, risk controls, insurance technologies, and other innovative services.
- Country: Indonesia
- Total Funding: $3.3 billion
- Focus: Digital Payments
Gojek is the largest super app that comprises platforms for merchants, users, and drivers. Its payment sub-division offers five services: Gopay — a digital wallet for convenient money transactions, phone credit top-up, and splitting bills; Gobills to pay utility, entertainment, and lifestyle bills easy and fast; Gopoints for collecting points and getting rewards; Paylater solution for small consumer loans.
- Country: India
- Total Funding: $2.2 billion
- Focus: Digital Payments
Paytm is the leading payment gateway and one of the fintech unicorns in India. The company offers payment solutions to merchants and so enables customers to perform mobile payments from bank accounts, cards, and digital credit accounts. Moreover, it’s a pioneer of QR-based mobile payments in India, and recently, it also introduced Paytm Payments Bank — a digital-first bank with saving, salary, and current accounts, RuPay debit card, and money transfer services.
The Future of Fintech in Southeast Asia: It’s High Time to Seize the Opportunities
As our fintech Southeast Asia report shows, people are starving for convenience, mobility, and innovation. They are open to new, and the widespread adoption of fintech products is the best way to prove that. The revenue of digital financial services is projected to hit $38 billion by 2025 (in contrast with $11 billion today), and the most popular product types will be digital lending, investment, remittance, and insurance.
Despite all the technological advancements, cash remains the principal means of transaction, and over 70 percent of adults are still underbanked or unbanked with restricted access to financial services. Additionally, numerous SMEs run against significant funding gaps.
The list of top Asian fintech companies described above has revealed that the lines between categories and industries are blurring. The future industry disruption is more likely to be triggered by consumer technology platforms. Regulating fintech becomes harder, so we expected to see mixed user experiences in the immediate future.
Nevertheless, fintech in the Asia Pacific region is booming, and it’s just the right time to join the competition. Dashdevs has over six years of experience working with reputed banks and ambitious fintech startups globally. Leveraging our skills and knowledge, you can turn challenges into opportunities and seamlessly pave the way for success. Contact us today.