FinTech in ASEAN 2019: From Start-up to Scale-up

From the region’s economic potential and conducive regulatory climate to strong investor interest in ASEAN, it is evident that the region holds great promise for FinTech firms from around the world.

The key to expanding successfully in the region will be dependent on how FinTech firms navigate diverse cultures as well as non-homogeneous regulatory environments and business practices within ASEAN.

Here are the key findings and takeaways from the third edition of our FinTech in ASEAN series.

FinTech funding trends

Singapore continues to dominate funding and is the #1 regional base for FinTech firms

FinTech funding in ASEAN has grown more than 30 times since 2014, reaching a new high of US$1.14 billion as at end September 2019. While other ASEAN countries have accelerated the development of their domestic FinTech sector, it is Singapore, with its more mature FinTech scene, that continues to attract the most funding within ASEAN. More than half (51 per cent) of total funding was placed in Singapore in 2019. Singapore also continues to be the preferred base for FinTech firms, home to 45 per cent of firms in ASEAN.

Varying levels of funding maturity for FinTech firms across ASEAN

In Singapore, FinTech firms are maturing as many firms graduate from pre-series stage to later-stage funding. Funding for Singapore-based FinTech firms was also spread more evenly across all FinTech categories, with InsurTech, payments and personal finance leading the way.

In Indonesia, investors focused on alternative lending firms, fuelled by strong demand for credit from the country’s rising middle class. Investors focused on the potential of Malaysian FinTech firms that were developing solutions in payments, finance and accounting. Over in Thailand, investors channelled their funds into InsurTech and investment tech firms. In Vietnam, investors favoured payments, a common trend for economies in the early stages of developing a FinTech sector.

Opportunities and challenges

Stamina needed to pursue corporate customers

Businesses were the main target customer segment for FinTech firms (79 per cent). Among businesses, financial institutions made up half (50 per cent) of the target segment, followed by corporates (17 per cent) and SMEs (12 per cent).

As most corporates tend to require multi-level approvals across different stakeholders, FinTech firms need to demonstrate significant endurance in order to seal the deal. FinTech firms targeting this segment of customers should therefore ensure that they have a longer funding runway to meet their operating expenses.

Looking forward: Small business, big opportunities

A recent development in the ASEAN FinTech scene is the opening up of applications for digital bank licences. While having a digital bank licence will enable FinTech firms to broaden the scope of services they provide, only 21 per cent of FinTech firms surveyed expressed an interest in applying for one. Nonetheless, almost two in three (65 per cent) FinTech firms believe they will be able to seize opportunities in order to offer innovative solutions and collaborate with the region’s new digital banks.

Beware of overvaluing your company

While it can be exciting to see a company’s valuation soar, both Venture Capitalists (VCs) and FinTech firms cautioned against falling into the overvaluation trap. FinTech firms should consider taking a phased approach in valuing the company so that they continue attracting funding from investors. This helps firms to prevent getting into a ‘down round’, where the latest valuation round is lower than previous rounds.

Talent remains a challenge when it comes to regional expansion

Talent remains a challenge for more than half of FinTech firms surveyed, indicating that this was an inhibitor to their expansion regionally. With six in 10 ASEAN FinTech firms having regional ambitions from the onset, the issue of talent is something that needs to be considered as they plan for their expansion, to ensure a higher chance of success.