Asian fintech rises above global investment dip
Fintech companies went through a difficult period, globally, last year as rising inflation and rising interest rates caused investors to pull back from the sector.
Large parts of the industry struggled to raise funds and valuations were cut. Swedish buy-now-pay-later provider Klarna was an example: The group’s valuation was cut to $6.7 billion in a 2022 funding round, down 85 percent from $46 billion the previous year. Overall, global investment in fintech halved to $75.2 billion, according to research firm CB Insights.
But Asia’s fintechs bucked this trend: investments hit a record high of $50.5 billion last year, according to data from consulting group KPMG. And while the collapse last month of US specialist lender Silicon Valley Bank has further dampened global investor sentiment, the outlook for fintech – at least in the Asia-Pacific – is bright.
Analysts expect fintech businesses – from payment services to bitcoin – to proliferate across Asia as incomes rise and the use of digital technology expands further among fast-growing populations.
According to HSBC, Asia’s total financial wealth, from bank deposits to investments, has almost tripled since 2006 to $140tn. However, around 70 percent of Southeast Asia is either unbanked or underbanked, says consulting firm Bain.
This is a strong attraction for investors, says Tzu-Chung Liang, financial strategy for Southeast Asia and transaction manager at the consulting firm EY. “Asia has one of the world’s youngest workforces and consumer groups, with high mobile and digital technology adoption, so it’s a ripe market for financial innovation,” he claims.
Across the region, Singapore is the singular market for fintech. Deals in the city-state drew the bulk of sector financing – $1.8 billion – in Southeast Asia in the first nine months of last year, according to commercial lender United Overseas Bank (UOB).
The Monetary Authority of Singapore, the city-state’s de facto central bank, has been an important driver of growth, says Paul Ng, leading financial services for Southeast Asia at consultancy Accenture, through the development of “infrastructure, technology and skills upgrading in the financial industry”. He notes that MAS has established, and leads, an industry collaboration, the Veritas Consortium, to strengthen governance around the use of artificial intelligence and data.
But Wing-Fai Ng, chairman of AGBA, a Hong Kong-based finance and fintech business, says that while Singapore has created a “favorable environment” through supportive regulation and seed capital, “many of the businesses have lacked the ability to scale up. Singapore is itself a small market, and trading across borders in Asia can be difficult.”
Other countries are following suit. Indonesia, for example, accounted for a quarter of deals in Southeast Asia in the first nine months of last year, amounting to $1.4 billion in financing, according to UOB.
“The country’s resilient economy is partly fueling this appetite, supported by robust consumer demand and healthy commodity exports,” says Accenture’s Ng. “Early-to-growth investments in particular provide an attractive risk-reward profile for investors. Homegrown venture capital firms have been actively investing and further driving regional growth.”
Indonesia has produced several fintech “unicorns” – startups valued at more than $1 billion – including business payments processor Xendit, service provider Gojek and digital payments platform Ovo.
Saurabh Tripathi, global head of fintech and payments at consultancy Boston Consulting Group, also highlights India, where he says digital payments “have been the most impressive global growth story”.
He points out that “with 7,460 fintech companies, India now has the third largest number of fintech companies after the US and China.”
Australia is also home to some of the fastest growing fintechs. Judo Bank, for example, is already generating profits just five years since it was launched. Joseph Healy, chief executive, says this is “faster than any other new bank”. Lending in the six months to the end of February rose by almost a quarter to $7.5 billion.
Ranked fourth in this year’s FT ranking of high-growth companies in Asia, Judo concentrates exclusively on lending to small businesses, an approach that becomes “more relevant in times of uncertainty”, Healy says. “With a low ratio of customers per bank, we understand our customers in a way that other banks simply cannot replicate,” he suggests.
Nevertheless, it is businesses in China, not included in our ranking due to difficulties in verifying data, that have dominated fintech in Asia. The country has created regional super apps: such as Alipay from e-commerce giant Alibaba and WeChat from Tencent Holdings, China’s most valuable company by market capitalization.
But analysts believe Beijing’s recent tech crackdown is likely to benefit markets and operators elsewhere, as Chinese businesses take a more cautious approach to growth.
Online retail group JD.com, for example, is shutting down its services in Indonesia and Thailand, marking a blow to its international expansion plans but opening up opportunities for its rivals to enter.
This tougher approach in China could create an opportunity for other parts of the region to attract more fintech business. EY’s Liang says Southeast Asia “could be seen as an attractive location for investment, given the increased scrutiny tech companies are facing in China.”
But the Beijing crackdown has not dampened Chinese investors’ appetite for start-ups elsewhere in Asia, notes AGBA’s Ng, who says: “Chinese investors and businesses have gravitated towards the larger consumer markets such as Indonesia, Vietnam and Malaysia.”
There may be strong headwinds – from soaring inflation to SVB’s recent collapse – but this should not dampen Asia’s growth. As Accenture’s Ng says: “Fintech remains one of the most popular and robust segments in Asia, despite recent macroeconomic challenges.”
