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FC Insights | September 2020
Webinar Review - Asia Spotlight: Future of Fintech in SEA
Speakers:- Mr. Wu Shiwei, CTO APAC Region, Huawei Cloud- Mr. Chia Jeng Yang, Principal, Saison Capital- Ms. Jenny Zhang, Growth Stage Investment SEA, Burda Principal Investments- Mr. Eric Fang, Founding Partner at Favour Capital
Backdrop:
According to 2019 EY Global FinTech Adoption Index, Asia remains the highest adopters of FinTech in the world. From payments to digital banking, lending to insurance. Competition is fierce in the region and innovations are hot.
With the FinTech industry maturing in many of its sub-verticals, we see Southeast Asian nations taking the next step in welcoming technology companies to join this archaic and typically impenetrable industry, opening up digital banking licenses to changing the way we purchase insurance. How will this space continue to evolve in the next few years?
Below: Webinar Highlights
01. What's hot in FinTech these days?
Eric: In China, one of the hottest topic is digital currency.Shenzhen is undergoing internal testing for it to roll out in the next few months. The central bank has formed strategic partnerships with Meituan & Didi for digital currency in the retail industry. Certainly also a probable World's largest IPO is expected in late this year with Ant Financial.
Shiwei: From my perspective, the mass adoption of blockchain technology in the enterprise sector has caught my attention. I'm surprised to see many banks actively utilizing blockchain networks with large enterprises for supply chain finance.It has been massively adopted in the banking industry for the past 2 to 3years.
Jenny: I'd like to add on that the general trend in China has shifted from ‘traditional' internet or platform driven finance to deep-tech or hard-tech. We see many innovative product developments in China for Fintech and it has been replicated in SEA now and for example, SME financing is pretty huge in this region due to the population, rising economy and financing gap. Wealth management is another area growing owing to the rising middle class.
Jeng Yang: We are seeing across multiple consumer facing perspective and B2B processes which previously did not exist in the FinTech space starting to take shape and we're very excited about that. We also have a strong belief in embedded finance and are focusing on non-fintech companies that can build up FinTech capabilities down the road. The FinTech infrastructure still has a lot of untapped potential in SEA and is only starting to emerge. Lastly, we're also bullish about last-mile distribution payments infrastructure.
02. FinTech developments in China and the trends in fragmented SEA?
Shiwei: Fintech companies providing payment network application for example, has been very common in every single banks in China and they are very familiar with it, but when it comes to SEA, it is still relatively new to the banks here. I observed that FinTech companies transform themselves from financial providers to FinTech enablers to service banks and provide additional values. Combining their technology and SaaS model, the FinTech companies enable banks to modernize their services. Even technology companies that are non-FinTech are approaching banks to help them digitize.
Jenny: In China, there are many successful B2B, B2C service providers, marketplaces, and D2C type of FinTech services that have done well, but when they come to SEA,they became the enabler instead of competing with the existing players in the region. The strategy is to work with the incumbents in the region with to provide better services. An example would be WeBank, where they exported their technology – Blockchain-as-a-Service to SEA partners. For Burda, a typical B2C growth-stage investor, recently, we started to look into SME-facing players especially in the SME financing space because there is a huge gap currently and a rise in the middle class economy. Another development in SEA is that some early-stage tech companies are adopting a regional mindset from the start. From a growth-stage investor point of view, we are also witnessing partnerships and synergies forming between FinTech and other industry internet companies for example, Carsome and Funding Societies to provide financial services in different channels.
Jeng Yang: Over the past 4-5 years, there is a large maturation of consumer-facing behaviors; e-wallets, P2P platform, consumer lending. Historically, that has always been the first wave.The subsequent trends are players that are able to build on top of the existing consumer facing infrastructure. For example, as a financial solution, what can you build on top of those matured e-commerce platforms. Moving forward, it is how these FinTech companies are able to become enablers to provide for the wider range of digital ecosystems.
Eric: China's consumer credit market is predicted to reach US$12 trillion excluding the real estate sector. The government and FinTech companies are devoted to build a robust social credit system. Facial recognition technologies and big data are currently being leveraged to enhance the FinTech developments as well. 03. Tech Companies VS Traditional Players?
Shiwei: We see that internet companies and traditional players need each other. They complement each other. For example, in China, e-commerce giants Alibaba and JD have massive amount of data which traditional banks do not have access to and they have been doing big data analysis for years to form a very complete profile of consumers. As Huawei Cloud was born from an Enterprise background,different from internet companies, we have been working closely with banks and incumbents(traditional players) for the past 30 years. Now, one of my key role is to help FinTech companies reach out to enterprises and banks to demonstrate their capability as most of them do not understand how large enterprises works.Building trust takes time between younger technology companies and traditional incumbents and Huawei Cloud is able to help bridge that gap.
Jenny: Drawing upon the data perspective to compare tech and traditional companies. Firstly,banking transaction data consisting of people's banking transactions, financing and credit histories etc are still with the banks and not with internet companies. Internet companies like Lazada or Shopee on the other hand have consumers purchasing behaviors but lack the daily spending transaction data.Second is alternative data. For example, Grab has the daily transportation data and SingTel in Singapore has people's daily telco data. That is why we see Grab and SingTel partnering for the digital banking license. There is synergy between the 2 organizations to better predict the financing credibility for people. We also see more partnerships being formed between the tech companies who have the advantage of huge alternative data and banks that have the transactional data. Acquisitions of FinTech companies by banks have also taken place in this region to learn more about the data and nuances in this space.
Eric: In China, banks and technology companies have active partnerships. Why it works is that the banks provide ready infrastructure backed by the industry experts whereas FinTech companies bring in new use cases and technologies. Banks are more process-oriented and regulated, hence sometimes they are not able to quickly leverage new technologies or roll out new products or services or address consumer issues.On the other hand, FinTech companies bring about good user experience where banks often fail to provide. Therefore, we see more partnerships being formed instead of competition. 04. Winning formulas and pitfalls?
Jeng Yang: 2 key things. One, be very knowledgeable about the regulations that are in your space and two, a lot of FinTech business models rely on lending because of the nature of emerging markets. Do not underestimate the difficulty it takes to raise debt.
Jenny: There is no single winning formula but I would say, it depends on your business model and the sector you're in. We look at the unit economics, whether the long term value for every consumer can offset the marketing or acquisition fee you spent.For the B2C space, retention of customers is important too. For pitfalls in the FinTech industry, look out for opportunist customers. Are people really using your services and paying you or simply coming because of the free services and goodies.
Shiwei: To sustain and survive for the next 10 years, leveraging on technologies and innovation rather than just business models would be my take.
Eric: Policies and regulations are very important especially according to the specific area you're in. Apart from that, having a strong business model, thinking deeper and further in terms of industry's future development will help you keep competitive.
Eric: In China, one of the hottest topic is digital currency.Shenzhen is undergoing internal testing for it to roll out in the next few months. The central bank has formed strategic partnerships with Meituan & Didi for digital currency in the retail industry. Certainly also a probable World's largest IPO is expected in late this year with Ant Financial.
Shiwei: From my perspective, the mass adoption of blockchain technology in the enterprise sector has caught my attention. I'm surprised to see many banks actively utilizing blockchain networks with large enterprises for supply chain finance.It has been massively adopted in the banking industry for the past 2 to 3years.
Jenny: I'd like to add on that the general trend in China has shifted from ‘traditional' internet or platform driven finance to deep-tech or hard-tech. We see many innovative product developments in China for Fintech and it has been replicated in SEA now and for example, SME financing is pretty huge in this region due to the population, rising economy and financing gap. Wealth management is another area growing owing to the rising middle class.
Jeng Yang: We are seeing across multiple consumer facing perspective and B2B processes which previously did not exist in the FinTech space starting to take shape and we're very excited about that. We also have a strong belief in embedded finance and are focusing on non-fintech companies that can build up FinTech capabilities down the road. The FinTech infrastructure still has a lot of untapped potential in SEA and is only starting to emerge. Lastly, we're also bullish about last-mile distribution payments infrastructure.
02. FinTech developments in China and the trends in fragmented SEA?
Shiwei: Fintech companies providing payment network application for example, has been very common in every single banks in China and they are very familiar with it, but when it comes to SEA, it is still relatively new to the banks here. I observed that FinTech companies transform themselves from financial providers to FinTech enablers to service banks and provide additional values. Combining their technology and SaaS model, the FinTech companies enable banks to modernize their services. Even technology companies that are non-FinTech are approaching banks to help them digitize.
Jenny: In China, there are many successful B2B, B2C service providers, marketplaces, and D2C type of FinTech services that have done well, but when they come to SEA,they became the enabler instead of competing with the existing players in the region. The strategy is to work with the incumbents in the region with to provide better services. An example would be WeBank, where they exported their technology – Blockchain-as-a-Service to SEA partners. For Burda, a typical B2C growth-stage investor, recently, we started to look into SME-facing players especially in the SME financing space because there is a huge gap currently and a rise in the middle class economy. Another development in SEA is that some early-stage tech companies are adopting a regional mindset from the start. From a growth-stage investor point of view, we are also witnessing partnerships and synergies forming between FinTech and other industry internet companies for example, Carsome and Funding Societies to provide financial services in different channels.
Jeng Yang: Over the past 4-5 years, there is a large maturation of consumer-facing behaviors; e-wallets, P2P platform, consumer lending. Historically, that has always been the first wave.The subsequent trends are players that are able to build on top of the existing consumer facing infrastructure. For example, as a financial solution, what can you build on top of those matured e-commerce platforms. Moving forward, it is how these FinTech companies are able to become enablers to provide for the wider range of digital ecosystems.
Eric: China's consumer credit market is predicted to reach US$12 trillion excluding the real estate sector. The government and FinTech companies are devoted to build a robust social credit system. Facial recognition technologies and big data are currently being leveraged to enhance the FinTech developments as well. 03. Tech Companies VS Traditional Players?
Shiwei: We see that internet companies and traditional players need each other. They complement each other. For example, in China, e-commerce giants Alibaba and JD have massive amount of data which traditional banks do not have access to and they have been doing big data analysis for years to form a very complete profile of consumers. As Huawei Cloud was born from an Enterprise background,different from internet companies, we have been working closely with banks and incumbents(traditional players) for the past 30 years. Now, one of my key role is to help FinTech companies reach out to enterprises and banks to demonstrate their capability as most of them do not understand how large enterprises works.Building trust takes time between younger technology companies and traditional incumbents and Huawei Cloud is able to help bridge that gap.
Jenny: Drawing upon the data perspective to compare tech and traditional companies. Firstly,banking transaction data consisting of people's banking transactions, financing and credit histories etc are still with the banks and not with internet companies. Internet companies like Lazada or Shopee on the other hand have consumers purchasing behaviors but lack the daily spending transaction data.Second is alternative data. For example, Grab has the daily transportation data and SingTel in Singapore has people's daily telco data. That is why we see Grab and SingTel partnering for the digital banking license. There is synergy between the 2 organizations to better predict the financing credibility for people. We also see more partnerships being formed between the tech companies who have the advantage of huge alternative data and banks that have the transactional data. Acquisitions of FinTech companies by banks have also taken place in this region to learn more about the data and nuances in this space.
Eric: In China, banks and technology companies have active partnerships. Why it works is that the banks provide ready infrastructure backed by the industry experts whereas FinTech companies bring in new use cases and technologies. Banks are more process-oriented and regulated, hence sometimes they are not able to quickly leverage new technologies or roll out new products or services or address consumer issues.On the other hand, FinTech companies bring about good user experience where banks often fail to provide. Therefore, we see more partnerships being formed instead of competition. 04. Winning formulas and pitfalls?
Jeng Yang: 2 key things. One, be very knowledgeable about the regulations that are in your space and two, a lot of FinTech business models rely on lending because of the nature of emerging markets. Do not underestimate the difficulty it takes to raise debt.
Jenny: There is no single winning formula but I would say, it depends on your business model and the sector you're in. We look at the unit economics, whether the long term value for every consumer can offset the marketing or acquisition fee you spent.For the B2C space, retention of customers is important too. For pitfalls in the FinTech industry, look out for opportunist customers. Are people really using your services and paying you or simply coming because of the free services and goodies.
Shiwei: To sustain and survive for the next 10 years, leveraging on technologies and innovation rather than just business models would be my take.
Eric: Policies and regulations are very important especially according to the specific area you're in. Apart from that, having a strong business model, thinking deeper and further in terms of industry's future development will help you keep competitive.
Disclaimer:This report only expresses the views of Favour Capital, which does not offer any investment advice. If you would like to further discuss any of the information mentioned above, please feel free to contact us via admin.sea@favour-capital.com