Singapore and Southeast Asia are primed to experience remarkable growth in fintech, but will the smart money come from China or the West?
Currently, there is an extremely low penetration rate for payments tech and financial services in the ASEAN market—one characterized by a burgeoning middle class. ASEAN is the world’s third-largest economy, encompassing a population of over 600 million in 10 countries, 70% of whom are under the age of 40 and 73% of whom are unbanked. During a recent trip to the region, Evolve Capital Partners identified payments (digital/mobile wallets) as one of the fintech sectors with high growth opportunities.
Singapore, being the “gateway city” for Southeast Asia, is the hub of growing activity in the fintech space. The easily navigable regulatory environment has seen established players target the city as a beachhead for their operations.
It is attracting industry leaders in fintech from all over the world and financial services businesses in the region are rapidly embracing technologies to increase their reach, scale up faster and cater to a new breed of consumers, led by millennials. Singapore has pulled in global financial and intellectual capital at an increasing rate over the last several years, rivaling London and other major cities.
The payments market is ripe for disruption, with a number of high-profile companies and investors taking notice. Forays into fintech businesses, especially into payments technology, are backed by a compelling set of data points emerging from the region.
The Philippines, for example, is one of the fastest-growing smartphone markets in the world, with the number of users likely to hit 90 million in 2021, up from 40 million at present. Several innovative solutions are available in this market. For example, users in the country can open credit and debit accounts and digital wallets, just by using Apple, Android or Facebook apps. These accounts can be used to transact online, without needing a bank account or even an internet access—just the phone’s SIM card.
The entire ASEAN region is experiencing a high rate of digital adoption, with 250 million smartphone users and an estimated 142 million mobile broadband subscriptions. Despite high digital penetration, the e-commerce market is still very small. At $6 billion, it accounts for less than 3% of total retail sales. When compared with 14% penetration in both China ($293 billion) and the U.S. ($270 billion), this lag presents a huge growth opportunity. Some analysts expect the e-commerce market in the region to increase eighteenfold by 2025.
Chasing this growth are global leaders in e-commerce. Amazon is planning a launch in Singapore later this year, and Alibaba recently bid $2 billion for an 83% stake in the region’s leading e-commerce player, Lazada Group.
Not surprisingly, there is also a growing trend of bank/finTech collaborations in the region. Citi created a new unit called Citi FinTech, which is at the forefront of forging partnerships with fintech startups. Leading banks such as DBS, Maybank and Bangkok Partner are nurturing alliances with startups that may help them elevate their lucrative cards and payments businesses. In late 2016, DBS unveiled a sprawling, 16,000-square-foot innovation space in Singapore that offers a place for fintech companies to build their bases.
Several Chinese companies, such as Alibaba and Tencent, are pursuing businesses that have payment licenses, as it leads to a much shorter time to market. These Chinese companies are very active in the market and often edge out their western competitors due to a deeper understanding of the regional market, fostered by cultural ties and geographical vicinity.
Although the fintech sector in the region continues to attract investments, there have certainly been challenges. When China’s Alipay initially tried to set up their own payments platform, they hit a roadblock for onboarding new users. Data security concerns continue to be a major issue, as certain countries in the region are wary of having their data cross borders.
The extent of these challenges varies within the region. Singapore is a forward-thinking, progressive country with a high-quality banking system in place, making it an ideal gateway for fintech investors to get exposure to the entire Southeast Asia market. Singapore also has key trade agreements in place and is home to an unparalleled ecosystem of innovative startups. On Oct. 30, the Monetary Authority of Singapore announced plans to expand the financial sector by simplifying the regulatory framework, encouraging private sector financing and easing the process for setting up a business. Furthermore, Singapore’s regulatory authority is pushing hard into cross-border projects such as blockchain and cross-border payments, which are both growing rapidly in their infancy.