CO - Finnovation

Challenging The FinTech Funding Gap In Asean To keep The Growth Engine Running

Challenging The FinTech Funding Gap In Asean To keep The Growth Engine Running

What is the preferred method for FinTechs to raise money?

How much capital do FinTechs hope to raise in the coming months?

These and more questions on capital availability and challenges are answered by EY’s inaugural ASEAN FinTech Census report 2018.

Asean has witnessed visible growth in FinTech Venture Capital (VC) funding with investments in the region rising 45% y-o-y to US$366 million in 2017. Does this mean that capital is easily available to FinTechs operating in the region?

Although 68% of FinTechs believe that enough funding channels exist, 52% maintain that they find it difficult to obtain funding. About 45% of FinTechs still rely on self-funding. Notably, most start-ups are still struggling to raise capital initially as most traditional financial institutions are reluctant to lend to companies with a track record of less than three years.

Are Initial Coin Offerings (ICOs) an answer to early stage funding woes?

To fill the funding gap, FinTechs in Asean are exploring alternative ways to raise capital. Singapore saw several highly successful ICOs in 2017 including TenX raising US$80million.

So, what makes Singapore the ICO capital of Asia and third largest ICO hub globally? Regulatory clarity on ICOs by the Monetary Authority of Singapore (MAS) is the key enabler, per Anson Zeall’s comment below. MAS issued a guide to digital token offerings in August 2017, followed by detailed guidelines in November explaining what constitutes an ICO. As the market for ICOs mature, it will get regulated to ensure customer protection and accountability. Outside of Singapore across the rest of Asean, the ICO landscape is still at a very nascent stage.

“As MAS has been very upfront about what they will regulate regarding ICOs, this has made Singapore at the forefront of the ICO space.” Anson Zeall, chairman of ACCESS (Singapore’s industry association promoting cryptocurrency and blockchain).

Wave of FinTech consolidation to hit Asean

We believe that Asean is ripe for FinTech consolidation. Too many small players, scalability challenges, and pressure from early stage investors mean that start-ups in the region are increasingly thinking about exit strategies. According to our findings, 54% of FinTech start-ups are looking to exit in the next five years. 30% of companies in payments, money transfer and alternate lending are interested in IPOs.

Another interesting finding is that about 87% of FinTechs want to expand beyond their current markets. FinTechs that have raised funds beyond Series B and are planning to expand geographically might consider an IPO or M&A to help fuel growth.

Convergence of BigTech and finance in South East Asia

Technology platforms, flushed with funds and large customer base, are actively acquiring FinTechs in emerging markets. Tech players show keen interest in FinTech start-ups as they look to expand beyond their local markets to help future proof their businesses. According to our survey, results show that about 14% of FinTechs prefer trade sale as their exit strategy. We expect deal activity to intensify particularly in the digital payments, consumer finance and wealth segments. Valuations for quality assets are expected to increase given the stiff competition amongst tech companies, particularly large Chinese platforms, and VC funds.

Incumbents facing competition from tech platforms and FinTechs have also increased their FinTech investments. Many of the big banks in the Asean region have launched accelerator programs or innovation centres to support and promote new business ideas. A few have also launched FinTech-focused VC funds.

More capital chasing less demand

Our survey suggests that 68% of FinTechs have a buffer of less than a year before their funding runs out. 48% of FinTechs expect their next funding round between US$500K and US$5million. In a survey in Q4 2017 conducted on 125+ institutional investors interested and active in the Asean FinTech sector, there was more than US$2B in capital commitments available. On the flip side, that same survey on 230+ FinTechs, revealed that capital requirements were established at just slightly over US$1Bn.

Various funding channels (banks, VC Funds, tech platforms, ICOs) are available for FinTechs in Asean to leverage. Funding will be accessible if FinTechs are able to articulate real value to investors whilst investors on the other hand, should be able to positively contribute to the growth of these start-ups.

  • Varun Mittal
    Varun Mittal
    The ASEAN Fintech Lead

    Varun Mittal is the ASEAN Fintech Lead at EY covering emerging technology and business models in financial services across ASEAN. Previously Varun has worked with helloPay, Microsoft and Gemalto. Varun is also part of founding team of Singapore Fintech Association, working closely with startups, educational institutions, investors and regulators across ASEAN.

You May Also Like

Business failure by overtrading
Business failure by overtrading

Remarkable sales figures and improved short-term profits do not necessarily indicate ongoing success...

Building a personal set of values - the 6 I's
Building a personal set of values - the 6 I's

Becoming a successful CFO requires persistence, hard work, technical skills, and people and manageme...

Fixed Cost Management
Fixed Cost Management

From the financial perspective, there are two types of cost that management has to deal with –...

The Future of Forex: How to Navigate the Asian Landscape for Maximum Profit
The Future of Forex: How to Navigate the Asian Landscape for Maximum Profit

To get a grasp of the evolving nature of Forex in Asia, it is pertinent that we look through the his...

Entrepreneurship: The Struggles No One Talks About
Entrepreneurship: The Struggles No One Talks About

Success is all about the money, fame, and glory. That’s the constant message we see on social ...

Boardroom commitment to security
Boardroom commitment to security

The subject of ‘Board commitment to security’ is a sensitive and often emotive one. The ...

Blockchain for Claim Management in Insurance Industry
Blockchain for Claim Management in Insurance Industry

Insurance industry has a vast potential for blockchain-driven innovations solving multiple pain poin...

Fraud Detection : Challenges in Real Time Payments
Fraud Detection : Challenges in Real Time Payments

“The financial industry is shifting towards real-time data analysis, deploying technologies su...

Bench to Market
Bench to Market

BENCH TO MARKET Some thoughts from an (interested) observer: #1    having the innovator/...

Risk Management Concepts
Risk Management Concepts

Risk Management Concepts - a practical approach. History, the Persians and risk management, an ex...

Start Up
Start Up

Millennials are now the largest segment of the U.S. labor market according to >Pew Research, an...

Granting Credit & KYC
Granting Credit & KYC

Money cost money. Credit is money. Hence, credit cost money!   Credit also carries an element o...

Money in the bank was never more important than it is today
Money in the bank was never more important than it is today

With the current spread of COVID-19 pandemic, the world has got locked down. It is an unfolding even...

Risk Based Capital- Issues, Challanges and Opportunities
Risk Based Capital- Issues, Challanges and Opportunities

Introduction A Stable insurance sector is encouraging various insurance regulators around the world...

COVID-19: the changing fortunes of industries and how businesses can thrive
COVID-19: the changing fortunes of industries and how businesses can thrive

With no end to the COVID-19 pandemic in sight, how can businesses build resilience and pivot for fut...

The death of Entrepreneur & Entrepreneurship
The death of Entrepreneur & Entrepreneurship

What amazed me was that why a person with a Net worth of 25,000 crores (nearly US 3.6 billion) could...

Risk Management 2.0
Risk Management 2.0

In today’s VUCA world, Risk Management has been on the CFO’s radar since the global fina...

Managing Conduct Risk in ASEAN and Malaysia - Addressing Drivers, Restoring Trust
Managing Conduct Risk in ASEAN and Malaysia - Addressing Drivers, Restoring Trust

There has been no shortage of well-publicized and highly damaging misconduct scandals within the glo...

Defining business problems clearly
Defining business problems clearly

I have observed in my years of project delivery, stakeholders are generally quick to jump into solut...

Fraudsters capitalise on COVID19 crisis...
Fraudsters capitalise on COVID19 crisis...

Shiny hunters, a hacking group, allegedly stole personal data, including email, phone numbers, hashe...

Stay Connected With Us