Southeast Asia’s fintech pivot

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Grab and Go-Jek are fighting tooth-and-nail to serve commuters in Indonesia. Yet, their biggest battle may be in another arena.

Grab is said to be raising a fresh US$1.5 billion in new capital. The money isn’t what’s significant – such massive funding rounds have become too commonplace anyway. Instead, look at its purpose: to bolster Grab’s nascent payments platform.

Why is Grab suddenly interested in payments? Although it has raised more money than Go-Jek and has a footprint in more countries, the latter’s mobile wallet product Go-Pay has become a mainstay in Indonesia. It became the fourth most widely-used e-wallet in less than a year of existence.

These moves by two of Southeast Asia’s biggest and fastest-rising tech firms are part of a larger trend: a regional pivot towards fintech.

Why is this significant? First, payments is the last frontier of ecommerce in Southeast Asia. Cracking payments could mean making Southeast Asia’s online marketplaces – and many other kinds of startups – financially sustainable. That’s a prospect that has so far eluded even Lazada, the biggest bulldog in the region.

Second, financial services, like banking and insurance, are still greenfield areas untouched by the latest technology, and that is starting to change.

The signs

Tech in Asia’s data sketches out the contours of this pivot. For two consecutive quarters – three if you count Q1 2017 – the number of venture capital deals in fintech has outstripped ecommerce. This could be a historic first:

Tech in Asia Tech Venture Investment Report H22016 from Tech in Asia

Of course, ecommerce’s total deal value continues to surpass a nascent field like fintech. But that could change in the future. Also, the numbers don’t quite do justice to fintech’s rise. Here’s why: many of the tech companies venturing into fintech aren’t labeled as such.

Grab and Go-Jek are just two examples. Garena, the oldest billion-dollar company of the three, isn’t a payments company. But it has a payments arm, called AirPay, which apparently surpassed US$510 million in annual transactions. To be clear, it still has room for growth: global payments company Adyen processed US$90 billion in 2016.

Want more examples? Lazada too isn’t a payments company, but it’s integrating its payments product with Alipay. Carro, a Singapore startup running a used car marketplace, is even getting into car financing.

This is an old playbook. EBay bought PayPal. Alibaba started Alipay. Tencent runs WeChat, a chat app that became one of China’s biggest commerce platforms and, according to one calculation, processes over US$500 billion a year. It’s simple vertical integration, and Southeast Asia is following China’s lead.

Why now?

It may seem odd that this fintech pivot is happening now. What’s causing it?

A few things. First, local tech firms, realizing that they’re reaching their upper limits of growth, are betting on payments as a way to keep getting bigger.

Garena and Go-Jek probably fit this mold. This strategy works for them because they can turn their sizable user bases into mountains of digital transactions.

Second, Southeast Asian ecommerce needs to invest in payments to reach profitability. Online marketplaces in Southeast Asia (as well as India) are learning an important lesson: in order to truly improve online shopping, invest in infrastructure.

The Singapore government is drumming up the fintech hype.

That thinking caused a wave of investments in ecommerce logistics, with startups like Ninja Van and Anchanto rising to the fore. Lazada, on the other hand, went the route of building its own logistics operations.

This bootstrapping attitude has seeped into payments. Whether it’s optimizing cash-on-delivery, or attempting to wean users off it, the goal is to build trust and reduce friction between consumers and the marketplace in order to reduce costly cancellations.

Third, China is pivoting towards Southeast Asia. With its home country reaching saturation point, Alibaba in particular is bringing its ecommerce-fintech combo move to Southeast Asia.

It has been aggressively investing in or buying up financial and payments services in Southeast Asia and around the world. This is huge validation for the region, which will lead to an even greater influx of capital.

And finally, the Singapore government is drumming up the fintech hype. As the region’s finance hub, Singapore has the most to lose if banks and financial services are disrupted.

This may explain why the country is jumping headlong into fintech. Its banks are running startup accelerators. Its central bank is experimenting with blockchain and easing regulations for fintech startups. It even launched its own APIs. With these moves, Singapore is beckoning fintech startups to give the garden city a taste.

And why not? Unlike payments, where the buy-in amount is getting extravagant as more rich players join, the arena of financial services, like insurance and trading, seems more welcoming to upstart innovators.

This article contains the author’s analysis.

This post Southeast Asia’s fintech pivot appeared first on Tech in Asia.

from Tech in Asia https://www.techinasia.com/southeast-asia-fintech-pivot
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