Vladislav Solodkiy for Money 20/20 – Fintech opportunities in Asia
Vladislav Solodkiy, Managing Partner of a Singapore-based Life.SREDA VC, was featured in TOP35 most influential fintech-persons in the world.
Fintech wave took place in the US alone. In Europe, there appeared a number of global and expensive companies, but the sector hadn’t become trendy in any country. Except for London, which is actively competing with New York for the title of the global fintech capital owing to the large PR-support from the government. While the PR-battle is being successful, the volume of investments and business are not comparable.
Asia attracts more and more attention due to the biggest population in the world; the outstripping economic growth in most countries of the region; a large number of financial centers (such as Singapore, which like Hong Kong and Seoul, has announced its focus on fintech development this year), with a large proportion of the population not using banking services and, at the same time, actively using smartphones; and a large number of potential end acquirers of such startups. Access to fintech services for unbanked people will influence their quality of life resulting in their financial inclusion. The social mission makes the industry perspective not only in terms of profitability, but also in terms of the impact on global change.
The world dreams of a cashless society. And as it acquires a multitude of non-cash payment options, this dream only comes closer. The progress of economies varies, though. In Hong Kong, one can purchase tickets or eat in fast food outlets using the Octopus value card. In Sweden, the homeless no longer ask passers-by for loose change; they have card readers instead. While the cashless journeys of some may be advanced, those of most, especially developing nations like the Philippines, have only just begun.
If you had asked anyone in the region about fintech just a couple of years ago, you would have been met with blank stares – and not the eyes-glazing-over kind that some people get when someone mentions finance. Today, it’s the fancy, shiny sports car that just pulled up in the town square; it’s all everyone seems to be talking about, and they’re all wondering if they can hitch a ride.
In Asia-Pacific alone, at least 5 cities – Singapore, Hong Kong, Sydney, Shanghai, Tokyo and more – can claim for various reasons to be the region’s fintech hub. To be the landing and resting place for the world’s best fintech ideas to access Asia and the rest of the world. Some of these cities have terrific infrastructure – government and industry support in Singapore, huge and close market access in Shanghai, active and involved banking industry in Sydney – others have an active startup scene – vibrant entrepreneurial activity in Jakarta; financial know-how and capital to invest in Hong Kong; creative ideas, technologies and brands in Tokyo and Seoul.
It’s an exciting time for Southeast Asia-based startups and there is no doubt that Singapore sits at the epicentre of a diverse range of markets rich with opportunity. New success stories are emerging throughout the region, such as GrabTaxi, which is experiencing explosive growth and attracting substantial investment. Singapore is one of the gateways of the Asian financial market with a rich fintech ecosystem. Global financial services companies have their Asian satellites operating from Singapore. AmEx, Citibank, JP Morgan Chase, HSBC and numerous other international financial organizations operate in Singapore.
Compared by the index for financial center rating, in which a multitude of factors are integrated, Singapore and Hong Kong represent the most attractive spots in the region to enter the financial industry. Important areas of competitiveness are, among others, business environment, human capital, taxation and infrastructure. As demonstrated by the chart, Singapore and Hong Kong are the leading financial centers in Asia-Pacific region.
Speaking of the financial industry, there are around 200 banks with total assets of $2 trillion with operational headquarters in Singapore. IT procurement budgets of those banks reached $485 billion last year, according to the Asian business magazine Nikkei Asian Review. With global trends towards tight collaboration among traditional financial institutions and fintech ecosystem, Singaporean financial services providers also made a step forward nurturing incubation and fintech ecosystem development. Global banking giants are building an innovation conveyor to ensure a leading position as a global financial market. Some of the examples are UBS, DBS Bank and Citigroup, which launched their innovation labs in Singapore.
In 2012, MasterCard launched an R&D innovation center in Singapore to enhance research and development through MasterCard Labs, Technologies Operations and a Chip Centre of Excellence (CCoE), covering the full range of upstream research, hardware and software solution development. The CCoE in Singapore was crucial for MasterCard to leverage the benefit of skilled engineers, access to latest innovation and the ability to service the rapid growth in Asia-Pacific, the Middle East and Africa.
A variety of fintech startups across sectors are building the Singaporean fintech ecosystem. Among them are: Numoni (online-bank for unbanked), M-DAQ (cross-border securities), Quoine Exchange (bitcoin exchange), ApexPeak (a nonbank capital provider offering early payments on receivables), BillPay (a free unified billing and payment service), Call Levels (real-time alert notification on current market prices in forex, commodities, equities and indices), Capital Match (provides short-term financing to SMEs), CoAssets (a business network for property investment and equity crowdfunding enthusiasts), CoinHako (a cryptocurrency wallet), CoinPip (uses blockchain technology to send money internationally quickly and easily to freelancers), Dragon Wealth (the world’s first app to enable investors to compare their portfolios across managers, portfolios, countries, and with other investors, giving investors greater control over their investments), SoftPay (mPOS), Mobikon (POS-management), MatchMove (bank-as-service), Fastacash (social based remittances) and many others.
Singapore remains one of the hubs for fintech activity – business-friendly regulations mean founders eye the city-state as a base from which to expand to the rest of Asia. The Prime Minister of Singapore has urged the country’s banks and regulators to keep up to scratch with technological developments such as blockchain technology. Speaking at the United Overseas Bank 80th anniversary dinner held in Singapore yesterday, Prime Minister Lee noted the challenges currently facing the financial industry and highlighted the importance of keeping abreast with technological developments in order to remain competitive. MAS created FinTech & Innovation Group in August 2015. The new group in the Monetary Authority of Singapore will be responsible for regulatory policies and development strategies to facilitate the use of tech to better manage risks, enhance efficiency and strengthen competitiveness. The Monetary Authority of Singapore (MAS) has poached Citi exec Sopnendu Mohanty to head up a new fintech and innovation group.
The Monetary Authority of Singapore wants to cultivate this growth as part of its Smart Financial Centre initiative. $225 million has been recently invested into fintech by the MAS. As Singapore pushes on to be a Smart Nation, it is important that industries keep ahead of the curve. This is especially true for the finance industry, where new technologies are challenging the way business is being done. Embracing new technology is also important for Singapore to maintain its status as a regional financial hub, and MAS recognises that Singapore needs to be a Smart Financial Centre. Said Mr Thomas Zink, a research manager at IDC Financial Insights: “It will strengthen its position, it will create new jobs and it will grow their expertise in the market. For start-ups, it also makes a lot of sense because of the ease of doing business in Singapore as well as the access to a lot of financial institutions that are headquartered here as well as Singapore’s geographic location at the heart of ASEAN.
“Lastly for financial institutions, it will make sense to have access to new ideas, new businesses, new concepts that will help them to transform their business in light of the digital change we’re going through.”
“MAS will most likely follow through with the approach that (MAS managing director) Ravi Menon pointed out – that we are very supportive of banks partnering with fintech but it’s ultimately the responsibility of banks to make sure that everything is in order, they are compliant, they assess the risk properly that comes from such a solution,” said Mr Zink.
Between HSBC’s annual Expat Explorer survey Singapore ranked the first. Last year’s number one, Switzerland, dropped to 10, India jumped way back from nine to 17, and new countries entered the top 20 ranking. Ranking second in economics and third in both experience and family, Singapore is the most desirable place for expats. “One of the cleanest and safest cities in the world, Singapore is a multicultural hub that’s worked hard to earn its place among the thriving Asian Tiger economies,” HSBC declares. The country is ranked first in school quality.
In fact, in 2012, British education minister Michael Gove suggested that Britain adopt a similar system to Singapore’s. But to make it in Singapore, you have to be career-driven; the country scored extremely low for work-life balance. And while 65% have more disposable income, Singapore is one of the most expensive cities. In the next 2-3 years Singapore may become an international fintech hub.
[su_pullquote align=”right”]Venture capitalists pumped a record $15.5 billion into Chinese startups in 2014 (US venture capital pool was $48 billion), so entrepreneurs are being showered in funding, as well as crucial advice and mentoring from millionaire angels.[/su_pullquote]Ten years ago, high tech observers complained that China didn’t have enough bold innovators. There were, of course, wildly profitable high tech firms, but they rarely took creative risks and mostly just mimicked Silicon Valley: Baidu was a replica of Google, Tencent a copy of Yahoo, JD a version of Amazon. Young Chinese coders had programming chops that were second to none, but they lacked the drive of a Mark Zuckerberg or Steve Jobs. The West Coast mantra—fail fast, fail often, the better to find a hit product—seemed alien, even dangerous, to youths schooled in an educational system that focused on rote memorization and punished mistakes. Graduates craved jobs at big, solid firms. The goal was stability: Urban China had only recently emerged from decades of poverty, and much of the countryside was still waiting its turn to do so. Better to keep your head down and stay safe.
That attitude is vanishing now. It’s been swept aside by a surge in prosperity, bringing with it a new level of confidence and boldness in the country’s young urban techies. In 2000, barely 4 percent of China was middle-class—meaning with an income ranging from $9,000 to $34,000—but by 2012 fully two-thirds had climbed into that bracket. In the same time frame, higher education soared sevenfold: 7 million graduated college in 2015. The result is a generation both creative and comfortable with risk-taking. Now major cities are crowded with ambitious inventors and entrepreneurs, flocking into software accelerators and hackerspaces. They no longer want jobs at Google or Apple; like their counterparts in San Francisco, they want to build the next Google or Apple.
Anyone with a promising idea and some experience can find money. Venture capitalists pumped a record $15.5 billion into Chinese startups in 2014 (US venture capital pool was $48 billion), so entrepreneurs are being showered in funding, as well as crucial advice and mentoring from millionaire angels. Even the Chinese government—which has a wary attitude toward online expression and runs a vast digital censorship apparatus—has launched a $6.5 billion fund for startups. With the economy’s growth slowing after two decades of breakneck expansion, the party is worriedly seeking new sources of good jobs. Tech fits the bill.
The new boom encompasses both online services and the hardware arena. Homegrown firms have distinct advantages, namely familiarity with local tastes, the ability to plug into a first-class manufacturing system built for Western companies, and proximity to the world’s fastest-growing markets in India and Southeast Asia. The combination of factors is putting them in a position to beat the West at its own game.
The success of copycat firms paved the way for “little dragons”—creative, upstart Web 2.0 firms that emerged in the late ’00s. The big dragons provided role models, but even more significantly, they built the infrastructure crucial for today’s high tech boom, including the cloud services that allow any twentysomething to launch a business overnight and immediately start billing customers. Corruption is just one of the many challenges China faces. The country’s leaders and investors also contend with nontransparent banks, government regulators on the take, rampant pollution, fierce crackdowns on political speech, and a rural population yearning for better jobs in the cities. It’s not clear whether the party can solve all these messy problems.
The high tech gold rush has produced manic and fierce competition among the swarms of entrepreneurs. There’s also been a hackerspace movement in China. The first one—Shanghai’s XinCheJian—was cofounded in 2010 by Chinese Internet entrepreneur David Li, when he noticed how cheap prototyping tools were allowing kitchen-table inventors to produce increasingly slick prototypes. Western entrepreneurs now flock to hardware and software accelerators in China’s coastal cities. China’s creative generation, in other words, has proven it is ready to compete head-on with the world’s top high tech brands. Moreover, China’s digital banking customers are expected to triple by 2020, reaching 900 million. China is the largest worldwide crowdfunding market with a potential of $47 billion.
Alibaba and its two giant Chinese Internet rivals–search engine Baidu and gaming/messaging firm Tencent–a trio known as BAT, are pouring money into all manner of firms at every stage from seed to late rounds. Since 2012 we count more than 50 investments totaling $2.3 billion. In the past 18 months alone Alibaba has plowed more than $1 billion into just ten U.S. firms. The three BAT companies each monopolize a sphere of China’s desktop-style online behavior, but they risk falling behind in mobile. This is a problem in a country where tens of millions of people skip PCs entirely. (China as itself has almost 1.3 billion mobile users, and half of them are on 3G or 4G.) Hence the landgrab–the Big Three don’t much care where the innovations on this new intertwined platform come from or, it seems, how much they have to shell out to secure them. The bulk of Alibaba’s revenue still comes from China, but the e-commerce giant will focus aggressively on growing its global business this year. Daniel Zhang, who took over as chief executive officer last week, told employees in in a recent speech that not only will Alibaba pour money into its global businesses, but also transform its company culture. “We need to have global talent.”
The Shanghai Stock Exchange is on track to inaugurate a new market for small, innovative companies, which will challenge the wildly successful Nasdaq-style startup board in Shenzhen. New market to host firms in sectors favored by Beijing for building an innovation-driven economy.
Hong Kong is known to be one of the world’s major financial centers with a wide range of international financial industry giants having their Asian hubs in the city. Barclays, HSBC, Lloyds Bank, RBS, BBVA, UBS, Citi and Wells Fargo represent almost an endless list of international banks that have chosen Hong Kong as an Asian satellite location. It’s no surprise that some of the largest banks are represented in Hong Kong since it is the leading financial center in the Asia-Pacific region. Moreover, according to BI, Hong Kong is leading the fintech adoption market as 29% of the digitally active people in Hong Kong reported that they have used at least two fintech services in the last month.
Hong Kong’s Financial Secretary (the counterpart of our Finance Minister) John C Tsang in his budget speech announced a strong focus on financial sector development (80% of Hong Kong’s GDP) and support of fintech startups (paragraphs 38-48) . The regular InvestHK’s newsletter also covered this news, as well as the expansion of the government fund Stratmeup HK to India. Bloomberg has made a list of the best countries for startups, where Hong Kong was the first and Singapore ranked as 4th.
According to HK FinTech, in 2013, over $3 billion of investments in fintech have been made worldwide and this is set to triple by 2018. In fact, within APAC, fintech provides one of the most cost-effective methods of delivering banking services to the 1.2 billion people without a formal bank account. Global Financial Centers Index of 2014 placed Hong Kong among the world’s “big four”—New York, London, Hong Kong and Singapore.
According to Hong Kong’s official government website, at the end of April 2015, there were 157 licensed banks (LB), 23 restricted license banks (RLB) and 21 deposit-taking companies (DTC) in Hong Kong, together with 64 local representative offices of overseas banking institutions in the banking sector. These institutions come from 36 countries and include 71 of the world’s largest 100 banks. The daily turnover in the Hong Kong interbank market averaged $31 billion in February 2015. Hong Kong’s stock market was the fifth-largest in the world and the third-largest in Asia in terms of market capitalization as at the end of April 2015. Hong Kong was also one of the most active markets for raising initial public offering (IPO) funds; $29.8 billion were raised in 2014.
Hong Kong fintech is a rich and rapidly evolving ecosystem with very promising fintech startups striving to compete in the international arena. The Government is committed to transforming Hong Kong into a hub for innovation and entrepreneurship. This was the message from Secretary for Commerce & Economic Development Gregory So speaking at a symposium in Chicago yesterday. He said Hong Kong strives to provide a vibrant ecosystem for innovation and technology to grow, and creates an enabling environment to help startups and tech enterprises succeed.
According to Bloomberg’s “The fastest growing economies of the world” South Korea is the first (China (3) Malaysia (6), Thailand (11) Philippines (17) and Indonesia (20)). The Korean Government also announced “Plans for Boosting Investments” at the 8th Meeting Promoting Trade and Investment chaired by the President Park in July 2015. The plans are developed to encourage investments in sectors such as tourism, venture, and construction where growths can be accelerated. The presentation can be summarized into six categories and one of it is the ‘Promotion of Venture Entrepreneurship’.
It includes the government’s plan to promote tech entrepreneurship and attract talents to this sector. The government also plans to support M&A and venture investments from the private sector. For example, crowdfunding is officially open for Korean startups. Korea’s National Assembly passed a package of economic stimulus bills, including one that makes crowdfunding and crowdfunding websites legal in Korea. There are several interesting fintech Korean startups already exist and successful.
Japanese e-commerce giant Rakuten launched $100 million global fund for fintech startups. The fund, and its Managing Partner Oskar Mielczarek de la Miel, already have been busy doing deals for some time — including a $12 million Series B round for Latin America-based Uber rival Cabify, a Series C for UK-based Currency Cloud, and bitcoin enabler Bitnet. Rakuten already runs Rakuten Ventures, a $100 million fund that invests across a range of verticals, but now it is literally doubling down on finance. Rakuten Ventures has done most of its deals in Asia but it is global in scope.
The fintech fund, however, is more focused on Western markets, with plans to follow-on and invest in portfolio companies as well as find and back new mid-stage startups. “While the fund’s immediate focus will be on companies based in fintech centers such as London, San Francisco, New York and Berlin, Rakuten FinTech Fund plans to gradually expand operations around the globe,” Rakuten added.
For almost a decade, Vietnam’s startup scene has faced shortage of quality startups, lack of legal support and inadequate funding. All this is set to change with a new wave of entrepreneurs and investors re-shaping the country’s startup ecosystem. Several changes were already visible during Techfest, the first national event for startups. Fintech ecosystem of Vietnam also started to grow.
In the Philippines, the government launched an initiative to create a single electronic payments platform for all transactions in the country. Dubbed the e-peso, the platform is envisioned to be a B2B, B2C, and C2C system for epayments. The initiative is part of a bilateral agreement between the Philippine and US governments. The USAID has awarded a US$25 million, five-year project to a company called Chemonics to support the Philippine government in the promotion and adoption of epayments in the Philippines.
The overarching goal, really, is simple: to eliminate, if not substantially reduce, the use of cash in financial transactions; turning the Philippines into a “cash-lite” economy within 20 years. Here’s the problem with the use of cash: it’s inefficient, costly, and can be dangerous for consumers and businesses. “Long queues, long distance traveling, and time wasting characterize the predominant payment for goods and services in the Philippines, as elsewhere in developing countries. The opportunity cost of using cash versus electronic means has real economic consequences, in terms of lost business activities and overall economic development,” says USAID in the draft statement of work for the ambitious project.
The USAID says epayments will also allow for the poor and unbanked to participate more broadly in the formal economy. “The poor benefit from too few financial instruments to manage their low, uneven cashflows. As such, epayment systems have the potential to help the Philippines reach development goals faster and make those gains sustainable.” It states that only 26 percent of Filipinos enjoy access to formal financial channels, and 610 out of 1,635 municipalities in the Philippines do not have banks. Moreover, as much as one‐half of mobile users in the Philippines are unbanked.
But on the other hand, it’s also true that Filipinos spend a bigger chunk of their lives online: the Philippines has the eighth largest base of Facebook users in the world, one of the reasons why it is touted as the world’s social media capital. And smartphone penetration is predicted to grow fast from 25 percent of the population to 50 percent by 2017. Because of high mobile penetration, the Philippines leads Southeast Asia in mobile phone payments, some reports claim. Taking all these into account, consumer readiness for digital payments in general is there.
Ralph Santos, founder of fintech startup VMoney, shares the same view. “Filipinos are tech savvy already. They love technology, they love gadgets, they love using it. They’re very open to modern methods, if you’ll look at what has happened in the last five years. They’re using technology for transactions. They use it to send money to each other. But it’s on a personal basis. Now we should allow for a holistic solution – borderless, ubiquitous, agnostic.”
The Indian government published proposals to encourage greater take-up of electronic payments in a country where cash still rules. It suggested a range of measures, including tax benefits to merchants if at least half of their transactions are handled electronically. Consumers could also receive income tax rebates if a certain proportion of their spend is cashless. Another idea is for government itself to drop certain surcharges it levies for making card payments. As well as encouraging users to make electronic payments, the government wants more means to accept such transactions. It would like greater deployment of POS\mPOS- terminals, which represent only a small percentage of total debit/credit cards in circulation. In addition, leading operators Bharti Airtel and Vodafone, as well as newcomer Reliance Jio Infocomm, will also look to take advantage. Earlier this year, Vodafone, Idea Cellular and Reliance Industries all applied to become so-called payments banks — cutdown versions of traditional banks which the Indian government hopes will boost financial inclusion.
India will pass U.S. to become world’s second largest smartphone market by 2017. The rise of e-commerce in India has triggered a wave of startups that are leveraging the increasing adoption of smartphones to provide mobile payment solutions. Alibaba invested in Paytm at an apparent billion dollar valuation earlier this year, and now MobiKwik is the latest to be flushed with new cash. New Delhi-based MobiKwik has pulled $25 million in funding, led by Singapore-based hedge fund Tree Line Asia. The deal included participation from a couple of interesting strategic investors — Cisco and American Express. Existing investor Sequoia Capital was also in the heavy-hitting Series B round. MobiKwik raised a $5 million Series A in 2013, and it is targeting a $100 million Series C which it aims to complete in the second half of this year.
The Indian e-commerce market has a new superhero — cashback. Move over discounts, cashback is the hottest new trend in business. Cashback is the newest trend to rock the entire Indian e-commerce game. Big players, emerging players, almost everybody in the e-commerce niche is embracing cashback culture, compelled by thick audience demand, surging market competition and latest funding rounds. It remains to be seen if the new fad stays strong in the long run or fizzes out in an industry that has been enveloped with deep discounting since its inception. Indian women online shoppers in the age bracket of 18-24 are the most active and comprise of 52 % as compared to 20 percent between the age group of 25-34, 6% above the age of 34 and 2% less than the age of 18 years. On an average, most of the women prefer shopping online between 9 – 11 pm that too on Mondays and Fridays. Also, 80% women prefer Cash on Delivery payment option while only 20% opt for online transactions, said the survey. Also India now Uber’s second largest market. Consumer Internet continues to lead in India – fintech the next big wave.
Life.SREDA VC is a global fintech-focused Venture Capital fund with HQ in Singapore