Amidst the difficulties and challenges of today’s market, Southeast Asia remains a bright spark for innovation, with talent, capital, and ideas flocking to the region in greater numbers than ever before. For fintech in particular, with so much yet to be fully addressed in terms of banking and financial services pain points and more infrastructure […]

Fintech is Everywhere: Trends on the Adoption and Democratization of Financial Services Across the Digital Economy

Amidst the difficulties and challenges of today’s market, Southeast Asia remains a bright spark for innovation, with talent, capital, and ideas flocking to the region in greater numbers than ever before. For fintech in particular, with so much yet to be fully addressed in terms of banking and financial services pain points and more infrastructure and regulation rolling out to enable faster building and execution for fintech (from KYC to specific services), this sector remains one of great opportunity for VCs to look for next-generation market leaders and makers in the region. 

While the market has seen dry powder accumulating, VC’s have become more selective and strategic with their deployment. Capital is flocking to safety and quality, and broadly that is what investors abroad are also hoping to find in Southeast Asia (vis-a-vis other markets). While VC’s may have leverage in a capital-scarce environment, businesses with strong gross margins, sustainable competitive advantages, operators and business models that are capital efficient, are able to continue attracting capital to them. 

To that end of creating capital-efficient business models, fintech remains a fundamental part of the digital economy. This year’s SEA E-conomy report documented how fintech / digital financial services has overtaken ecommerce as the region’s top investment sector. At the same time, the report also cite the challenges of rising interest rates, riskier lending environments, and competition from incumbents.

While fintech in Southeast Asia has evolved greatly in terms of the business models, there are still a lot of pain points, especially in terms of expanding use cases (from embedded finance to DeFi) and building critical infrastructure to facilitate these use cases. When it comes to fintech, we believe that the use cases and applications will expand beyond fintech companies themselves, making open finance a critical movement in the region and fintech a key part of many non-fintech business models as they scale.

Early wave of fintech licenses bear fruits: A look at Vietnam 

Regulation across various areas, from digital bank licenses to open finance sandboxes and cryptocurrency rules, is making it easier for more complex and impactful fintechs to be built. Regulation over the past few years, while still not as fast as the pace of innovation, is also catalyzing next-generation startup building and value creation. 

Fintech is a sector where the advantage of being a local player runs deep. That means the value of having localized moats, from licenses to market trust and distribution ownership, is significantly higher compared to companies in other sectors. At the same time, this makes regional expansion a lot more challenging, and fintechs have to be prescient of what such expansion will entail and if the returns to the business will be worth it in order to remain capital efficient.

For example, Finhay acquired a securities brokerage in 2021, along with it the key license enabling it to launch its stock trading product to great reception. Also in 2021, Medici became the first of its kind (a tech startup) to secure an insurance broker license and has since grown its initially healthtech business as a fully-fledged insurtech.

Finhay CEO and Founder Huy Nghiem shares on the podcast (2022): “The macroeconomics based on our current data as well as the behavior we have seen from users gave us…was why we started to apply for a stock brokerage license and introduce the stock trading feature to our end users. Since we launched our stock trading in late December, we already contributed to around 35% of the new trading accounts opened in the market on a monthly basis already. The market opportunity is huge.”

Medici CEO and Founder Duc Anh Ngo shares on a press release (2022): “Insurance is a complex product, hence advisors’ credibility and expertise lies at the core of the business. At Medici, the technology we have built does not take the insurance advisor’s place, but empowers them to be micro-entrepreneurs, adapt to the changing insurance landscape and become the catalyst for much-needed greater access to insurance across Vietnam.”

Embedded Finance in Digital User Experiences

Companies in Southeast Asia are increasingly having financial services embedded into their business models, products, and growth trajectories in a variety of ways from Indonesia’s AwanTunai, which enables micromerchants to access financing through supply chain data and transactions to Carro, which has their Genie Finance business integrated into the user experience of their auto retail platform for customers to access financing or insurance, from proptech Pinhome, which also offers property financing through their end-to-end property transaction platform, to insurtech Symbo, which also offers insurance offerings attached to product or service transactions. 

The rise of embedded finance in the region is driven by demand for more holistic digital user experiences. Financial services becomes a fundamental part of one’s digital identity and overall experience. 

Pinhome CEO and Co-Founder Dayu Dara Permata on the podcast (2022): “We understand that for transactions to happen, for example, 75% of our property seekers need mortgage…For all stakeholders, our financial service offering spans across the entire real estate supply chain.” 

Carro CEO and Co-Founder Aaron Tan on the podcast (2021): “In-house we have credit systems that we have built using machine learning. We build credit models that actually allow us to understand what is the quality of the customers? Now assuming your credit is okay, then the question is, “How can we get more accurate in terms of, “Do we know the car you are selling? Is it safe? Is it a good quality car? Has the car been flooded, has the car been tampered with?”” And a lot of what we do today really is to diagnose the cars, using machine learning.”

AwanTunai CEO and Co-Founder Dino Setiawan on the podcast (2021): “Micro SME lending is a space that we’re going into that’s in a way, a blue ocean…what we’re doing with our banking partners is we’re opening up this new segment for them in terms of the larger SME lending…Banks simply have the lower cost of capital, but we can certainly compete on product structure and product speed specifically tailored for our suppliers.”

Wifkain CEO and Co-Founder Sara Sofyan on the podcast (2021): “Throughout that integration of both the consumer side digitalization and also the merchant side digitalization, that would create enough transactions that present a lot of rich data that can be used for other adjacencies as well. The interest is there and hence information such as transaction volume captured by the platform is used by our fintech partners to get richer credit assessment for our partners to get easier working capital facilities as well.”

Open Finance making fintech solutions more accessible

Moving forward, nearly every tech company is likely to have some level of embedded finance in their product or service. This makes sectors like open finance important — and we have also invested in Southeast Asia’s leading open finance platform Brankas, which is enabling even non-fintechs to implement financial service features through their API menu. 

Brankas CEO and Co-Founder Todd Schweitzer on the podcast (2022): “If you’re an online business, you’re either collecting payments, dispersing funds, managing your inventory, or managing your cash…And what we’re seeing now is that there are more and more business models where companies are actually collecting a small payment fee or charging a commission on loans that happen inside their platform, even though they’re not a lending business. But they can offer this platform model. So as more and more of these use cases come, we are helping them more easily plug into the financial service providers that are actually underwriting the financial product.”

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Paulo Joquiño is a writer and content producer for tech companies, and co-author of the book Navigating ASEANnovation. He is currently Editor of Insignia Business Review, the official publication of Insignia Ventures Partners, and senior content strategist for the venture capital firm, where he started right after graduation. As a university student, he took up multiple work opportunities in content and marketing for startups in Asia. These included interning as an associate at G3 Partners, a Seoul-based marketing agency for tech startups, running tech community engagements at coworking space and business community, ASPACE Philippines, and interning at workspace marketplace FlySpaces. He graduated with a BS Management Engineering at Ateneo de Manila University in 2019.

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