Last month, we wrote about emerging trends in fintech we have observed over the past year, especially how (1) an increasing number of platforms have been tackling barriers to greater financial inclusion beyond payments, and (2) an increasing number of non-fintech platforms have been leveraging financial services to improve user experiences, drive retention, and even expand margins:

In this article, we add five more insights we have picked up across the year, through the conversations we have had with fintech entrepreneurs and investors:

1. Platforms with consumer lending products are seeking more secure shores to weather the inflationary environment.
2. There is a red ocean illusion in certain sectors which fintech platforms are breaking by working to unlock untapped market segments.
3. Southeast Asia’s more mature fintech platforms are also coming into their own with more complex, multi-product ecosystems that set them apart from their global competitors.
4. One direction fintechs have been taking to expand their product offerings has been building up the banking stack, through fintech M&As, M&As with banks and FIs, and building out day-one banking propositions.
5. There has been more building of infrastructure platforms and adoption of this infrastructure by businesses and institutions (more so than ever before) in Southeast Asia. This goes from Web3 native platforms building tools and tech stacks for Web3 ventures to what we’ve called Web2.5 platforms building bridges for more traditional and Web2 businesses to facilitate Web3 or crypto transactions as well.

(1) Platforms with consumer lending products are seeking more secure shores to weather the inflationary environment. Now there are several considerations here: (1) the sensitivity of target customers to inflation, (2) the sustainability of the platform’s liabilities, and (3) the existing credit system to cover these customers vis-a-vis the unsecured loan market (that most fintechs have been looking to tap in these emerging markets). In general, however, asset managers are looking to shift safer disbursement/deployment/underwriting strategies. 

For example, Philippine digital banking platform Tonik, while initially looking to lend unsecured consumer loans to what CEO Greg calls the “blue ocean rising middle class”, has since developed offerings into safer segments and assets. This decision was made in the context of the factors we discussed above: (1) the blue ocean rising middle class working in sectors like retail and F&B that would be the first to be impacted in an inflationary environment, (2) Tonik had accumulated a significant amount of deposits on the asset side, and (3) the underwriting capabilities needed to compensate for the lack of a credit system in the Philippines for their target customers needs time to iterate and fully develop. 

And so Tonik has adapted. As he explains on our latest podcast episode, “So we launched actually the first digital mortgage product in the Philippines. And that’s a larger ticket, and a safer product because it’s secured. We are repositioning our cash loan, we’re spinning out a cash loan into the prime segment, a more kind of banked personal loan segment because I fully expect banks to pull back on personal loans.”

(2) There is a red ocean illusion in certain sectors which fintech platforms are breaking by working to unlock untapped market segments. In the case of stock investing and trading in Vietnam, Finhay has been working to expand the market rather than fight over existing retail investors and accounts with established players. As CEO Huy Nghiem explains on our latest podcast episode, “To me, I see the market share in Vietnam can be expanded instead of being stolen from each other. So the entire market has 6.2 million trading accounts opened, but only around a million of them are active trading. And we have around 20 to 25 million TAM from Hanoi and Ho Chi Minh City. And so what it means is there’s still more than 10 million traders or people who can trade out there in the market.”

(3) Southeast Asia’s more mature fintech platforms are also coming into their own with more complex, multi-product ecosystems that set them apart from their global competitors. One example we have discussed in 2022 is Ajaib. While seeing success on top of the stellar growth of their stock trading app, Ajaib cannot be considered a pure “Robinhood equivalent.” In fact, they have evolved to become a hybrid of several key financial services, thanks to their investments into Bank Bumi Arta as well as the development and recent launch of their crypto product. 

We’ve described their evolution as a combination of Chime, Robinhood, and Coinbase, placed into a market like Indonesia where they also have the advantage of shaping the education of first-time or underserved investors, who by far outnumber regular, long-time retail investors and operating in a market where the costs of making these investments are lower than in more developed markets in the West. 

Of course, the purpose of this evolution is not for its own sake, or purely to differentiate, but ultimately to build a deeper relationship with customers (and their wallets). By building flexibility and optionality into the platform, and strengthening its long-term value proposition for users, the goal is not just to be a digital version of a stock brokerage, but ultimately the most accessible investment partner for their users. 

Another implication of Ajaib’s “super-app”-esque development, which a lot of fintechs have been doing to rebundle financial services for their target segment, is that the competitive environment will be shaped by which companies will be able to most efficiently leverage this growth trajectory. At the same time, it is more likely that there will be multiple market leaders across customer needs and segments rather than any single decisive one. 

(4) One direction fintechs have been taking to expand their product offerings has been building up the banking stack. This has been something we have been writing about since 2019. Building out the banking stack is becoming a predominant path to scale for many fintechs but there are many ways to go about it depending on the availability of licenses, the competitive landscape, and the fintech’s core service / product-market fit. 

What we have seen since 2019 is the variety of methods fintechs have been building these stacks: fintech M&A (Fazz forming from M&A of Payfazz and Xfers), investments into and acquisitions of banks and FIs by fintechs (Ajaib acquiring Primasia Sekuritas in 2020 and investing into Bank Bumi Arta), and day-one digital banks (Tonik). 

Zooming into the fintech M&As approach, Fazz (as Payfazz then Fazz Financial) had been acquiring key licenses to launch in-house services ranging from payments to loans and money transfer as well as investing in startups with adjacent services like Xfers with their banking infrastructure (which ultimately led to the formation of Fazz Financial from Payfazz), Modal Rakyat with their P2P lending platform, and CrediBook with their digital bookkeeping app. 

Tianwei shares on our latest podcast episode, “Hendra and I were saying that we are both trying to expand the business. I’m looking to go into Indonesia; they were expanding out. But a problem is gonna happen where if you’re not local enough, we don’t have enough presence, and acquiring licenses is extremely difficult to navigate. So we saw a lot of synergies already with the fact that our businesses have so much overlap and we need each other to expand a lot. So that became one of the key drivers for why we decided to come together as a company. Because together we can achieve a lot more and licenses will allow us to basically have a [wider] reach and give more services to our existing clients.”

These methods have emerged given (1) the challenges of securing licenses across markets (it’s already difficult to secure one license in one’s home market, what more in others), (2) the challenges of competing with established banking players and financial institutions which have increasingly been venturing into digital, and (3) the challenges of building competitive moats with differing infrastructure and social behaviors around financial services in different Southeast Asia markets.

Different seeds and growth trajectories but there is such as thing as “fertile ground” in digital banking: (1) underbanked or underserved population, (2) a good profit pool (proven by incumbent banks), and (3) weak / legacy incumbents (referring to technology).

As lines blur between traditional and digital banks, and even beyond banks with open finance and more channels to develop and deliver financial services, the competitive landscape boils down to which players are able to serve their customers’ needs the best and retain them in the long-term. This customer focus means reframing customers from account holders (how to get customers to open and keep accounts) to DAUs (how to provide value-adding services), and this approach is producing mutant, segment-specific banking models.

With this momentum towards full-stack ecosystems and consolidation, fintechs will need to have a clear sense of what scale will look like for their respective platforms, and digital banking may not be the sole direction. Some platforms that started out with financing, albeit for SMEs and not consumers, have also ventured into SaaS offerings and embedded finance, as in the case of AwanTunai. 

(5) Of course any recap of fintech this year would be remiss without mention of cryptocurrencies, Web3, and decentralized finance (typing in all three for the SEO). But apart from the crypto headlines that dominated this year, one aspect of development in this space has been more building of infrastructure platforms and adoption of this infrastructure by businesses and institutions (more so than ever before) in Southeast Asia. 

This goes from Web3 native platforms building tools and tech stacks for Web3 ventures to what we’ve called Web2.5 platforms building bridges for more traditional and Web2 businesses to facilitate Web3 or crypto transactions as well. There has certainly been a lot more experimentation in recent years than most, and while there has yet to be a truly massively adopted use case beyond the speculative (in the same way that social media has dominated our daily lives), the iterations and supporting Web3 builders are important.

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While fintech is making its way across an increasing number of digital experiences, industries, and markets, it’s clear from how things are evolving in the regulatory side and the established players side that there’s still a lot more that can be done in the space — it’s just the beginning. Revisit our coverage of fintech in 2022 with the articles below:

1. A Case Study on Expanding Horizons: How Aspire became the all-in-one finance platform for growing businesses (February)
2. 5 Learnings from a Front Row View of the Philippines’ Digital Banking Future in the Making (March)
3. 5 Fintech CEOs share their views on fintech infrastructure and open finance (March)
4. Deposits, Licenses, and Investments: What Southeast Asia fintechs are banking on for growth (April)
5. Making Sense of The Blurring Lines in Digital Banking: Finovate Edge Asia Panel (June)
6. Paradigm Shift from Platform to Partner: Finding Growth with Digital Retail Investors Across Indonesia and Vietnam (June)
7. Fintech is Everywhere: Trends on the Adoption and Democratization of Financial Services Across the Digital Economy (November)
8. S04 Call #36: Fintech In Southeast Asia Is Still Day 1 with Fazz’s Tianwei Liu, Tonik’s Greg Krasnov, and Finhay’s Huy Nghiem (December)