With Singapore Fintech Festival this week gathering regional and global leaders and players in the industry to the city-state, we are taking a look back at our podcast episodes with fintech leaders this year and list out eight fintech trends to keep an eye on moving into 2024 and the next five years.
If ewallets, P2P platforms, and ecommerce payments dominated the past five years of ASEAN fintech, the next five years will be different, driven by greater pressures on monetization, deepening cross-border corridors on digital transactions, and maturing consumer demands for digital experiences.
Which trends are most excited about and believe will be the biggest shapers of the region in the next five years?
- Southeast Asia’s growing role in global cross-border payments
- Rise of The “Financially-Savvy” Generation
- Conversion of the “Traditional” Generation
- Investing in finance talent and tools
- Race to the Holy Grail of Lending (for both Businesses and Consumers)
- Generative AI meets Fintech
- Back to Basics on Profitability
- Race to Embed Fintech in Consumer Experiences
Fintech Trend 1: Southeast Asia’s growing role in global cross-border payments
Global cross-border payments has always been a massive trillion dollar industry, but this time local and regional fintechs from Southeast Asia are placing their stake in the space with platforms targeting transactions coming in and out of the region.
One example is Indonesian P2P payments platform Flip’s international remittance product Flip Globe.
Flip COO Gita Prihanto: Flip Globe is something that we are investing in right now. The international remittance business is something that is big in Indonesia. It’s an 8.5 billion market with approximately 25% year-on-year growth. And this is a lucrative market because not only [is it] huge and growing, but also there is no clear winner in the market, especially in the non-bank space. And Flip actually has the advantage to [grow] into this segment and this business because we already have the technology. And having that technology, we decided to come in and basically help our users [with] their international needs.
To truly unlock the value of global payments in Southeast Asia, it will be key to build greater interoperability between banking platforms and payment systems.
Tonik Strategic Development Lead Jui Takle: “What it lacks is interoperability between digital banking platforms and payment systems, which is a major obstacle in the growth of digital banking in Southeast Asia. Interoperability allows seamless transactions between digital platforms and systems, just like how it is in India with UPI. In any ecosystem, the first thing that develops is payments, and then the rest follows. So I would say that there is still some time for Southeast Asia to mature.”
Fintech Trend 2: Rise of The “Financially-Savvy” Generation
From young professionals learning how to build up their personal wealth to micropreneurs learning how to better manage their business finances, a new generation of “financially-savvy” consumers are emerging armed with platforms like Flip helping them develop financial literacy, one transaction at a time.
Flip COO Gita Prihanto: With our P2P payment product, our largest segment is what we call the new prime segment, which is the younger audience, somewhere mid 20 to early forties. The ones who have a good job, good salary or good income, but they still also care about their finances, their savings, and their economics.
The second segment is what I called earlier, the micropreneurs. These are people who either have home businesses or small businesses as their core income or have another business on the side. And they like to use Flip to make payments to their suppliers and to their employees. Sometimes they ask their customers to send money through Flip.
So these are the two core segments that we are serving right now. We definitely see the phases of growth that started from tier-one cities’ growth to tier-two cities and tier-three cities and so on. And that is something that we are very excited about because then we can also help in the vision of increasing financial literacy, also improving the micropreneurs’ growth and business, especially during this period of time. That is something that we are invested in.
Fintech Trend 3: Inclusion of the “Traditional” Generation
It is not just the younger consumers adopting fintech applications and platforms. Greater digitalization in Southeast Asia markets is inevitably seeing even older generations embracing fintechs. It helps that governments, like Vietnam’s, are actively pushing this adoption as well.
Finhay CEO and founder Huy Nghiem: “Regarding digitalization, the Vietnam market is evolving rapidly. When I returned to Vietnam in 2017, 40% of the population was unbanked, but now it’s estimated to be around 15%. Cash on delivery was more than 90% in 2017, but now it has reduced to 40% or less. Payment methods have also evolved, with more people using QR codes and digital banks.
It’s not just payment or banking that’s changing, but also insurance, stock trading, investing, and even tax payment. Recently, the Vietnam government has been pushing for eID, which means we may not need a physical ID anymore. This will be very helpful in the coming years.
Another example is car tolls. Before 2021, there were still booths where people had to pay cash, but now it’s 100% digital. Vietnam is heavily enforcing and transforming digitization, and this trend is not just in the government sector but also in the private sector.
As for our platform, our main audience is still from 25 to 30 years old, but we do see an older age group using our platform. In 2019 and 2020, we were the first in the market to introduce a virtual account concept to end clients. This has become very popular, and other services are now using virtual accounts from banks.”
Fintech Trend 4: Investing in finance talent and tools
In a bear market, businesses (especially venture backed companies) are more hardpressed to get their financial maturity in shape, to be in a better position to leverage external funding. Spending on finance talents and tools is increasing as businesses are bringing finance back to the driver’s seat of business.
Aspire CMO and co-founder Joel Leong: “Basically, businesses have had to readjust themselves multiple times in these two years. And I feel like all of this kind of brings finance back to the driving seat of the business. Because there are a lot of financial decisions here. You continue to operate overnight during COVID. What do you shut down? What do you change? And then like tech winter, okay, it’s no longer top line, it’s the bottom line, so what do you change? And for all these you actually need data and you need the right analysis from your finance teams to actually guide you. So that was the backdrop.
With this community, what we felt we could do — was we wanted to do two things. I think one was to celebrate the role of finance in business and bring them back to the driving seat, bring finance leaders into the conversation with the business leaders as they should to drive the business forward.
But I think the other thing was also to provide an opportunity for finance leaders to learn from each other. A lot of times finance topics are for good reason kind of behind closed doors. And that’s why sometimes they are even kept in the back office. And therefore the opportunity for them to connect with one another, with other finance leaders with the right level of discretion but behind closed doors is an opportunity for them to grow and to bring the industry forward.”
Fintech Trend 5: Race to the Holy Grail of Lending (for both Businesses and Consumers)
One of the greatest barriers to financial inclusion has been access to financing, and over the years fintechs have tried (and failed) to crack the code. This past year and in the next five years, we expect to see more companies making significant progress and reaping the fruits of their work developing underwriting engines and software to collect the lifeblood of lending that is (structured) data.
AwanTunai in particular has been pioneering transaction-based financing for MSMEs in Indonesia.
AwanTunai CEO and co-founder Dino Setiawan: ”I would say we were the pioneers in transaction-based financing, where no loan asset gets generated unless there’s an inventory purchase transaction. While it’s flattering to see that many competitors are offering similar lending programs, we’ve noted that they are doing the lending without investing in a proper supply chain ERP system like we have, which optimizes for fraud detection.
It’s an interesting thing because when we did the build versus buy analysis back in 2019, we realized that the third-party ERP systems in the market were not designed to detect fraud that we knew existed. We couldn’t see that in the general market ERP systems out there. So that’s how we ended up building the ERP system from scratch, specifically focused on fraud detection. Maybe that’s been the differentiating factor.
A lot of the e-commerce marketplace folks have scaled up their systems to optimize for GTV capture, and sometimes there’s a bit of a perverse incentive where if there’s some fraudulent GTV, it’s still captured because it’s driving up the valuation. But for us, since we started life off as a lender and risk management is part of our DNA, we custom-built the system to detect fraud.
Our operating system and financing have played a strong role in enabling the best-performing suppliers to grow significantly – we’re talking 4x-5x or even more. For example, one of our best-performing wholesalers initially had just two warehouses. With the control systems we put in place using our operating system, they were able to manage more remote sites and grow to 11 warehouses within one and a half years. No bank would lend at a 500% increase as it’s too risky. Our model not only lends, but our operating system helps manage businesses and provides deep visibility into operations.”
Consumer lending is a lot more difficult egg to crack, but it is a golden egg for the company that will crack it.
Tonik CEO and founder Greg Krasnov: “The lessons learned are, yes, there’s definitely that massive gold to be had. It’s taken us longer than we expected to figure it out, but we’re getting there. And I think we’re still in a great position. So our competition hasn’t really figured it out…None of these guys have figured out the Holy Grail, which is the kind of unsecured and semi-secured digital channel-only lending. None of them have done that. We’ve been trying to figure it out for much longer than them, so we’re probably in a better place than they are.”
Fintech Trend 6: Generative AI meets Fintech
It will be exciting to see in the next five years how AI, and especially generative AI, will contribute to building increasingly personalized experiences for consumer fintech applications.
Tonik Strategic Development Lead Jui Takle: “The other thing is enhancing customer experience and innovating products that are unique to customer needs in that region. People don’t want to stand in long lines. Today, they just want everything done quickly on their phones, and they want personalized experiences. The traditional banks in the Philippines have realized the value of this seamless experience that we and other digital banks are giving, so they are also trying to get into it.”
It won’t be easy to build generative AI powered features, but companies with the right “data lakes” are in a better position to do so.
Finhay CEO and founder Huy Nghiem: “We are no longer just a micro-investment platform, but a smart investment platform. What does smart mean? So far, the insight that we have gained from the market research on the semi-pro investors or traders is that they generally have full-time jobs and are quite busy.
In a week, they can make around one trade per day. It’s a very micro transaction, and they don’t have a lot of time to do in-depth research into the company’s performance. As a business service provider, a smart investment platform means we provide concise and relevant information to them.
For example, basic information on revenue growth of listed companies, and we also provide tools for them so they can make trades with the click of a finger. We also create smart portfolios so that they can invest in that smart portfolio in a few clicks instead of having to choose a strategy, etc. That is the positioning of our smart platform.
We are making more and more smart tools available on the platform, allowing users to invest easily and seamlessly. We are also incorporating AI applications. ChatGPT was made available last year and GPT4 is pretty much available already. We have a lot of data, business data, so we want to aggregate them and then feed relevant data to users without having a number of analysts behind the scenes feeding data to end consumers. That AI component helps improve that smart component that we have within our platform.”
Fintech Trend 7: Back to Basics on Profitability
Tonik CEO and founder Greg Krasnov: “Back then, the market was valuing neobanks as a price to user. And I’m a bit of an old-school guy, right? So I believe that a bank should be profitable and the bank should be selling profitable products as a starting point, and you don’t scale it out until you’ve achieved that. So it has a sequence, right? And that whole kind of, “Hey, let’s go and just capture this huge market share” mentality is not a safe place to grow a bank. For me, it’s returned to normal in a way…a business is there for profit, not for massive market share capture as the main assumption. That’ll come, but it’ll come as a result of diligent focus on profitability.”
Fintech Trend 8: Race to Embed Fintech in Consumer Experiences
From the monetization opportunity to meeting the demands of consumers for more complete journeys on platforms, all the motivations are there to embed fintech features into consumer platforms. It is then a question of which platforms are best suited to execute on this, as it requires a lot of partnerships and technology infrastructure plugged in.
Pinhome CEO and co-founder Dayu Dara Permata: “The penetration of mortgages, when we measure that as a percentage of GDP, is still at below 4%, somewhere about 3%. We compare that with other markets, both developed and also emerging. Say, in China, the penetration of mortgages is at 55% of GDP, and in India, even still at a much higher percentage, at 12% of GDP. In more mature markets like the US or Singapore, that’s like more than 80, 90% of GDP.
So there’s so much room to grow. Now, what does it mean for the consumer side, right? Knowing that financing is a very important piece of the interactions and of the whole kind of real estate transaction, consumers want financing to be embedded. Consumers want the financing to be there as they are searching for their first home or their next homes.
…On the financing side, we believe that interest rates are going to, of course, go back down. There’ll be a significant increase in mortgage origination capacity as banks diversify beyond consumer lending, non-collateral, to more, I would say, sophisticated collateralized lending like mortgages.
…What’s exciting for PropTech is that the infrastructure will be there; the mindset will be there. First-time homebuyers are very excited to look for their first home. There’s going to be over 100 million of them in Indonesia alone. And then at the same time, the way for AI, right? We see the proliferation and just the acceleration of AI, especially LLM being one of the most advanced kinds of technologies in AI right now being developed and being adopted. We see that PropTech will be able to tap into that.”
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.