As part of Singapore FinTech Festival 2024last week, UOB released their annual Fintech in ASEAN Report 2024, featuring insights from our founding managing partner Yinglan Tan and portfolio founders including Tonik CEO and founder Greg Krasnov and Triple-A CEO and founder Eric Barbier

Check out the full report

Their insights highlight three key challenges for Southeast Asia fintechs after a decade of evolving beyond payments and e-wallets: defining scale, navigating evolving cybersecurity threats and regulatory changes, and sustaining the talent flywheel

“Expanding into multiple countries too early can be operationally overwhelming, particularly in a region as diverse as ASEAN. Strategic focus is key to success.” – Greg

“The biggest challenges will be regulatory changes, cybersecurity threats, and competition. FinTechs need to stay flexible and secure while keeping up with fast-changing regulations.” – Eric

“We are witnessing a full tech talent cycle in Southeast Asia, as former employees of companies that rose in the past decade are now starting their own business. To sustain this tech talent cycle, it is crucial to maintain momentum. A combination of accessible capital and supportive regulatory developments will encourage more FinTech alumni to transition into founders.” – Yinglan

Read more of Yinglan’s insights below, shared behind the scenes on AI in fintech, quantum computing, and the role of venture capital in fintech.

(1) The biggest shift in fintech in ASEAN the past decade has been the increasing trust in cashless transactions. 

Most significant has been the shift in consumers using cashless payments over the last decade, especially in higher income cities and regions. The cashless revolution is far from over, but it has taken over more of the market over the past decade. 

The biggest sign of how much the cashless revolution has overtaken everyday consumer behavior is just how much more apps or features built on digital payments have emerged in the last decade. Consumers are not only paying for transactions digitally, but deferring payments, investing in various asset classes, transferring money across borders, opening digital bank accounts, building online businesses that accept digital payments, etc. Digital payments has opened up a whole world of the digital economy beyond payments itself. 

(2) One cycle of fintech companies has produced new entrepreneurial talent; it is key to sustain this flywheel for ASEAN

We are already seeing a complete cycle of the tech talent flywheel emerging in Southeast Asia, with alumni of companies that emerged in the last decade already building their own ventures in the region. You have an Atome alum bringing BNPL into B2B commerce — Fluid’s Trasy Lou Walsh — a Rapyd alum introducing treasury OS to global businesses — Finmo’s David Hanna — or even Gojek alums like Pinhome’s Dayu Dara Permata bringing fintech into Indonesia’s property industry. 

This tech talent flywheel should be kept going. A confluence of capital access and regulatory developments can catalyze more fintech alums to become founders. 

(3) The next phase of fintech is to improve speed, flexibility, and modularity of digital financial services and financial management.

1. Generative AI is an obvious answer, but the pathway to integrating these technologies into more widely adopted fintech applications is not as obvious. (More in the answer to the next point)
2. Blockchain has gone beyond the crypto hype. While the cycles will always be tied to the technology, regulators in the region are beginning to understand how the underlying technology can help achieve more instantaneous, real-time settlements, reducing costs on and speeding up cross-border transactions. The MAS recently granted licenses for stablecoin issuance to companies like StraitsX (under the Fazz group), which is a step forward in this direction.  
3. We see a wave of fintechs like Fluid and Finmo bringing consumer level flexibility and modularity into B2B applications and processes. There can be massive revenue opportunities in this space with the digital transformation rush among businesses post-pandemic. 

(4) AI in fintech is not limited to pure AI plays; fintechs able to leverage data lake advantages can more seamlessly integrate AI use cases into customer experiences

It can be broken down across three layers of application. The first is data and process management, where you have enterprise / B2B applications like WIZ.AI or fileAI that allow businesses to use AI to automate operations like customer engagement or data processing at scale for custom use cases. 

The second is in decision making and risk management. On this layer companies the competition is less driven by technology (which is increasingly more accessible) but more so on which companies have the higher quality data sets. Companies like Carro (auto financing), Pinhome (property financing), and AwanTunai (supply chain financing), are leveraging AI to better assess risk for their financing businesses. 

The third is in consumer experiences. This is more complicated to execute given data security risks and how consumers may react to these AI-driven experiences, but when done well can impact growth and unit economics for fintechs. Companies like Finhay (wealth management) and Tonik (digital bank) are rolling out generative AI-powered features on their apps to better customize and automate key interactions. 

(5) Being a platform is not enough, even for fintechs.

The biggest challenges for fintech in the next five years will revolve around regulation and monetization. The pressure to move from 3P to 1P (pure platform to owned supply with platform-scale distribution) is hitting fintechs as well in today’s tighter funding environment, which to this day has no clear end in sight. 

Regulation is also catching up to innovation in areas like digital assets and open finance. Having the right relationships and licenses in hand will be key competitive advantages. 

(6) Quantum computing could be the leapfrog moment needed for greater adoption of blockchain and generative AI. 

The biggest technologies impacting fintechs today — blockchain / digital assets and generative AI — require immense compute power especially at scale. Quantum computing would ideally lower the cost barriers to building with these technologies at scale, but this innovation translating into commercial benefits is still far off. 

(7) Maturing business models and regulation are painful but necessary learning curve for the ecosystem.

The holy grail continues to be growth + financial viability (i.e., profitability via positive unit economics). Now the market has a better understanding of how difficult it can be to manage a pure platform play financially at scale, and how bad actors can get away with misleading definitions of growth, the capital markets have installed more guardrails to de-risk these trajectories. 

(8) What role do you believe venture capital has played in the growth of the FinTech industry in ASEAN

Venture capital has been a catalyst for competitive maturity in fintech in the region. The story that comes to mind is our investment in Fazz (Payfazz at the time). They were raising their first round of funding to scale their financial services for agents network in response to increasing competition from existing marketplace players building their own in-house payments infrastructure. Venture capital enabled a player like Fazz to scale early on in their journey and become a competitive player in their industry, as it has for many other “underdog” startups. This ultimately benefits the industry as a whole and ideally would benefit consumer experiences as well.