- Japanese parliament is looking to allow local financial institutions to invest, i.e. fintech!
- WeChat might become the face of China’s consumer-oriented financial system
- Flipkart and Snapdeal wanting to be the Amazon or Alibaba of India
- Taiwan lack of major financial partners that could accelerate growth for startups locally
It’s to tech and business conferences what candles are to birthday cakes: fintech showcases! Not adding much to either the flavor or the content, it’s a mainstay of the current business events scene mostly for appearances. Though I do think that this new field has immense promise (guess why I’m in it…), it might be overhyped at the moment. It is the one vertical in the startup funding environment which is still seeing a strongly growing investment flow, and it is growing particularly well here in Asia.
While this article won’t help you get a definitive view of the field – things are happening very fast and a lot of both tech and finance interests are starting to stake a claim – I do hope to try and get you up to speed on the broad strokes of what’s happening in Asia. From here on, you can stay up to speed yourself!
For my view on international developments, I wrote a LinkedIn post on the subject of global fintech trends. For a more comprehensive look, feel free to look at this excellent report by PwC, which I will reference regularly below. Both PwC and EY are doing a lot of fintech report writing, so I would recommend you to do a brief search on those terms to get more insights and stay up to date.
The following are my trend observations from having lived and submersed myself in the field for the last six months. They’ll be split into the key markets I am watching, and interesting organizations that are worth looking into if I have any resources that are worth reading.
(Caveat: I have left out South Korea from this article. I don’t have enough connections or insight into the field. Its non-inclusion here is out of respect, not out of a belief that there is nothing happening in the Korean ecosystem.)
Major countries and regions in Asia’s fintech sphere
Japan: Rising Sun or Sunset Industries?
As crazy as Japanese stocks are going over Pokémon Go, there is more to the Topix Index than Nintendo! Looking at the biggest investors, they are accelerating their investments due to the negative interest rate environment, and fintech might see a particularly strong boost.
Talking to banks and recruiters in Japan, they are very eager to hire financial talent with foreign exposure, and scout acquisition targets. Nomura is in the process of setting up their Financial Innovation Office, Rakuten is committing funds to fintech specifically (which is smart given how much financial activity they’re doing), and Mizuho, SMBC, and MUFG are all aggressively exploring the fintech space by either setting up their own funds or by running innovation initiatives, like MUFG’s Fintech Accelerator.
Why the rush all of a sudden? Well the Japanese parliament earlier in 2016 is looking to allow local financial institutions to invest in significant stakes of non-bank firms as long as they provide technology solutions, i.e. fintech! On top of this you have a VC community flush with cash, and strong metrics in terms of the market, and the size and number of potential partners. CyberAgent Ventures and JAFCO stand out as strong VCs willing to look abroad and go the extra mile to find startups to invest in. The spark is lit!
Japan has a mixture of significant major potential partners for any startups, massive assets that can be deployed (corporate cash in the vicinity of 45% of GDP, or US$2 trillion!) and a relatively big population with significant assets in the bank. People tend to talk about Japan as a very morose country, but even with the stringent regulations preventing banks from investing heavily in startups, Japan placed third in Asia in terms of fintech investment funding!
Trends to look out for: My belief is that Japan has a lot of strengths to play to: a massive amount of both personal cash savings and corporate cash and -equivalents (reaching nearly US$10 trillion in total). This is most likely to play out in financial management for individuals or SMEs, which is a heavy focus on TiA’s list. My thesis is that fintech doesn’t need to be focused on banks, but rather the people and companies that use financial services and find it cumbersome or slow to deal with current market offerings. Given how big and diverse Japan’s SME sector is – and how many world-leading niche, value-add companies are in there – I do think that the island nation is a ripe market for B2B fintech business models, targeting non-financial corporations especially.
Key Japanese fintech startups: For a company on the bleeding edge of technology, I want to especially highlight Alpaca.ai and their app Capitalico. If you’re investing and find your emotions trading against your system, that’s where their solutions come in and help automate your trading strategies using optimization and pattern recognition! For more “vanilla” financial management and investment advisory, Money Design is running a robo-adviser that allows you to effortlessly use investment strategies from the top financial institutions. Zaim is focused on automating all your personal finances, from expense tracking to receipt scanning and bank account integration. Free, Money Forward and Moneytree (already received funding from banks) helps small businesses with similar issues and add on accounting services on the top. And the big player in Japanese fintech is Metaps’ Spike product, a newly launched payments tool for SMEs. Metaps is one of Japan’s brightest startup successes, and has already gone public. Zuu Online is Japan’s largest online financial media site with an executive team under Kazumasa Tomita filled with strong ideas for how to build out Japan’s financial ecosystem.
China: The (eleph)Ant with the roar of a Dragon!
Did I mention how Japan was number 3 on PwC’s report on Asian countries investing in fintech? Well of course, everything is bigger in China, and the nation comes up on top in fintech funding and round numbers. There are massive funding rounds happening here, and the growth looks very strong as well.
Circling back to my earlier post on global financial trends, China leads the platform plays. From my perspective B.A.T. (Baidu, Alibaba, Tencent) are driving this form of innovation globally. Much like the Emperor or Qin, the idea is to conquer a lot of ground to ensure dominance. Now it just happens to be a marketplace rather than a battlefield, but controlling such a big market with very divisive consumer tastes allows others to prosper inside their domain. Ant Financial is probably one of the best cases for this, as it uses the Alibaba platform to really drive home the point of how big payments are in China, and how much power one holds when controlling them.
Tencent’s WeChat allows incredible options for everything from shopping and payments to investing and asset management. Their red packet campaign got a lot of people to join in on the festivities in the Chinese New Year electronically, and then stopping free transfers back to bank accounts allowed Tencent to keep massive amounts of funds internally in the WeChat ecosystem. Together with the banking license and all the major offerings that can be provided through the platform, WeChat might become the face of China’s consumer-oriented financial system!
Trends to look out for: China will likely look closely at this growing field and regulate fintech more heavily, but this will be balanced with taking a strong position in a growing field. (One needs less long-term investment in education and research for this field than, say, medicine, energy technology or IT. An opportunistic Communist Party and regional cadres likely would enjoy quick wins in the field.)
In terms of driving growth, I do believe that investment vehicles, mass-market investor education and investment management tools, as well as payments access will be really hot fields going forwards. We all know about how much the Chinese market went up last year as people started speculating with stocks. The P2P lending bubble has claimed many victims and doesn’t seem to be done yet. China has ample resources dormant and searching desperately for yield, whatever allows the Chinese to invest in it at attractive yields will be speculated with to the point of price separating completely from fundamentals.
India: Leaping Tigers
What impresses me the most about India is just how much financial inclusion is involved with what is happening in the startup ecosystem here. Credit scoring for underbanked, helping smaller merchants grow and reach a bigger audience, and big advances in mobile banking are all areas where India can probably lead the global markets and build innovations that can be adopted elsewhere. Remember, India is an incredibly educated country with a demographic dividend (growing working population) to enjoy, with strong English proficiency and a well-connected and talented global diaspora.
Looking at initiatives like DBS’s commitment to mobile-only banking shows how established institutions are viewing the market as one where older business models simply may not meet the needs (or abilities) of customers. Mobile banking, branchless offices, end-to-end electronic advice, handling and signing isn’t “progress” or “value-added services” in India, it’s the service model that’s needed to reach customers at scale since the traditional infrastructure might not be there!
Trends to look out for: India is a big market where few people think twice about taking an idea and putting a slightly personal spin on it, or adopting it outright with a more specific target market or use case in mind. This, plus India’s longer catch-up means that there is a lot of space for the country’s innovators to build Indian equivalents of established companies and grow them quickly since the business models are proven elsewhere. (Flipkart and Snapdeal wanting to be the Amazon or Alibaba of India, Ola wanting to be the Uber, etc.) I still think that this will continue going forwards, but with recent investor attention in India due to changed politics under Narendra Modi, the competition for the “easy” VC money might simply be too big for any startup to copy or adapt successful models elsewhere and then fight a customer acquisition war against hundreds of local competitors. This might also make it much tougher to scale internationally, as that “home market piggy bank” that many companies can draw on for international expansion might simply not be there after a drawn-out fight for market share at home.
Where I do think that India will shine is not surprisingly in the innovation of financial inclusion. This will be harder to crack in terms of building funding interest, and potentially even scaling. (How do you target an audience with relatively little data on them and that rarely interacts with current financial channels?) The ones that do manage to build a strong, defensible value proposition will likely be slow to both nail it and grow thereafter, although I personally believe and hope with everything I have that they will be successful.
The “wars” that rage in India’s startup scene will lead to Pyrrhic victories if customers are not loyal enough to stay with your company when a rival offers a better deal. Again, the beauty of B2B business models in fintech shine through. Looking for partnerships or B2B clients makes it possible to help improve the offering for someone who has already won a battle for market share, while the startup doesn’t need to be as concerned with competition. It might be a more boring route, but one that I do think can lead to greater value creation in a market which tends to crowd every new field. What this will look like I have no idea about, I’m just certain that I would never have been able to think of it!
Few interesting startups: KyePot offers Indian savers better rates and lenders lower interest through smarter pooling of savers and lenders. ShereIt is a social trading tool that allows Indian investors access to the US markets and US market insights. Cefy is a company that can offer virtual credit cards and uses big data and a proprietary scoring tool to offer credit scores within minutes for underbanked people.
Taiwan: Trying hard!
Taiwan admittedly gets a spot in this article simply because I happen to live here. The local fintech scene has a number of rather specific challenges that risks stunting innovation and innovators in Taiwan’s finance space.
First, Taiwan is a rather smaller, more diverse economy than many of the others here, possible to equate to cities like Hong Kong, Singapore, or Shanghai. The home market might be too small, and there is not a vibrant international ecosystem of finance professionals here like there is in any of the aforementioned cities. Meanwhile, Taiwan also spreads its local talent rather thin with 40 banks and 80 securities brokerage firms, which is a huge number relative to the size of Taiwan’s economy, financial market activity or population.
The diversity of the economy, and its integration into regional and global trade is a very strong point in favor of overall growth opportunity, which will need to be heavily drawn upon to develop a fintech ecosystem. However, it also means that finance is not a natural destination for local talents as there are often better offers elsewhere. To make the most of the current opportunities, Taiwanese fintech startups probably need to look more towards assisting- or partnering with non-financial companies rather than financial institutions, and help them handle payments, inventory financing and tracking, currency management, etc.
Currently, there are only a handful of fintech startups on the island, but many more might be coming soon. The government is taking a highly proactive role, with The Institute for Information Technology setting up FintechBa$e. FintechBa$e is an initiative to bring together resources for the fintech startups here and line up investments for fintech. They recently visited Singapore to learn more about their ecosystem and pitch to potential investors. Similarly, CTBC and Cathay Financial Holdings (two major banks here on the island) are either running their own innovation initiatives (like CTBC’s Finnovation Hackathon) or actively scouting parts of the market for new potential startup partnerships and insights.
Trends to look out for: Taiwan strikes me in many ways as similar to Japan, but with less of a home economy to draw on. The main players are not themselves part of the startup ecosystem, but government agencies, media outlets and incumbent financial institutions. What Taiwan really misses, however, is the scalability for these startups that is available in most other places discussed in this article. The market simply isn’t as big as India, China or Japan, or as internationally accessible as it would be from Singapore or Hong Kong. On top of this, there are no major financial partners that single-handedly could accelerate growth for these startups locally. Rather than all of these entities (banks and brokers especially) going at it alone, a more constructive approach for all these players would be to cooperate to support the ecosystem, and wait for them to grow.
In the immediate future, Taiwanese fintech startups are very much targeting the aggressive Taiwanese stock investors. As I see stock investing and trading as a regionally growing trend, many of the current startups here can hopefully build up experience with this value proposition, and then in the near future localize it to other markets in the region, such as China and Japan.
List of interesting startups: Fugle, for making sense of markets and essentially having a Google Search and visualization option for your investment information. TradingValley, for making investing and trading strategies that work for you. Installments, for C2C payments and making it easier to automate regular payments to others.
Southeast Asia: Walking through Malaysia, Thailand, Indonesia, Cambodia
Southeast Asia is harder to analyze, largely because the market is so fragmented and the countries require their own analysis. I will briefly go over what I think here, but I have had very limited in-depth exposure to these markets so caveat emptor.
Thailand, Cambodia, Myanmar and Vietnam are fairly fragmented markets with medium-sized populations, and rather weak financial markets. They have had either structural problems or political instability, and had to take significant time building themselves back up after the Asian Financial Crisis of 1997. Lots of debt needed to be cleaned off the books, and big economic adjustments were needed in Thailand especially. Currently, these markets are heavily driven by manufacturing industries, agriculture and tourism.
Malaysia and Indonesia are sandwiching Singapore, and so will have access to a lot of innovation capital and talent by proximity alone. Malaysia, being the more developed of these two, has a strong rather consolidated financial sector which is actually offering surprisingly sophisticated services to the Malaysian markets, but relatively little in terms of home-grown fintech startups that have secured funding or international attention. Still, banks like RHB, CIMB, and Maybank are strong regional players, which is extremely beneficial for offering partners an opportunity to go abroad.
Indonesia, on the other hand, is a massive market with the fourth biggest population in the world, and a strong Muslim demographic, along with great natural resources that have helped certain people amass wealth. Overall, Indonesia resembles a smaller sibling of India, with a smaller population but otherwise rather similar characteristics. In terms of fintech, I would be on the lookout for Indonesia to innovate on financial inclusion as well, with a potential focus on offerings targeting exporters or raw material producers.
Tangent on “alternative financing” alternatives
I know that what I am about to say is partial taboo. So be it – innovation doesn’t happen unless you break some rules! I do believe that great value will come out of these two markets for servicing Islamic finance. Indonesia simply has such a big population of Muslims, and Malaysia is surprisingly sophisticated in terms of banking offerings. And while Islamic financing might sound super scary to those who prefer the “cold, hard math” of money and a Western capitalist mindset (coupled with fear and ignorance that prevents them from actually reading into foreign concepts at depth), it’s… not all that scary.
Let’s reframe Islamic finance: it’s structured products. That’s it. Not succeeding here has little to do with religious barriers less than it has to do with close-mindedness. Islamic finance largely restructures interest for capital offered to a service charge or dividend. Rather than you taking a secured loan from me and paying interest (Western model), I am giving you money, you store the underlying asset at my premises and you pay me a storage fee (Islamic model). Rather than you taking a loan for your business, we make a hybrid product that looks a lot like equity that pays a small dividend but has higher protections than equity in case of bankruptcy.
Are you wary of the current financial system where “all the power” is concentrated with those that aggregate savings and lend it out to others (banks)? This model often leads to more equitable balances of power. Also, the capital provider is on the hook for more risk, and while this might be hated by banks, don’t the rest of us think that the world needs a bit more financial due diligence? This presents an opportunity for Malaysian and Indonesian entrepreneurs not just to be in the vanguard of serving the world’s 1.2 billion Muslims, but potentially serving all of the world’s sustainable smaller businesses. Yes, funding might be a bit tighter to get a pure loan in this model – not to worry, normal financial models will be available just fine, and many startups would probably salivate over the opportunity to offer costly loans to smaller businesses – but for those wary of pure debt from a troublesome (or even fearsome) bank, Islamic finance and the logic underlying it has many benefits. Startups, where are you?
Singapore: Locus of Southeast Asia?
As already mentioned, Singapore is sandwiched between Malaysia and Indonesia, at the heart of Southeast Asia. It’s a magnet for regional capital as well as international financial institutions. It’s gradually rising up to be a financial centre representing Asia’s equivalent to New York in North America or London in Europe. Bringing together a big melting pot of nationalities and cultures, a vibrant financial sector with many international players, and a strong entrepreneurial tradition serves Singapore well and makes it ideal for regional or global fintech companies. It’s the first step abroad for many regional companies. Singapore is also home to an incredible amount of accelerator programs, VCs, and of course, startups. Singapore as a financial centre is starting to change as well, handling more currency, trade finance and wealth management than typical corporate financing, market listings and investment banking business. In fact, many of the Singapore-listed foreign companies are looking to go back to their home countries, yet Singapore continues to attract capital and talent, serving as the venue to attract capital and get general corporate services.
Accelerators to look out for: there are tons, but I am very partial for the Startupbootcamp model of focusing on one industry vertical and making sure that you are bringing in a lot of value to that one. Many of the banks (UOB, OCBC, DBS, Standard Chartered) are running innovation initiatives or corporate accelerators locally, which will surely offer focus, although it might be at the expense of variety. However, if you have a solution that suits either of these, the corporate accelerators can be great.
Key fintech startups: PolicyPal is a platform to help people manage and view their insurance policies in a much better way, as well as getting quick education on the coverage they need. If you’re an investor that thinks you have too much risk in international- and cross-currency investments, M-Daq helps you manage those risks easily. If you don’t think you have enough risks TradeHero is a social trading platform with lots of analysis features to help you track the best traders on that platform to take smarter investment risks. WeInvest sells investment ideas and recommendations to the general investor at a very affordable rate. More of a professional money manager? Call Levels is one of Asia’s hottest fintech startups and have the financial community raving about their free app to get financial market data updates for free as prices cross your own pre-set levels. Beyond needing to watch the markets constantly, many smaller financial advisors are also very swamped with internal admin work and have had a problem going online to scale their service, which is where Dragon Wealth steps in to offer a web platform and backend automation systems. If you’re a company wanting to set up your own robo-advisor, EigenCat will offer you all the tools you need to get going quickly.
Hong Kong: Reinventing itself?
Hong Kong, more than anything, has often positioned itself as “the gate between the East and the West”, with a gradual creep of the “East” being referred to simply meaning “China”. I do get a feeling that my former home is largely playing catch-up in the entrepreneurial space: Hong Kong revolves around the big corporate paychecks and the name recognition of your employers.
Trying to change thinking from “big corporate” to “small and nimble startup” overnight is difficult, but Hong Kong, like Singapore, has the benefit of strong financial institutions and a good talent pool that deeply understand the problem statements internally in finance. I see Hong Kong as a market less for consumer-facing startups led by 20-somethings, in favor of more B2B-focused (XaaS?) businesses ran by 40-somethings that has a chance of dominating. Hong Kong firms don’t have a strong enough access to the problem statements and issues of Mainland Chinese consumers to go B2C, and for breadth of immediately accessible international markets it makes more sense to locate in Singapore. However, for those looking to innovate interbank / intrabank processes, with the target of selling to, distribute or otherwise cooperate with international financial institutions, I do believe that Hong Kong’s strong capital markets and enormous financial know-how will be an incredibly important asset.
Where to go deeper: Fintech HK has a great repository of everything fintech happening in the city! For interesting startups, in the investing space 8Securities and Quantifeed are both growing strongly, the former in offering investment access and the latter in helping build a B2B robo-advisory platform. Want to become a better trader? Financial Data Technologies have got you covered!