Asia’s fragmentation drives fintech innovation

Author: Ashley Lee | Published: 3 Aug 2015
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Speakers at a Hong Kong technology conference have highlighted differing market features and regulations across the region’s twenty-plus countries as an important opportunity for startups.

Panellists at Rise, an industry conference held last Friday and Saturday said the region’s rising middle class, as well as its fragmented markets and regulatory systems, present challenges and opportunities to companies looking to innovate in cross-border finance.

Tee Plern Suraphongchai of Ardent Capital, a venture capital firm focussed on Southeast Asia, believes Asia is the most exciting place to be because of consumer power, and the demand driving fintech players to innovate.

"At the same time I think it’s still quite early for the environment," she said, noting that lot of the regulatory infrastructure is still being developed and – particularly for Southeast Asia – is very fragmented.

Fintech opportunities tie into a larger Asian investment theme across Asia; the targeting of middle-class consumers. "Ardent is pretty focussed on e-commerce, and we see fintech as the next extension of opportunities," said Suraphongchai, noting that the e-commerce focus allows the firm to understand the challenges of payments in the region.

In Southeast Asia, for example, 60% to 70% of transactions are cash on delivery. They are interested in both managing that process at a larger scale, as well as looking into lending marketplaces to support e-commerce merchants.

Banks and new entrants

Speakers on other panels explained that banks might become entirely irrelevant in the payment markets.

In Southeast Asia…that kind of cross-border fintech play is going to be the really big success story

Tim Lee, founder of Chinese payment platform QFPay, speaking on a panel on money transfers, thought that traditional lenders would lose their value in the next 10 years.

But others didn’t think banks will be left behind. "I’d bet long on financial institutions," said Edidio Zarrella of KPMG.

He believed that traditional lenders would adapt; in the future, they won’t be running their business models as they are today because they’re aware that consumers are driving change.

Speakers said that those looking to capitalise on opportunities and inefficiencies in the area must move now. "The fragmentation, the chaos – that’s what it’s all about" said Zarrella, who recommended that market players act quickly.

What could be most important, however, is how start-ups scale in regions – and even across individual cities.

"China is the most competitive start-up market in the world," said Zarrella. He warned that start-ups in the country must have a clear plan; one city – even half a city – could take up all of a small company’s time and funding, if it has no strategy in place.

A different approach is needed in Southeast Asia. With the exception of Indonesia, Suraphongchai said that start-ups targeting any part of the region must be in multiple countries to build the right value.

"It’s less necessary in the US, China and Europe where you’re already operating in one currency," she said. "In Southeast Asia…that kind of cross-border fintech play is going to be the really big success story."

Ultimately, disruption in the financial industry may be similar to that seen in the hotel and travel sectors, said Gerald Eder of Compare Asia Group, a comparison website for financial products in Asia.

In the past, he noted, people had to trust their travel agents that airlines and hotels were good. Now those travel offices don’t exist; instead consumers go straight to vendors such as Expedia and Tripadvisor.

See also

China begins internet finance clampdown

Singapore regulator backs fintech solutions

HK AML crackdown could stifle fintech growth




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