In 2014, worldwide investment activity in the fintech sector saw an unprecedented jump of 201% from the previous year, reaching more than $12 billion in investments. That marked the start of a booming industry. While the US and Europe dominated the share of deals, Asia is on the rise to being a force to reckon with.
Massive growth in fintech investment deals and opportunities
In a recent Accenture report, investments in fintech across Asia Pacific recorded a growth from about $800 million in 2014 to $3.5 billion in the first nine months of 2015. There is a growing phenomenon in this region with venture capitalists setting their eyes on fintech start-ups in Asia and financial institutions opening up, devoting more attention to this space.
The Unbanked and Underbanked
According to McKinsey & Co., 59% or 876 million people in Asia are unbanked, that is, they do not use financial services or have a bank account. Yet interestingly, Asia makes up almost half of the world’s internet users. Coupled with the number of digital banking consumers in Asia set to reach 1.7 billion by 2020, up from 670 million in 2012 – this presents an abundance of opportunities for fintech start-ups to dig in, identify problems worth solving and introduce solutions to target this untapped market.
Unlike Europe and the USA, where financial markets are mature, the main reason for the unbanked to remain so is the fragmentation of the market. In South East Asia alone, there are 10 countries with 10 different currencies. Due to the lack of a common currency, most cross-border transactions are usually carried out in USD, occasionally in EUR (euro) or RMB (renminbi). Banks and intermediaries (such as remittance) dominate this space with inefficient processes so that they can benefit from earning on transaction fees. It is estimated that transaction fees alone make up over 60% of Asian banks’ revenue. With the increase of cross-border transactions popularized by cutthroat e-commerce platforms and the consolidation of manufacturing into several countries with low labor costs, there is a need to address the inefficiency of cross-border transactions for countries to prosper in this new market.
Why Singapore? And why you, the fintech start-up?
Singapore is a tiny island-country but with a huge, mature financial market. It is also geographically located among much less mature financial markets that have a wealth of opportunities just waiting for entrepreneurs to discover. However, if the neighboring countries are matured markets, opportunities are notably less and solutions command less margins. It is not hard to see how Singapore is naturally poised to be the bridge connecting the opportunities in the region to fintech start-ups.
Singapore’s strength lies in being strategically located at the heart of Southeast Asia . Through Singapore, a company gets access to
- a single market size of over 625 million people in the region – the 3rd largest in the world; greater than the European Union (504 million) and the United States of America (319 million)
- a consuming household size of over 80 million people (significantly more than USA and Europe)
- a huge market size of US$2.6 trillion that would present an abundance of business opportunities.
Singapore is the ideal test bed of fintech solutions for the problems (opportunities) of the region, before start-ups move into the neighboring countries to launch the product/solution.
Support from the Government
Regulations can spur innovation or hinder progress, making or breaking a startup’s growth. Singapore has been forward-looking in paving the way for innovations to happen, at the same time measured, so that associated risks are managed. This is especially important in the fintech space.
In 2015, the Monetary Authority of Singapore announced a “Smart Financial Centre” to augment Singapore’s Smart Nation vision, indicating a forward-looking and agile government that is adapting to keep up with and support the development of a dynamic fintech sector. As a country and economy with no natural resources, Singapore is compelled toward innovation and adoption of a global mindset. Just as how the US and Europe were propelled to innovate to survive the financial crisis, Singapore started with that perspective from day zero.
A new FinTech and Innovation group was also set up within the MAS with offices looking into payments and technology solutions, technology infrastructure and technology innovation labs. An even more recent set up is the FinTech Office, an initiative to be led by MAS and SG Innovate, a new entity set up to drive Singapore’s innovation economy. To nurture and develop start-ups, MAS also launched the Financial Sector Technology and Innovation scheme with a commitment to invest S$225 million over the next five years to encourage financial institutions to collaborate with fintech start-ups.
A nurturing ecosystem
Singapore has seen a significant increase in the number of accelerators setting root with the help of Infocomm Investments Pte Ltd in 2015. There are a good number of fintech accelerators in the country, namely StartUpBootCamp Fintech and the FinLab (a joint venture between the United Overseas Bank and IIPL). Several other notable financial institutions such as DBS, Citibank, Credit Suisse, Metlife, UBS and most recently OCBC have also set up innovation centers or labs in Singapore.
In a 2013 report, the Asian Venture Capital Journal reported that Singapore has a pool of $24 billion in funding in its start-up ecosystem. So while Asia is just beginning to see a surge in fintech activity, Singapore is primed for greater growth and development. fintech start-ups can capitalize on the wealth of opportunities to develop and test their product, grow their business and scale internationally with and through Singapore.
Watch the Future of Fintech panel discussion about Fintech’s Underbanked Opportunity featuring Dr. Lin, Arjan Schutte (Core Innovation Capital), Matt Harris (Bain Capital Ventures) and Chris Bishko (Omidyar Ventures):
 Comprising countries like Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.