Fintech in Southeast Asia: Deals up in 2016, but dollars down

Southeast Asia recorded the largest number of fintech deals backed by venture capital (VC) firms last year, since 2012, but deal value during the 12-months ended December 2016, were lower when compared to the corresponding period the previous year.

In 2016, about 71 fintech firms raised funding from VCs, amounting to $158 million, when compared to 55 deals in 2015 which were valued at $177 million, according to data complied by CBInsights.

Overall deal value was down in 2016 as several of the transactions were driven by seed and angel stage investments in the region. The numbers present a clearer picture –  early stage funding as a percentage of the total number of deals increased to 62% in 2016, as against 55% for the 12-months ended Decembre-2015.

In total, the fintech space last year saw 831 investments globally that were led by VCs, only marginally lower than 2015’s record of 848 investments, the CB Insights data released last week added.

“And while overall investment pace slowed last year, Southeast Asia saw the greatest number of fintech deals to the region to-date,” the report highlighted.  In fact, coupled with 29 per cent deal growth last year when compared to 2015, investor interest also went up significantly in 2016 — the number of unique investors to the Southeast Asian fintech companies grew 60 per cent, to 112 in 2016, from 70 in 2015.

Fintech or financial technology, the new buzzword for new age financial services sector has received increased attention from investment community world over, as the segment is expected to disrupt the industry for financial services providers amid penetration of internet.

“I see deal volume and value going up as regulations on starting fintech companies ease and financial institutions becoming more involved in the space. Right now, the main barrier to further funding is talent on the entrepreneur side and regulations on the government side,” 500 Startup Partner Vishal Harnal told DEALSTREETASIA.

However, he added that these problems will solve themselves in the long run so the firm was not too concerned on the issues.

Leading The Pack

The most active venture capital investors in Southeast Asia fintech space were East Ventures , 500 Startups, Golden Gate Ventures, GMO Venture Partners and IMJ Investment Partners.

East Ventures took the top spot as the most active Southeast Asia fintech investor since 2012, with 12 unique investments, followed by 500 Startups and Golden Gate Ventures.

Ant Financial, the financial affiliate of Alibaba, has also made three investments in Southeast Asia as it looks to expand into new markets including most recently Ascend Money in Thailand and Philippines-based digital payments provider Mynt.

Southeast Asia-focused East Ventures has been making a series of investments in fintech startups in the region. Its important playground Indonesia saw investments like financing platform Cicil and financial e-commerce startup Cermati. Moreover, earlier this year it has launched a $27.5 million fund for the region, from which a large part is expected to find its way to fintech startups.

Further, the second leading player in the fintech space in the region 500 Startups believes that the fintech space is becoming more sophisticated but still has a long way to go. With regard to its future plans on fintech, 500 Startup’s Harnal told this portal: “We’ve got ~180 investments in over 20 countries and see that growing at a faster velocity. In South-East Asia which I lead along with Khailee, we’ve invested in ~27 fintech companies and are looking to invest in many more. We’re looking for entrepreneurs with deep domain knowledge in the area solving a real pain point for customers.”

Harnal said Indonesia, Thailand and the Philippines will be the next destination for investing in the fintech space.

The firm has even launched a $25 million global fintech fund, which has till now invested in 33 companies with $3 million in first cheques with some follow-on coming soon. While most companies the fund invested in are from the US, there are some from Asia as well, Sheel Mohnot who heads 500’s Fintech Fund  told this portal.

Meanwhile, Golden Gate Ventures, another well known VC in the fintech space has invested in firms like Lenddo, Omise and Moneysmart.

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Banks and Regulators Too Play A part

In fact, it is not just VCs that are lapping up fintech investments in a 600 million-people region, Southeast Asia, banks and regulators in this region are also taking it up seriously. While banks like DBS and OCBC and Hong Leong are partnering with fintech startups, many countries in the region have created ‘Sandboxes’ where banks and startups can work together to innovate in a regulated atmosphere.

For example, DBS, the region’s largest lender followed an aggressive fintech strategy with accelerators in Singapore and Hong Kong, that support and mentor dozens of startups in this space. Last year, DBS picked up strategic stake Kasisto, a startup which employs artificial intelligence (AI) to enhance retail and consumer banking and also entered into cross-referral agreements with peer-to-peer (p2p) lending platforms Funding Societies and MoolahSense.

DBS CEO Piyush Gupta had said in an interaction with this portal last year — Traditional banks can stave off the threat from fintechs through partnerships. The partnerships could be sharing of knowledge, acquisitions or investments.

Going a step further, Asia’s financial industry is also adopting Blockchain, an upcoming fintech that could provide peer-to-peer transactions which will ultimately reduce costs for transferring money and other assets, helping banks and consumers. OCBC Bank is the first bank in in the region to use Blockchain technology in its local and cross-border payment funds transfer services. Many others are following.

The Trend

2016 also saw the first Series D financing to the region’s fintech companies, with online and mobile payments startup 2C2P closing on an $8 million Series D. The Singapore headquartered startup has investors like Hong Kong-based Amun Capital and Japan’s GMO Venture Partners.

This is significant as the region has always had a challenge for later stage funding. Barring Singapore, other countries have largely seen early stage funding. “That is already changing with larger pools of capital dedicated to later stage investments entering the region (B Capital, Venturra, Chinese capital from Shanda / Qunar, corporate VC firms, dedicated fintech funds), and more interest in the region from Valley based investors,” said Harnal.

The top fintech companies in the region will not have a problem raising later rounds of capital, he said from his own experience with 500’s portfolio.

“Fintech is such a buzzword lately that everyone wants to get in on it, both entrepreneurs and investors. As a result, we see a lot of companies being setup to follow the money instead of having any real expertise / domain knowledge in fintech. These companies are largely funded by unsophisticated capital and eventually have a problem raising from more serious investors down the line,” he added.

Among the countries in the region that saw a large chunk of VC backed fintech funding were Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam — rising overall 29 per cent last year.

Singapore-based companies accounted for half of all Southeast Asian fintech deals, and this was on expected lines, as the city-state is the largest fintech hub in the region, along with being a global financial centre.

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Funding Societies, a P2P lending platform for small and medium enterprises, received one of the country’s larger 2016 rounds in a $7.5 million Series A that included Sequoia Capital India and Alpha JWC Ventures as investors.

The momentum is expected to continue for Singapore with firms like  consumer internet platform provider Garena, also in the fintech space and valued at $3.75 billion, heading for an IPO. The firm which is backed by China’s Tencent, has appointed Goldman Sachs as lead adviser.

After Singapore, the Philippines had the second highest share of deals at 14 per cent according to the data.

In 2016, the largest deal was Vietnam-based mobile payments platform MoMo which saw a $28 million Series B funding that included Goldman Sachs and Standard Chartered as investors. Among other deals were $17.5 millio investment to Thailand-based payments enabler Omise, a $2 million investment to Singapore payments provide Coda Payments, and a $3 million investment to Malaysia-based financial comparison startup Jirnexu.

Also Read:

Southeast Asia’s most valuable startup Garena picks Goldman for $1b listing

Exclusive: Life.SREDA to set up $20m fintech fund in Malaysia

Deutsche Bank launches fintech startup lab in New York

Bangkok Bank partners Nest to launch InnoHub FinTech Accelerator

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.