The regulatory framework for FinTech (financial technology) may be more mature in developed economies, and countries like the UK and the USA, hold an edge as regulators are more open to innovation in the space, Steven Tong, the managing director of Startupbootcamp Fintech Singapore, said in an interaction.
While developing economies are often more conservative in their regulatory approach, the opportunities they present are massive, as it involves finding solutions to address the needs of the unbanked and the underbanked populations, he added.
Tong, who has worked with both startups and government agencies, including tenures with Infocomm Investments (IIPL) and the IDA, as well as a period of mentorship with JFDI.Asia, is bullish about blockchain – the underlying technology behind bitcoin —being adapted to process a wide range of financial transactions in a more efficient and cost-effective way in the future.
“We are not far from the day where all corporate actions e.g. issuing of new shares, voting on corporate matters are executed through an online platform powered by blockchain enabled digital ledger technology,” he added.
What sort of skills do entrepreneurs require to address the challenges of fintech in the current market?
It’s the same as all other entrepreneurs out there: The ability to spot the opportunities in the market and the pressing needs affecting target groups, as well as the skill to execute the solutions to these problems. These are the core skills that entrepreneurs need. I really don’t see any difference in this, at least with regards to fintech. Of course, there are some nuances that come in, as with any domain and industry.
How is the regulatory environments currently in Singapore, Southeast Asia and other major markets like Japan, China and India ?
With regards to compliance and regulatory frameworks, there’s honestly no difference in what we’re seeing in the region. Going to back to how SBC is addressing this, we know finance is a highly regulated field. We saw a need to bring in the regulators to support us on this issue right from the start.
MAS is helpful; their people are coming down once a fortnight to offer feedback on regulatory and compliance questions coming in from the entrepreneurs. These discussions are held over one-on-one sessions between the entrepreneurs and the regulators.
RHTLaw Taylor Wessing has come in as an advisor for our startups, along with Olswang Asia. Gan Choon Beng from Infinitus Law Corporation has also come in as a legal mentor and advisor to our startups. PWC, who is a sponsor in our programme, has also been helpful in offering advice in the area of compliance. All these support are crucial because of the regulatory challenges startups will have to face in the finance space.
Whats the major differences between a fintech startups targeting emerging markets versus those aiming for more mature markets like Singapore, Japan and Hong Kong?
Regulatory frameworks are more mature in developed economies, and possibly have a more supportive environment for any sort of innovation in the industry. Places like the UK and the US have a lot of innovation, partly because the regulators are open to that sort of activities.
Developing economies are more conservative in their regulatory approach, so the profile of opportunities these countries present is very different. With these economies, you’re largely facing efficiency-related issues in their financial infrastructure, or otherwise catering to a target market that’s not present in the developed world ie. the unbanked and the underbanked who are significantly larger than the banked population.
They are problems that could potentially still be big opportunities for entrepreneurs. An example is in the area of remittances, where foreign workers have to pay high commissions. Why can’t it be done in a better way?
One of our portfolio firms, Toast (formerly Cryptosigma), is addressing this. They want to make it very easy to transfer money at a cheaper cost, as compared to queuing up outside a remittance agency and paying high commissions for this unpleasant experience.
Looking at Africa, Vodafone’s M-PESA is the best example of mobile payment. Transactions take place on a phone in a very simple, intuitive and efficient manner. This clearly illustrates the efficiency related issues, especially in countries with underdeveloped infrastructure but where everyone has a mobile phone.
M-PESA came up with a solution that leveraged on this. Now, imagine places where smartphones are more affordable. The percentage of people with smartphones is going to increase, and this presents amazing opportunities in the fintech space as this proliferation increases.
Cryptocurrencies – what’s your take on that sector and the opportunities it represents?
Honestly, I’m not a fan of cryptocurrencies but I am a fan of the blockchain. Fundamentally, it’s the blockchain that brings about the innovation we’re seeking. Just look at Bitcoin; currently the most popular and liquid cryptocurrency. But there are studies that have cited the low acceptance of Bitcoin. Women are very unlikely to use Bitcoin.
There’s an estimated 6 to 10 million BTC wallets and not all of them have actual bitcoins stored in them.Their acceptance rate is still very low.
Until we find some real need for alternative currency, I’m not sure it will really take off. Of course, I’ve heard bitcoin supporters saying fiat currencies will crash eventually, but there’s just no compelling need for that at the moment. However, the underlying technology of the blockchain is different altogether.
Open Trade Docs (formerly Debune) and Otonomos are two interesting use cases. Otonomos in particular helps manage all your commercial corporate actions in the blockchain. NASDAQ is already working with a blockchain startup to allow the trading of shares of privately-owned firms.
We may not be too far away from the day where all corporate actions eg. issuing of new shares, voting on corporate matters are executed through an online platform powered by blockchain enabled digital ledger technology.
This is clearly a trend that’s been going on overseas and if we can do this in Singapore, it will help demonstrate and build our thought leadership. Another example of how the blockchain is disrupting a “traditional” space is in trade finance.
Traditionally, there’s always a lot of paperwork involved, which is fine. But if discrepancies emerge, there’s a lot of investigation that needs to be done on the part of the operations people.
Storing documents securely on the blockchain – as Open Trade Docs is facilitating – would enable everyone to be kept in the loop in an easy manner, especially if smart contract features are built into it. It makes things so much easier and would not be possible without blockchain technology.
If you were to leave and establish your own fintech startup, what area would it be in and why?
I would do something related to investments and personal wealth management. For example, I would like to do a clone of Robinhood, a stock trading app that allows you to trade stocks for free and is pretty successful in the US. I think its going to expand to Australia, to allow you to trade US stocks.
Why can’t I have the equivalent to disrupt the stockbroking industry in Asia? Robinhood earns money off the interest of money deposited in trading accounts. They also offer margin trading and other fee based services should customers choose to use it.
Once they capture the Millennial crowd, who are used to doing things on mobile, it’s much easier to increase and enhance your service offerings – especially to the millenial customers, over the long term. That’s a great startup from my perspective.
How does your experience with mentoring the broad array of startups at JFDI translate to advising and guiding the startup ventures operating in the fintech niche?
Way back in 2005, I was with an educational technology (edutech) team at IDA. I was already working with companies to pair them up with schools and develop solutions addressing teaching and learning needs. That was when ‘customer development’ wasn’t even in the industry nomenclature.
We work with the companies and ensured they developed solution that met market needs. After leaving that team, I went to Silicon Valley where I spent more than five years working with US and Singapore startups.
My mentoring is beyond just my time with JFDI. Issues specific to fintech are largely the regulatory and compliance issues, which we have addressed through providing access to PWC, MAS as well as mentors who are legal professionals.
What are the contours of your job as managing director of SBC in Singapore and what are your plans for developing and evolving the brand as the fintech accelerator space in the region grows?
My job here is similar to managing directors of all other programmes – to ensure it runs well. More importantly, it is to ensure our entrepreneurs have built business ventures that can sustain themselves in the long term and survive in the market. Business models are more critical to the startup than VC funding or anything else. Businesses that are self-sustaining have no need of VC funding. Is this possible?
Yes. Most companies need to raise external funding at some point to scale their operations but if we can delay that and allow it to build a firm foundation based on organic growth, then this builds the company up for a higher valuation and is more rewarding to the founder. Investors get a higher quality company and founders get to keep a bigger stake in their businesses.
It’s in this direction that I’m pushing the current SBC cohort. That’s part one. Because SBC just expanded to Asia, this is a chance to grow our brand name. We’re not only a fintech accelerator, we have accelerators operating across very diverse sectors – smart transportation, smart cities, e-commerce and the Internet of Things (IoT) are some examples of what we’re doing in Europe.
The objective is to explore opportunities in Asia and use Singapore or other Asian locales to launch our programmes. We intend to use Singapore as our APAC HQ to do more things here. It’s not just about fintech but about our accelerator expertise and our experience running industry vertical programmes.
What’s your take on equity crowdfunding ventures and the regulatory environment that’s needed to build traction for that sector?
I think its a good thing. The US has taken a lead in this and the idea has been discussed here. In theory this would help grow entrepreneurship, where arguably fundraising can be a challenge in itself. There is a clear need for an appropriate regulatory framework to protect ordinary people from scams. But the framework must be flexible enough not to limit it to just accredited investors or some select pool of people.
Singapore is looking at equity crowdfunding as a tool to stimulate the local startup ecosystem. This has been put up for public consultation in the Infocomm Media Masterplan by the Ministry of Communication & Information (MCI).
Malaysia is leading Southeast in this area and taking a lead over Singapore in this area. Crowdonomics recently got their equity crowdfunding license in Malaysia recently, alongside a few others based in Kuala Lumpur.
What are some of the challenges you’ve faced since transitioning to SBC from Infocomm Investments?
Honestly, there’ve been no challenges. I dealt with SBC with I was with IIPL and handled the deal. Hence, I was already familiar with them. When Markus came over in January, I worked with him and helped their team establish the accelerator programme.
He’s been instrumental in building SBC here and for me it’s not a tremendous jump. I had the benefit of working with the SBC team and dealing with them even before they came to Singapore. When I was with IDA, my entire life was largely working with startups in the area of innovation.
That helped a lot, in addition to my posting to Silicon Valley. I ran the office there with a very lean team, where we operated on our own resources. So, having that experience and after working so long with startups, it didn’t come as a culture shock.
In an interview with Markus Gnirck, the Global COO of Startupbootcamp Fintech, he commented that cultural change in large institutions inhibits the speed of innovation. In innovating fintech within organisations, what is crucial for entrepreneurs and investors to understand?
I’m not sure my answer is relevant, but when entrepreneurs talk to large organisations, they could inform the organisations and their executives on the basis of the fundamental premise: What pain am I solving for you?
What can they not do internally that I can do for them externally? I’ve got a new way of helping you to do business that isn’t possible now. That sort of thing can be disruptive to industries and can be of value. It boils down to whether the senior leadership of that organisation are willing and enlightened enough to take a risk in new innovative areas that are potentially disruptive to the organisation and its entire industry vertical.
An example is peer-to-peer (P2P) loans, which are disruptive to banks. But what if a bank offered P2P loans? For sure, it’s going to cannibalise your own business. But if you as a traditional financial player venture into this space, you have an advantage over the startups that lack an established brand name and trust. That’s a radical example. Could it happen? Probably not. But a bank could do it if they wanted to.
How has your tenure with IDA, and subsequently Infocomm Investments, shaped your perspective on startup ventures?
The good thing of working with the government is the macro perspective you develop over time. I’m looking at it as an entire startup ecosystem, rather than just a specific industry or accelerator. I’m looking at what are the issues and challenges of building a startup ecosystem.
Personally, I think Singapore has come a long way. In the 2007/2008 period, the startup ecosystem was pretty nascent. Signs were encouraging but quality was lacking. Now, the ecosystem is more vibrant, with many accelerators and investors coming into the market without government intervention.
It’s a very good picture of how things have moved on since 2007, when things were just starting to take off. There’s still a lot of challenges that need addressing, but the authorities are aware of it and are taking steps to turn Singapore into an innovation-driven economy.
Is intrapreneurship within financial institutions a more appropriate approach to innovation, or is entrepreneurship in external fintech-focused accelerators and incubators a better fit?
Entrepreneurship in external fintech accelerators is a better fit. Sometimes, when you’re a bank employee, you see things from a limited perspective. You’re so wrapped up in operational concerns that you’ll have blindspots that only an entrepreneur outside the system can perceive.
I mean no disrespect to bank employees but they don’t have the skills or the aptitude to be an entrepreneur. Even if there is a good intention to launch an internal innovation venture, unless it’s structured in a way that’s independent from a bank and given space and resources to grow, it’s difficult to see that venture succeeding on its own, given the constraints of a corporations organisational structure.
Say I’m an intrapreneur and after I spot an opportunity and develop an idea with fellow colleagues, then there are ten levels of management for me to go through – would it really work? I have no idea. Even if it’s approved, will it be a business unit with a bank and given support or just left to operate autonomously? It’s too much to ask for and perhaps too different to be viable with the constraints of a corporate mindset.
DBS is a good example of how they have internal corporate innovation programmes. However, they are also taking the approach of working with SBC to drive innovation from an external perspective. They have a very good internal programme but they know the constraints and its impossible to operate with a single model.
Startupbootcamp is a branded project that is affiliated with Venturescout, which is primarily focused on European operations. Would you say that cultural literacy is a crucial part of translating the success of entrepreneurial ventures in one region (i.e. Europe) into success abroad?
We recognise that we have the experience of having done accelerators in Europe. Expanding into Asia, can we expect things to work the same? No. We have to adapt to local nuances and market needs that are very different to the European countries that SBC operates in.
The countries we have a presence in are pretty developed. We would do things differently, based on local norms and nuances, compared to what we do with our European operations. We are a ‘glocal’ enterprise, in that we need to be global, in the sense of providing a global network supporting our entrepreneurs while remaining attuned to the sensitivities of our local markets.
MAS has just announced a fintech fund. What’s your take on this development?
I reckon it will make Singapore the fintech hub of Asia. We need financial entities to innovate and test out new ideas, so hopefully the fund can be a carrot to innovate and try out new ways of doing things.
One of the key things I’m excited about is what Ravi Menon, the MD of MAS, announced recently. They’re going to provide a sandbox to test out ideas. This is more impactful than the fund, as the banks don’t really need money but they’re really concerned about regulatory impact to the business. Having a sandbox or something equivalent to encourage experimentation is much better than pure financial incentives alone.