<article>Peer-to-peer lending platform Funding Societies recently announced raising $25 million in a funding round led by SoftBank Ventures Korea. The startup had initially planned to raise much less &#8212; up to $15 million &#8212; but higher investor demand culminated in a bigger round, co-founder Kelvin Teo said in an interview with this portal.</article>

Peer-to-peer lending platform Funding Societies recently announced raising $25 million in a funding round led by SoftBank Ventures Korea. The startup had initially planned to raise much less &#8212; up to $15 million &#8212; but higher investor demand culminated in a bigger round, co-founder Kelvin Teo said in an interview with this portal.
However, some of that investor ardour the startup encountered also came without a knowledge of the lending business or the peculiarities of the Southeast Asia market, he admits.
&#8220;SME lending is a technical and a very localized business, and Southeast Asia apparently is not easily understood. We did not realize the significance of them until we started speaking to investors for Series B,&#8221; he said.
Teo answered questions about the firm&#8217;s expansion plans, the impending crowding of the fintech space in SE Asia and the evolution of the region&#8217;s fintech space. Edited excerpts:
Your Series B round is likely the largest for a P2P lender in the region. Is that a measure of how strong the investor interest in this space and the potential for the sector in Southeast Asia?
P2P lending is a promising sector in Southeast Asia. We see strong investor interest, but perhaps too much, especially for emerging markets like Indonesia where the fear-of-missing-out (FOMO) is high. SME lending is a technical and a very localized business, and Southeast Asia apparently is not easily understood. We did not realize the significance of them until we started speaking to investors for Series B. In all candour, it was slightly painful to interact with investors who do not know Southeast Asia and/ or lending business.
Is $25 million the amount that you were looking to raise? Would you anytime soon go for the next funding round? If yes, when and how big would that be?
We have a trust-based relationship with our shareholders. Our early discussion with our Series A lead investor Sequoia was to raise US$ 10M – 15M. We’ve raised more because there were a few times more investor demand, terms were favourable and there hasn’t been a major financial crisis for some time which we like to be prepared for. We don’t need to fundraise anytime soon, but we’re always open for discussion especially with strategic players.
What will be the recently raised funds be used for? Are you looking at expanding into other markets in the region? If yes, which ones would that be?
Our vision has always been to make a positive impact in Southeast Asia, especially in financial inclusion. Staying focused, we’d continue to enable growth for SMEs and create wealth for lenders in Southeast Asia. The funds will primarily be used to develop our products, enhance user experience on our platform and ensure continuous compliance.
We’re exploring other markets. However, as SME financing is a hugely localized and regulated business, market expansion takes significant resources and management attention. And the truth is that there is still a ton to do in our current markets namely Singapore, Indonesia and Malaysia. Hence, we’re still carefully evaluating.
What percentage of your nearly 3,000 loans have turned out to be non-performing loans? How do you address the issue of defaults and minimize the risk?
Currently, our NPL is about 1.4%. As of mid-April 2018, we’ve given out more than S$145 million in loans. We use a combination of technology, data and financial expertise to evaluate cases. We tailor the risk management approach by country, product and increasingly by industry. Through numerous learnings in the past three years, we’ve successfully kept our default rates low.
How do you intend to address the different regulations imposed by countries that you intend to operate in? Is that a major challenge for this industry since it is still evolving in this part of the world?
Regulation is one of the most challenging and mission-critical areas to deal with in our space, especially given that this is an evolving industry, regulation remains uncertain and it has a mixed reputation in some foreign markets. This is compounded by the fact that Southeast Asia is highly fragmented with 10+ countries, each with a different regulatory environment.
To us, being compliant is the minimum we should do. We hold ourselves to a much higher standard and are fortunate to have built a strong reputation across the markets and with the regulators. For example, we’re the only financing platform to have won a FinTech Award from the Monetary Authority of Singapore. Similarly, we’re the only financing platform to be named as a potential unicorn to drive financial inclusion by the Ministry in Indonesia.
There are existing and new players in the region in the P2P space. Do you see the space crowding out and how do you see that? Is the sector headed eventually for a consolidation in the coming years? At what stage in the business cycle in Southeast Asia is P2P lending as compared to other mature markets?
P2P lending in Southeast Asia is fast maturing. Not yet, but we see the space quickly crowding out, with the influx of foreign players and local companies from adjacent industries. There is a risk of negative competition, whereby players give out loans indiscriminately for growth and default rates jump at the expense of retail investors, leading to bad industry reputation and regulatory clamp down, as observed in other markets. The industry will eventually consolidate. Whether it’s a soft or hard landing will depend on appropriate regulations.
Which one would you say is your leading market among Singapore, Malaysia and Indonesia and why? In each of these markets, what is your market share? Is there a plan going forward &#8212; mid term or short term to expand that market share to a certain level?
We’re fortunate to have built a leading position in all three countries, one with a market share of more than 50% for SME digital financing, based on a third-party study. All 3 markets are important to us, but for different strategic reasons. Given the size of market and influx of competition, we believe it is more important to focus on steady and sustainable growth into a critical size, instead of fighting for a certain market share.
How do you view competition in Indonesia where there are about 50 players and some like UangTeman and Investree who may eat into your market share. How do you differentiate yourself from these other players who claim to have a large share of the market in Indonesia or may eventually have a share?
Just like in China, we sometimes have to take a bit of discount for news in Indonesia. But it is true that competition is fast rising and there are a ton of players applying to enter Indonesia. To me, Indonesia is like an ocean. The primary risk is not the other fishermen, but rather the storms and waves that have drowned many. For us, we simply focus on fundamentals, building solid financial and technology capabilities as a FinTech company.
What is your view on markets like China where players are booming and new regulations are being unveiled? Is that a market you would like to explore in future?
We’ve been constantly observing the China, US, UK and India FinTech and P2P lending space. Each has its unique points and there is a lot we can learn from China. However, we have to customize the lessons based on the local context in Southeast Asia with a critical mind. Easier said than done. We only enter markets that we are passionate in and we can win. Unfortunately, while we’re excited about China, it’s a market we can’t win.
How do you see Southeast Asia’s financial services market, say five years from now?
Looking at some of our pitch videos in 2015 when we first started Funding Societies, we had a clear view of what to expect three years later in 2017/ 2018. However, the next three to five years are less straightforward, as foreign players and local champions converge and compete in the FinTech space. Not to forget, the banks are stepping up their game and regulations are far from certain. We’d just have to stay open, nimble and evolve with the market.
Also Read:
<a style="color: #ff0000;" href="https://www.dealstreetasia.com/stories/funding-societies-raises-seas-largest-ever-round-by-p2p-lenders-at-25m-96395/">P2P lender Funding Societies raises $25m in Series B round led by SoftBank Korea </a>

Peer-to-peer lending platform Funding Societies raised $25 million in a funding round led by SoftBank Ventures Korea as higher investor demand ended in bigger round.

High investor FOMO about P2P lending in SE Asia: Funding Societies co-founder Kelvin Teo

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High investor FOMO about P2P lending in SE Asia: Funding Societies co-founder Kelvin Teo

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