How US investors are gauging SE Asia’s fintech potential

(Clockwise from top-left) : Tilman Ehrbeck, Managing Partner, Flourish Ventures; Joji Thomas Philip, Editor-in-Chief and Founder, DealStreetAsia; Sheel Mohnot, Co-Founder, Better Tomorrow Ventures

Southeast Asia has a unique opportunity to forge its own path in fintech, given the growing mobile and internet penetration in the region, opined panelists at DealStreetAsia’s Asia PE-VC Summit 2021.

US investors are excited about the region’s potential, especially in embedded finance, and foresee Southeast Asia borrowing learnings from fintech ecosystems in the US, China, and India.

“Part of the excitement about embedded finance is that it acts as building blocks for the next set of companies. The next decade of fintech will be built on top of these companies and laying that infrastructure is really useful,” said Sheel Mohnot, co-founder of US-based Better Tomorrow Ventures. He was speaking at a panel titled ‘How US investors are gauging SE Asia’s fintech potential’ on Day 3 of the four-day summit.

Better Tomorrow Ventures is a $75-million fund and has made bets in Asia including in Indonesian startup Brick. and Pakistan-based Creditbook.

Non-traditional players, such as fintechs, are developing digital financial capabilities in a bid to drive customer retention and enhance product offerings. A great example of embedded finance in action is Grab, which started off as a ride-hailing platform before adding other services such as payments, insurance, investments, loans and credit on its platform.

“[Laying that infrastructure] is actually even more useful in Southeast Asia than in the US because the initial infrastructure was not as good. And so, getting started for these companies has historically been very difficult. Now that there are companies making it easy to build on top of this infrastructure, there will be a lot more coming,” explained Mohnot.

“We have seen that in the US starting a neobank went from a two-year, $10 million project to a six-week project with no money raised. There has been tremendous growth in neobanks in the past few years thanks to that. And I think the same is coming to Asia,” he added.

SE Asia’s gig economy a fintech driver

Southeast Asia has a thriving gig economy, where informal work is predominant and estimated to account for over 70% of workers. This is in contrast to more economically advanced regions such as North America or Europe.

Technology and platform companies like Grab and Gojek (now merged with Tokopedia) have helped drive gig work in recent years and especially during COVID-19.

“A gig economy platform can not only help with e-payments but also provide credit, working capital, vehicle loans, insurance, and so on, as they have the data to underwrite,” said Tilman Ehrbeck, managing partner at US-based Flourish Ventures, who was also on the same panel.

Spun out of the Omidyar Network in 2019, Flourish Ventures focuses on neobanks, insurtech and embedded finance. Some of its Southeast Asian portfolio companies include Grab Financial, Qoala, Tanihub, and ShopUp.

In 2020, fintech was the hottest sector for investments clocking 125 PE-VC deals that grossed around $1.26 billion in investor commitments, according to a DealStreetAsia DATA VANTAGE report. The bulk of the funding, or $634 million across 31 deals, went to e-payment startups.

There are also insurtech companies selling a range of cover to drivers and riders in the gig economy. “Traditional insurance could have never reached these gig economy workers. The ticket sizes are too small, the distribution costs are too high. We believe that there’s a real opportunity to innovate and do things that in the West are neither necessary nor as pertinent as they are in the emerging markets of Asia,” Ehrbeck added.

Digitalising mom-and-pop shops

Southeast Asia, especially Indonesia and Vietnam, has tens of millions of mom-and-pop stores.

“[Owners of these corner stores] typically live in the informal economy. They have very inefficient supply chain processes, they pay in cash and keep the books on paper. These stores, though during the lockdown, became more important because they were part of a very resilient decentralised infrastructure,” said Ehrbeck.

Mohnot says these mom-and-pop shops stand to benefit from leveraging on software. The likes of Indonesia’s BukuWarung and Pakistan’s Creditbook seek to help these micro, small and mid-sized businesses digitalise and adopt fintech in bookkeeping, payments, and so on.

“It has really been an innovative thing and many millions of shopkeepers are using these products, which is exciting. Nowadays we’re seeing a lot of really innovative solutions that are not only localised but actually work in these markets specifically,” said Mohnot.

“Before COVID-19, we had seen this opportunity to help digitalise the corner store, bring efficiencies on the procurement side and on the logistics side,” added Ehrbeck.

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.