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Contents Section 1: ASEANs FinTech Prospects Remain Bright Significant growth of FinTech funding in ASEAN Singapore, Vietnam and Indonesia are the forerunners of funding within ASEAN A surge in the number of FinTech firms making ASEAN home ASEANs maturing FinTech Scene Section 2: Opportunities and Challenges for FinTech firms in ASEAN Singapore ranks as the top market for FinTech firms entering ASEAN Adopting a regional mindset from the outset Regulatory environment a key consideration FinTech firms welcome digital banks FinTech firms are optimistic on fundraising in ASEAN The biggest challenges - creating customer awareness and connecting with the right stakeholders Finding and keeping talent is a key operational challenge Banks and Financial Institutions are key enablers for market expansion From the venture capitalists desk - 10 takeaways to get ahead of the competition Quote cloud Section 3: FinTech Regulatory Developments across ASEAN Indonesia: Paving the way for a more robust FinTech Sector Malaysia: Accelerating its digital economy ambition The Philippines: A fertile ground for budding FinTech firms Singapore: A global FinTech hub Thailand: Experimenting with sandboxes Vietnam: Cautiously optimistic about FinTech Survey Respondents and Interviewee Profiles Appendix Acknowledgements 6 7 10 11 13 14 15 16 17 18 20 21 22 24 26 27 28 29 30 31 32 36 38Foreword Since our first report on financial technology (FinTech) in ASEAN in 2017, FinTech firms have made significant progress in attracting investor funding and scaling their business over the last three years. In our inaugural edition of the FinTech in ASEAN report, we charted the nascent growth of the FinTech sector in ASEAN at a time when the majority of firms were still at the early stages of funding and were focused on building consumer-related solutions. In 2018, we saw more firms turn their attention to the opportunity to serve businesses, particularly as the regions small- and medium-sized enterprises (SMEs) look to tap the digital economy. In this years edition, our third in the FinTech in ASEAN series, we explore how ASEANs FinTech firms have seized growth opportunities and overcome the myriad challenges to succeed in one of the worlds most diverse regions. Over the years of our report, one thing has remained constant - ASEANs growth potential continues to draw global investors. FinTech firms have benefitted tremendously from this investor interest. Also supporting the growth of the regions FinTech firms are the regions central banks which have put in place initiatives to promote ASEAN as a hotbed of innovation. With investments into later-stage FinTech firms increasing more than twofold to US$370 million in the last year, many FinTech firms are enjoying stellar growth. However, we wanted to provide more insight into the current FinTech landscape in each ASEAN market and of the potential pitfalls for the unwary. To do so, we surveyed 139 FinTech firms across ASEAN for their views on the challenges faced in five areas customer adoption, regulation, operations, competition from TechFins and funding. In addition, we also interviewed more than 20 thought leaders in the wider FinTech community for a first-hand account of the challenges they faced when scaling their business across ASEAN. We hope that through the FinTech in ASEAN: From Start-up to Scale-up report, FinTech firms will be able to navigate their expansion in the region with more certainty and as a result, realise their growth ambitions in ASEAN. Chia Hock Lai President Singapore FinTech Association Janet Young Managing Director and Head Group Channels and Digitalisation United Overseas Bank Wanyi Wong FinTech Leader PwC SingaporeExecutive Summary Singapore continues to dominate funding and is the #1 regional base for FinTech firms Funding into ASEAN has grown more than 30 times since 2014, reaching a new high of US$1.14 billion as at end September 2019. The growth in FinTech continues unabated, as more investors and FinTech firms set their sights on the opportunities from ASEANs strong economic fundamentals, including its large unbanked and underbanked population. While other ASEAN countries have accelerated the development of their domestic FinTech sector, it is Singapore, with its more mature FinTech scene, that continues to attract the most funding within ASEAN. Of total funding in 2019 to date, more than half (51 per cent) of total funding went into Singapore. Singapore also continues to be the preferred base of FinTech firms, home to 45 per cent of firms in ASEAN. Varying levels of funding maturity for FinTech firms across ASEAN Based on our survey findings, FinTech firms operating in ASEAN are generally optimistic about meeting their existing and future funding needs, with almost half of those surveyed confident of raising more than US$10 million for their next funding round. In Singapore, FinTech firms are maturing as many graduate from pre-series stage to later stage funding. Funding for Singapore-based FinTech firms was also spread more evenly across all FinTech categories, with InsurTech, payments and personal finance leading the way. In Indonesia, investors focused on alternative lending firms, fuelled by strong demand for credit from the countrys rising middle class. Investors sought opportunities in Malaysian FinTech firms developing solutions in payments, finance and accounting; while in Thailand, investors channelled their funds into InsurTech and investment tech firms. In Vietnam, investors favoured payments, which is common for economies in the early stages of developing a FinTech sector. Stamina needed to pursue corporate customers Businesses were the main target customer segment for FinTech firms (79 per cent). Among businesses, financial institutions made up half (50 per cent) of the target segment, followed by corporates (17 per cent) and SMEs (12 per cent). As most corporates tend to require multi-level approvals across different stakeholders, FinTech firms need to have endurance in order to seal the deal. FinTech firms targeting this segment of customers should therefore ensure that they have a longer funding runway to meet their operating expensesFinTech firms see more business opportunities with the imminent arrival of digital banks A development in the ASEAN FinTech scene is the opening up of applications for digital bank licences. While having a digital bank licence will enable FinTech firms to broaden the scope of services they provide, only 21 per cent of FinTech firms surveyed expressed an interest in applying for a licence. Nonetheless, almost two in three (65 per cent) FinTech firms believe they would be able to seize opportunities to offer innovative solutions and to collaborate with the regions newly-minted digital banks. Beware of overvaluing your company While it can be exciting to see a companys valuation soar, both Venture Capitalists (VCs) and FinTech firms cautioned against falling into the overvaluation trap. FinTech firms should consider taking a phased approach in valuing the company so that they continue attracting funding from investors. This helps firms to prevent getting into a “down round”, where the latest valuation round is lower than previous rounds. Talent remains a challenge to regional expansion Talent remains a challenge for more than half of FinTech firms, indicating that this was an inhibitor to their expansion regionally. With six in 10 ASEAN FinTech firms having regional ambitions from the outset, the issue of talent is something that needs to be considered as they plan for their expansion to ensure a higher chance of success. From the regions economic potential and encouraging regulatory climate to strong investor interest in ASEAN, it is evident that the region holds promise for FinTech firms from around the world. The key to expanding in the region successfully will be in how FinTech firms navigate the diverse cultures, regulatory environments and business practices within ASEANSection 1: ASEANs FinTech Prospects Remain Bright 6 Section 1 In the last five years, ASEAN has seen a strong compound annual growth rate (CAGR) of 101 per cent in FinTech funding 2 . In 2014, funding into FinTech firms was US$35 million, rising sharply to US$1.14 billion at the end of the third quarter this year (Fig. 1). In addition to the encouraging growth in funding, funding levels for FinTech firms at different stages of their growth are also very promising. In the last year, funding for later stage FinTech firms increased 211 per 1.1 SIGNIFICANT GROWTH OF FINTECH FUNDING IN ASEAN ASEAN is an attractive challenge for entrepreneurs and innovators. The region is Asias third largest market after China and India and is home to 650 million people, many of whom are becoming increasingly affluent. ASEAN is also a young market, with 60 per cent of its population under 35 years old. This demographic base gives rise to a ready base of digitally savvy and mobile- first consumers. Currently, these consumers are largely underserved by traditional banking solutions - giving FinTech firms the opportunity to develop innovative solutions for these consumers. Given the strong fundamentals driving ASEANs future growth prospects, it is not surprising that the region continues to draw attention from FinTech firms and those seeking to invest in innovation and technology. Figure 1 | ASEAN-6 continue to draw more funding Source: Tracxn, as at 30 September 2019, accessed on 18 October 2019 4 and DealStreet Asia for VNPay 5 and Advance.AI 6 Pre-Series: Angel and Seed rounds, Early stage: Series A and B, Later stage: Series C and beyond. ASEANs FinTech Prospects Remain Bright 2014 2015 2016 2017 2018 2019 (YTD) 35M 161M 174M 406M 679M 1.14B 30 60 82 96 123 96 Venture Debt (US$) No. of Funding Rounds Early Stage (US$) Pre-Series (US$) Later Stage (US$) In this section, we review the growth of the FinTech industry across ASEAN, specifically the ASEAN-6 countries of Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam as at the third quarter of 2019. We also pay particular attention to the growth in investment into FinTech firms, given the significance of capital as the lifeblood of any business. The other four ASEAN economies Brunei Darussalam, Cambodia, Laos and Myanmar are not included given the relative infancy of the Fin T ech industry in these countries. 1 Due to rounding, numbers presented throughout this report may not add up precisely to 100 per cent and reflect the absolute figures. cent to US$370 million. In the first nine months of this year, a total of nine FinTech firms across ASEAN have raised later stage Series-C or beyond funding. The firms are 2C2P, Advance.AI, Akulaku, BluePay, CXA Group, Momo Pay, Nium 3 , OVO and Singapore Life. The strong later stage funding also indicates the confidence that investors have in the growth potential of ASEAN- focused FinTech firmsSection 1: ASEANs FinTech Prospects Remain Bright 7 Singapore continues to attract the most funding within ASEAN this year, accounting for more than half (51 per cent) of the total (Fig. 2). In terms of the number of funding deals in 2019, Singapore leads at 51 per cent of total deals in ASEAN while Indonesia comes in second at 28 per cent, similar to that of 2018 (Fig. 3). 1.2 SINGAPORE, VIETNAM AND INDONESIA ARE THE FORERUNNERS OF FUNDING WITHIN ASEAN Source: Tracxn, as at 30 September 2019, accessed on 18 October 2019 Source: Tracxn, as at 30 September 2019, accessed on 18 October 2019 Figure 2 | Where the funding is going, 2018-2019 53% 51% 37% 36% 12% 5% 0.2% 3.4% 0.04% 1.5% 1.5% 0.4% 2019 2019 2018 2018 Figure 3 | The funding deals done in 2018 and 2019 5% 8% 6% 2% 24% 55% 8% 6% 28% 51% 3% 3% Vietnam saw a sharp increase in funding this year, attributable to two large deals namely US$300 million into VNPay and US$100 million into Momo Pays Series-C fundraising round. The interest in investing into FinTech firms in Vietnam and Indonesia is also driven by the business potential in both markets given their large and underbanked populations 7 as well as the high mobile and internet penetration rates. Singapore Vietnam Indonesia Thailand Philipines Malaysia Singapore Vietnam Indonesia Thailand Philipines MalaysiaSection 1: ASEANs FinTech Prospects Remain Bright 8 In Figure 4, we set out the top 10 funded FinTech firms. These firms are mostly in the areas of payments, InsurTech and alternative lending. It is not surprising, therefore, that these are also the types of FinTech solutions that have attracted the most amount of investment dollars this year (Fig. 5). Figure 4 | Top 10 funded FinTech firms in ASEAN, 2019 (disclosed funding deals) Source: Tracxn, as at 30 September 2019 accessed on 18 October 2019 and DealStreet Asia for VNPay and Advance.AI. FinTech Firm 5 Funding Amount US$ (M ) 300.0 110.3 100.0 80.0 80.0 40.0 40.0 32. 29.4 25.5 FinTech Category Payments InsurTech Payments Personal Finance Banking Tech Finance and Accounting Tech Alternative Lending Alternative Lending Alternative Lending Payments The highest number of deals - 25 - were made with FinTech firms offering payments-related solutions (Fig. 6) and totalled more than US$480 million (Fig. 5). FinTech solutions in the area of insurance technology (InsurTech) and alternative lending were the next on investors lists, securing funding of US$173.5 million and US$172.6 million respectively (Fig. 5). VNpay (VNLife) Singapore Life (Series C) MOMO Pay (Series C) GoBear (Series A) Advance.AI (Series C) Deskera (Series A) Akulaku (Series C) Aspire (Series A) Credit Culture (Series A) YouTrip (SeedSection 1: ASEANs FinTech Prospects Remain Bright 9 Payments InsurTech Alternative Lending Banking Tech Personal Finance Investment Tech Blockchain Tech Related Cryptocurrencies RegTech Finance and Accounting Tech Figure 5 | Proportion of total funding by category 8 , 2019 Source: Tracxn, as at 30 September 2019, accessed on 18 October 2019. Funding amount only includes disclosed deals. Singapore Vietnam Indonesia Thailand Philippines Malaysia ASEAN-6 13% 28% 98% 94% 4% 1% 61% 87% 13% 100% 42% 15% 15% 11% 7% 3% 4% 39% 8% 23% 14% 4% 1% 1% 2% 1% 1% 8% 1% 1% 1% Figure 6 | Proportion of total investment deals by category, 2019 Source: Tracxn, as at 30 September 2019, accessed on 18 October 2019. Number of funding deals include those with both disclosed and undisclosed amounts. Singapore 24% 25% Vietnam 22% 33% 33% 33% 33% 67% 26% 10% 20% 7% 2% 13% 5% 7% 3% 6% 33% 33% 33% 4% 56% 15% 4% 13% 13% 13% 25% 11% 12% 8% 12% 2% 12% 6% 6% 6% 10% Indonesia Thailand Philippines Malaysia ASEAN-6 25% 25Section 1: ASEANs FinTech Prospects Remain Bright 10 Figure 7 | Setting up shop in ASEAN Singapore had the most variety in terms of solutions focus, testament to the countrys push to encourage FinTech innovation across a broad range of areas. The highest number of deals were made with firms offering payment solutions, while the highest amount of funding went
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