Border-crossing and financial inclusion: The story of Fintech in ASEAN

Fintech is booming in Singapore, a city known for being a global financial hub. The island city-state has received the lion’s share of funding in Southeast Asia over the past five years, and funding has only increased exponentially. In 2019 alone, fintech-related deals accumulated over a billion SGD, far outstripping the amount of funding received in 2018 according to research from Accenture. This has been facilitated in part by the state’s favorable business ecosystem, which boasts low corporate tax rates, political stability, and low barriers to entry.

The nation has also made active steps to support fintech’s growth, suggesting a continued boom ahead. From 2015 to 2020, the Monetary Authority of Singapore (MAS), the state’s central bank, set aside $225 million to support fintech initiatives, a programme which has helped fund the nation’s turn towards fintech. Since then, the number of fintech firms has rapidly climbed from only 50 to more than 600. On the back of this success, MAS has announced that it is likely that the programme will be renewed as of 2020. Given its stated intentions to support a diversified range of fintech companies, it is wise to assume that there will be an increased amount of spending on the industry and a growing set of funds available for new and maturing startups.

What kind of initiatives has MAS launched to support the fintech industry? From 2015, MAS has taken a proactive stance in creating a favorable regulatory environment for businesses, emphasizing innovation in tandem with security as well as supporting upcoming projects. This was demonstrated in 2016, when MAS announced a regulatory sandbox for fintech companies to test their products in a live environment. This initiative has only expanded since – in 2019, MAS announced Sandbox Express to provide an even faster option for incoming players.  Its commitment to liberalizing the fintech industry was further displayed in 2018, when it announced that it would issue up to two digital full bank (DFB) licences and three digital whole bank (DWB) licences, thereby opening up the banking sector to more players.

The country also boasts a highly skilled workforce favorable to incoming fintech entrepreneurs and the development of the market. This workforce is only set to grow—in 2019, the National University of Singapore announced the opening of a fintech lab in conjunction with business and financial institutions. This lab will be responsible for training the next generation of entrepreneurs and professionals. This development signifies the country’s commitment to expanding the labour pool available for upcoming fintech companies and bids good news for the booming market.

Singapore’s strategic location at the heart of the Malay peninsula has also made it an ideal location for leapfrogging into ASEAN markets. ASEAN markets offer a large pool of people who lack access to traditional financial institutions and would be well served by the development of fintech firms. An emerging theme of fintech in Southeast Asia is hence that of financial inclusion. For example, FinAccel, a successful fintech company based out of Singapore, is a credit lending company that caters to online shoppers in Indonesia, a group of people that have been historically underserved by traditional banks. Beyond consumers, there is a similarly large pool of SMEs in Southeast Asia that have been underserved by traditional financial institutions, which lack the flexibility and deep data analytics provided by fintech companies.

Thailand is another prominent country in the region committed to developing its fintech industry. The Thai government inaugurated the Digital Economy Promotion agency in 2017 and has made supporting the fintech scene a priority since. For instance, the country has since introduced three regulatory sandboxes which cover different aspects of the financial services industry. The nation also has one of the highest internet penetration rates in ASEAN, making it an ideal location for the fintech industry to blossom. Notably, the Thai Fintech Association has only expanded since 2016, with 66 out of 124 members being fintech startups.

Lightnet, an up and coming fintech company, is a shining example of the road ahead for fintech in ASEAN. Lightnet is a fintech company that leverages blockchain to provide remittance services across Southeast Asia, primarily targeted at unbanked migrant workers, allowing them to bypass high transaction fees and unreliable payment routes. The company taps on both the flourishing scene in Thailand as well as the resources offered within Singapore: its headquarters reside in Thailand and it is registered in Singapore, allowing it access to the best of both worlds. In fact, it is a truly regional company—similar to FinAccel, Lightnet’s strength is that it offers a necessary and overlooked service to millions of unbanked people in Southeast Asia.

Lightnet has benefitted from Singapore’s conducive environment for fintech players. . In 2019, it received US$31.2 million from various investors in a Series A Funding Round. Its largest investor was that of United Overseas Bank (UOB) Venture Management, the private equity unit of UOB. With this funding, the company will be able to increase its investment in the underlying blockchain technology its platform is built on, Stellar Network, and move forward with its first transactions in 2020. Lightnet’s vice chairman, Tridbodi Arunanondchai, has confidently predicted that Lightnet aims to facilitate over US$50 billion worth of annual transactions over the next three years.

As Lightnet moves into its next phase, it is likely that we will see a similar shift in the broader fintech funding environment in Singapore. In 2019, despite the rise in funding for fintech firms, the number of overall fintech deals actually decreased. This is a result of the focus shifting from seed funding to series funding in tandem with maturing start-ups securing larger deals from investors. Over the next few years, we should continue to see a diminishing pool in seed funding and a disproportionately larger growth in series funding as the market matures and bigger fintech companies consolidate.

Furthermore, it is also wise to expect a diversification away from payment start-ups over the next few years both in Singapore and in ASEAN more broadly. A report by (UOB) in November 2019 indicated that the fintech markets in Singapore and Thailand have been diversifying into insurance tech and personal finance, whereas in other ASEAN markets the focus is still largely centred on payment-related solutions. Lightnet has cleverly tapped into this by expanding operations in Singapore, allowing it to capture the remittance needs of the broader Southeast Asian market while benefitting from Singapore’s encouragement of fintech innovation.

Lightnet provides a vision of what is to come in the future of ASEAN’s fintech industry: flourishing start-up scenes, an expanding regional market, and financial inclusion. Even as Covid-19 has heavily impacted national economies across the globe, it has nevertheless accelerated digitalization globally. Without a doubt, fintech is here to stay as leading players flourish in a world increasingly reliant on digital financial services.

Helena Ma brings with her a wealth of experience and a truly cosmopolitan perspective, having lived and worked in Shanghai, China; Gothenburg, Sweden; and London, UK. Her stints in Europe and China has armed Helena with a potent blend of ancient Chinese wisdom and contemporary Western knowledge which she incorporates into business management and client project