The final day of the Fintech Festival saw investors and startups coming together to do deals. To start the day, EY regional managing partner Gary Hwa provided his insights on the outlook for fintechs over the coming years.
The fintech environment has been fast-paced for four years and sped up, even more, the past two years, Hwa said, as new firms have emerged and as the investor pool looking to monetise it has been changing. In financial services, banking and trade finance as well as payments and asset managers and insurance are all being disintermediated – “the suits versus the jeans,” as he described it.
Hwa used insights from investors and fintechs at Deal Day to identify key trends. The top five sectors investors were interested in on Deal Day, Hwa said, were data analytics, blockchain, lending, payments and regtech. Indonesia is a key country of interest, he noted, given that nearly 80% of its 270 million people are unbanked. On the fintech side, he said, the five top solutions the fintechs focus on are data analytics, lending, payments, regtech and robo-advisory services.
Transforming economies and emerging champions
Leveraging his firm’s position as a sovereign wealth fund with massive resources and the capability to dig deep into global trends, Temasek president Chia Song Hwee discussed the firm’s investment focus and where the greatest opportunities lie.
Temasek been guided by four investment themes, he said: transforming economies, growing middle income populations, deepening comparative advantages, and emerging champions. The first two are big picture and the latter two, where finding opportunities is more challenging, are micro.
Six years ago, Chia said, Temasek chose to shift from investments in financial services and telecoms to focus on five faster-growing sectors: technology, life science and agribusiness, non-bank financial services, consumer, and energy and resources. “This generated a superior return.”
Over the past two years, Temasek has invested in researching what the world will look like in 10 or 15 years. The key themes the found include eco-consciousness, the sharing economy, a connected world, the evolving consumer, and ageing. “The trends we are seeing will have impact across sectors,” he observed, and they will have “elements of disruption.”
Looking at sustainability in particular, Chia said the report highlights investment opportunities in Asia in food, agriculture, water and urbanisation that total $5 trillion and have the potential to create 200 million jobs.
Looking more narrowly at Southeast Asia, Chia said earlier research showed that the internet economy would grow to $200 billion by 2025, with media, travel and ecommerce as the leading sectors and Indonesia as the fastest growing part of the pie.
In fintech, Chia said there is a focus on solutions that remove friction. Temasek has focused on alternate lending, improving the experience of merchants and consumers as commerce evolves, helping businesses with payment execution and business processes, and supporting next-generation financial transaction networks based on blockchain or distributed ledger technology. Looking ahead, he expects that cross-border B2B payments, fraud detection – not cyber-security – and artificial intelligence are the greatest opportunities.
Key trends – financial technology in 2018
Leveraging their experience looking at leading-edge solutions around the region and beyond, a panel of venture capitalists discussed where fintech opportunities lie in the future.
Looking ahead to 2018, Ping An Group CIO Jonathan Larsen said he expects the top sub-sectors in fintech to be artificial intelligence, and analytics and decision support. Looking even further ahead, he sees opportunities in “utility-izing” technology at banks. “The financial industry runs on-premises software,” he explained. “Look at Salesforce. In the financial industry, SAAS (software as a service) hasn’t even begun. They’re spending billions on licence on-premises. In a decade, (SAAS) will be replicated in different ways.”
From the perspective of a large business bank, Forest said, the focus will be on how businesses run cross-border solutions efficiently and how to use big data better.
Taking a somewhat contrarian approach, Ark said he sees momentum shifting from small startups to bank-driven innovation. “Banks have had this relationship with innovation. They’re jumping in. We’ll see unsexy core areas to the bank.” Key among them, he said, are regtech compliance and cyber-security. Summing it up, Ark said “last year, cloud. This year, blockchain and AI. Next, regtech is an area of focus.”
The fintech perspective
Four fintech founders then shared their insights on their journey to success and what lies ahead.
NextTech Group, chairman Nguyen Hoa Binh said, focuses on cross-border ecommerce, fintech and e-logistics across seven markets. TNG Wallet, said CEO Alex Kong, offers the next generation of financial inclusion services to the unbanked population and already has monthly transaction volume that exceeds US$100 million.
Singapore Life CEO Walter de Oude runs what he describes as Singapore’s first new independent life insurance company in the last 47 years. “We saw a massive opportunity in life insurance, he said, due both to growing wealth in the high net worth space and the attractiveness of Singapore as a destination for wealth. The consumer landscape has also shifted, as more people want to execute their own financial transactions.
And TenX Founder Julian Hosp said his firm makes cryptocurrency spendable, with a card. “We have over 100,000 users, we’re preparing for click-of-a-button from dollars into cryptocurrency, and we’re working on a platform to interchange different crypto-currencies.”
The central theme for any new business, de Oude believes, is to stay true to your belief about what you want to do. “Your business is going to bridge a gap. It’s around being principled.” Kong believes the team is also essential, saying “I spent the first four years building the team.”
As the TenX business grew, Hosp said, communication has been essential. The team has grown from 8 people in June to 40, and the user base from 1,000 to 100,000. “We’ve had this goal of growing the active user base 10 percent a week. The key is to communicate this for the entire company.”
Kong said it is also important to focus on how to get new users to register and download the app. “We have to think of a creative way. Don’t waste money on advertising. Put the money into customers.” In his case, Kong gave new users $100 for every dollar they deposited, allocating $20 million for the first 200,000 users.
Fintech trends in Southeast Asia
Looking at key trends in Southeast Asia, in a separate interview around Deal Day, EY managing partner Liew Nam Soon said he sees the greatest opportunities in three areas. First, robo-advisors targeting the mass affluent segment will automate advice. The second is around the “size of the pie”, with huge populations in Indonesia, Thailand and Vietnam that are comfortable using ecommerce. And the third is in lending, catering to SMEs and leveraging new credit analysis models to tap into new markets. Payments is next, and there’s also a focus on blockchain.
The innovations that are gaining market share address entirely new markets, Liew said, such as solutions for SMEs or providing financial advice for the mass market. In Indonesia, for instance, fintechs that enable microcredit, ecommerce marketplaces ranging from Tokopedia to sales on Instagram, and student loans from people willing to extend credit to people who deserve a place in university, are among the trends that stand out.
An emerging trend, Liew said, is industry convergence. Banks may link up with telecoms companies, for instance, and cross-sell financial series to telecoms customers. Insurance is also interesting, as it is overcoming the hindrances of the agency model by selling simpler products through digital channels.
“The VCs are interested, and smart money is sniffing this out,” Liew said. “The trick is how you pick the right one.”
Investing in crazy ideas and creating startup ecosystems
Mistletoe CEO Taizo Son, the younger brother of well-known investor Masayoshi Son, provided insights on his rather different investing philosophy.
Son’s first venture was building Yahoo Japan, which he said is still twice the size of Google in the country and has a good presence. Since then, over past two decades, he has been involved in many startups. He started Mistletoe three years ago as what he describes as “a collective impact community to empower startups and innovators to create a more human-centred and sustainable future through technology.” It has invested US$90 million in 64 startups and has also made donations to support social entrepreneurs. “I made some returns,” he explained. “I felt I should give back to society.”
The investments are indeed in sectors that Son expects will have a significant societal impact. “The speed of innovation is accelerating,” Son observed. “Within 10 years, we will experience a different lifestyle. We need a new design to take advantage of new technologies. For investing, we are chasing the agendas, themes, to change the world.”
One company he invested in is Zoox, a Level 5 autonomous vehicle company – Tesla is at Level 3 – that is developing a car with no steering wheel, brakes, accelerator or driver’s seat. “In the future we won’t buy cars,” Son opined. The cost of moving will become almost zero. One of the biggest impacts is not just reducing the cost of movement. We don’t need to buy cars, we don’t need parking lots. One-third of San Francisco is parking lots. We can use it for other uses. The price of land and the layout of the city will change. That’s the kind of thing I’m pursuing. I like to change the world.”
Another is Zipline, which builds drones to carry blood to hospitals. Whereas the flying distance for most drones is currently 5-6 kilometres, this drone can catch the wind and fly more than 100 kilometres per charge. In Rwanda, for instance, Zipline reduced the time needed to carry blood supplies from a central UN-managed location to hospitals from more than four hours to 10-15 minutes.
In Japan, researchers are developing a suitcase-size water recycling system that uses 20 litres of water and could even eliminate the need for long water pipelines into homes. A urine monitoring system in a toilet can detect diseases such as diabetes and cancer, which can prevent high medical costs. And his latest personal startup is Vivita, a seed accelerator for children that offers a new learning environment to supplant today’s “terrible” education system and enables children to work with experts to create new solutions. A 10-year-old boy developed autonomous robots, for instance, and a 9-year-old girl did animation.
Another recent new program is supporting agri-tech and food-tech start-ups in India. “The food supply chain is still not good enough. If we could update the food supply chain of India – (with) agri-tech, food-tech, nutrition, food printers – we will make a big impact.
“We are supporting startups that will make the world better,” he said in an understatement. “To make a great innovation, connect the dots. Exchange ideas with different people and we’ll have great ideas.”
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