As the Fintech market rapidly expands internationally, Southeast Asia seems to be the next hub of innovation and international collaboration. According to the recently published "The Pulse of Fintech" report by KPMG Enterprise and KPMG Fintech, venture capital has been streaming into marketplace lending platforms based in Southeast Asia, driven by limited regulation fostering innovation and consumer need for alternative lending products.
"Regional governments are also looking to support Fintech innovators and investors," the authors of the report wrote. "For example, the Monetary Authority of Singapore (MAS) recently launched a National Research Foundation Fintech Office as a 'one stop virtual entity to support all Fintech investment in Singapore. This office is part of the government's $19 billion Research Innovate Enterprise 2020 Plan to foster innovation."
U.S. companies are recognizing areas like Singapore as a viable gateway to other Asian nations."
Out of the total $5.7 billion invested internationally in Fintech in the first quarter of 2016 alone, Southeast Asia was only a small player, with most of the deals taking place in the U.S. and China. But this appears to be shifting as U.S. companies recognize Singapore as a viable gateway to other Asian nations. Indeed, according to Channel News Asia, U.S. foreign direct investment to Singapore in 2014 was hit $152.7 billion, making Singapore the largest U.S. focus of investment in Asia.
Collaboration between nations
With Singapore becoming the focus of much of this innovation, recent international trade deals and partnerships have cemented its status as the center of Southeast Asia's Fintech market. The recently signed Memorandum of Understanding agreement between the Singapore and the United States is designed to establish, according to Channel NewsAsia a "collaboration platform" with a variety of focuses, including Fintech.
"This MoU deepens the economic collaboration between Singapore and the U.S.," said Singapore's Deputy Secretary of Trade upon the signing. "It facilitates partnerships to spur value creation in infrastructure development, by bringing together our companies' strengths in market knowledge, technology and regional networks."
A 'Smart Nation'
This has made the integration of technology initiatives a key focus of Singapore government officials. In November 2015 at the National Infocomm Awards, Prime Minister Lee Hsien Loong announced the Smart Nation initiative, emphasizing that, to become the modern hub its leaders are envisioning, Singapore must "use technology extensively and systematically, particularly IT."
"The the bulk of Fintech VC funding in 2015 involved payments and lead generation."
A recently announced offshoot of the Smart Nation push is the Smart Financial Centre initiative, a Fintech development push under the supervision of the Monetary Authority of Singapore. The SFC aims to offer value to Fintech investors by fostering a positive ecosystem for lenders, including:
- Embracing open banking platform via application programming interfaces for faster innovation and integration of new and legacy IT systems within the sector.
- Establishing "sandboxes" as safe spaces for Fintech providers to experiment and roll out products and solutions within controlled boundaries.
- Implementing the Financial Sector Technology & Innovation scheme to support innovation efforts.
- Maintaining an accessible and strong talent pool of researchers and experts committed to building national capabilities.
While VC funding based in Southeast Asia hit $345 million in 2015, some experts are saying that this is only the beginning of what could be a thriving MPL economy in the region. TechCrunch looked at the numbers published by KPMG Enterprise and KPMG Fintech and found the the bulk of Fintech VC funding in 2015 and H1 2016 involved payments and lead generation – nearly 78 percent of the total funding. The cause, they speculated, was that VC investors were more willing to commit resources to the less heavily regulated areas related to payments and lead gen rather than expanding underwriting and risk verification – showcasing a pain point that still has to be overcome for Fintech to fully take off.