Since 2015, foreign investment into Southeast Asia’s fintech companies has grown seven times, according to The Future of Fintech in Southeast Asia report by Dealroom, Finch Capital and MDI Ventures.
Foreign investors’ surging participation in the Southeast Asian fintech sector showcases that the region is emerging as the “fintech battleground” for financial institutions and established players, the report says. Some of the most active investors from outside of the region include Tencent, Ant Financial, Accel, Sequoia, SoftBank and Warburg Pincus..
Domestic and foreign venture capital investment into fintech sector in Southeast Asia, Source: The Future of Fintech in Southeast Asia, Dealroom, Finch Capital and MDI Ventures, Sept 20
In Southeast Asia, fintech is the largest venture capital investment category by number of backed startups with 484 ventures, ahead of marketplace, health and proptech.
By investment amount, fintech ranks fourth with US$4.6 billion raised between January 2015 and July 2020, behind mobility (US$15.4 billion), marketplace (US$7.3 billion) and foodtech (US$4.9 billion).
Venture capital investment in Southeast Asia by category, Source: The Future of Fintech in Southeast Asia, Dealroom, Finch Capital and MDI Ventures, Sept 20
The report puts the spotlight on three key Southeast Asian fintech markets, namely Indonesia, Vietnam and Singapore, which it claims are the most attractive immediate opportunities considering their booming Internet economies, rising Internet penetration rates, and surging fintech VC investment.
In Indonesia, the younger generations have been driving adoption of alternative lending and e-money. Between January 2019 to January 2020, e-money transactions skyrocketed 173%, the report says.
In Singapore, artificial intelligence (AI) and blockchain have gained notable traction from the investors community, with a record of 44 blockchain and AI fintech startups receiving funding rounds in 2019.
And in Vietnam, although cash remains king, digital payments have been growing rapidly on the back of government support and a booming e-commerce sector.
So far, Southeast Asia’s exit landscape has been largely dominated by strategic merger and acquisition (M&A) moves by local tech companies, the report says, highlighting deals such as GoJek’s US$130 million acquisition of Moka, Razer’s US$100 million acquisition of MOL, and Grab’s US$100 million acquisition Kudo.
Fintech acquisitions in Southeast Asia since 2015, Source: The Future of Fintech in Southeast Asia, Dealroom, Finch Capital and MDI Ventures, Sept 20
Moving forward, it foresees this trend further accelerating with more than a hundred fintech exits projected to occur between 2020 and 2023..
Though initial public offerings (IPOs) will likely to be few, especially in the COVID-19 climate, M&A activity and secondary sales to unicorns and regional tech giants are expected to pick up in the years to come.
Forecast: number of fintech exits in Southeast Asia, Source: The Future of Fintech in Southeast Asia, Dealroom, Finch Capital and MDI Ventures, Sept 20
But unlike previous years where payments and wealth management startups were the main acquisition targets, a focus will be put on insurtech and enterprise software this year, it predicts.
Fintech acquisitions in Southeast Asia since 2013, Source: The Future of Fintech in Southeast Asia, Dealroom, Finch Capital and MDI Ventures, Sept 20
Currently, Southeast Asia’s fintech startups are worth a combined US$10 billion, with Vietnam’s VNPay and MoMo, Indonesia’s PayFazz, Akulaku and Ovo, and Singapore’s FinAccel being amongst the region’s most valued fintech startups at a valuation above US$250 million each, the report estimates.
Southeast Asian fintech startups valuation, Source: The Future of Fintech in Southeast Asia, Dealroom, Finch Capital and MDI Ventures, Sept 20
With a large population of unbanked, a booming Internet economy, and some 22 million people joining the mobile age every year, Southeast Asia provides massive opportunity for both local and foreign fintech scaleups, the report says.
Recognizing the opportunity, several European fintech scaleups have already expanded into Southeast Asia, including Thought Machine (UK), TransferWise (UK), Revolut (UK), SolarisBank (Germany), Adyen (Netherlands), Currencycloud (UK), Rapyd (UK), Truelayer (UK) and Railsbank (UK).
Besides fintech, the study also looks at Southeast Asia’s overall tech ecosystem and estimates it is currently worth US$108 billion.
Singapore and Indonesia are the two most valuable tech ecosystems in the region at a valuation of US$60 billion and US$35 billion, respectively. Grab from Singapore is currently the region’s most highly valued tech startup at US$14 billion, followed by GoJek from Indonesia at US$10 billion.
Singapore and Indonesia are followed by Vietnam, at US$5 billion, the Philippines at US$4 billion, and Malaysia at US$4 billion.
Tech ecosystems in Southeast Asia, Source: The Future of Fintech in Southeast Asia, Dealroom, Finch Capital and MDI Ventures, Sept 20.