Credit cards. Not a thing in emerging Southeast Asia.

Fintech is quickly becoming the next big thing in Southeast Asia. According to recent data from Tech in Asia, the number of venture capital deals in fintech has outpaced ecommerce for the last two quarters – something that hasn’t gone unnoticed by the big players.

Alibaba is on a mission to bring in Alipay and Ant Financial into Southeast Asia through its $1 billion Lazada acquisition. Indonesia’s Go-Jek recently launched Go-Pay and Grab is said to be raising a massive $1.5 billion round to fuel its nascent payment platform.

Despite an increasing influx of money into the payments ecosystem in Southeast Asia, cash-on-delivery (COD) remains the most popular payment method in emerging Southeast Asian markets. Aggregated data shared by aCommerce indicates that the share of COD orders has increased over the last 12 months.

Of course, the data is limited to the orders processed by the regional ecommerce enabler and skewed by individual client preferences, but given their size and reach, offers a good representation of the market.

What then could explain the increase in COD share in markets like Indonesia, Thailand and the Philippines? One hypothesis could be that as ecommerce continues to gain widespread adoption, new users are the late majority and laggards. These groups are less likely to have access to credit cards and some won’t even have bank accounts. This means COD will still be essential for continued ecommerce growth in emerging Southeast Asia.

Indonesia - Orders by Payment Method

wdt_IDwdtcolumnID - ATM / Bank TransferID - Cash on Delivery (COD)ID - Credit CardID - Debit Credit CardID - Credit Card on Delivery (CCOD)
12016-49,2047,4043,500,000,00
22016-510,3048,9040,800,000,00
32016-66,9050,6042,500,000,00
42016-79,6057,6032,800,000,00
52016-810,4060,4029,300,000,00
62016-911,6061,6026,800,000,00
72016-1010,1060,8029,100,000,00
82016-1113,6070,9015,400,000,00
92016-1213,8061,3024,900,000,00
102017-114,7062,5022,800,000,00
112017-213,9065,3020,700,000,00
122017-317,0065,6025,400,000,00
272017-455,0043,002,000,000,00
282017-553,0045,002,000,000,00
292017-641,0057,002,000,000,00
302017-736,0062,002,000,000,00
312017-850,0048,002,000,000,00
322017-954,0045,001,000,000,00
332017-1058,0040,002,000,000,00
342017-1145,0053,002,000,000,00
352017-1244,0054,002,000,000,00
362018-145,0052,002,000,000,00
wdtcolumnID - ATM / Bank TransferID - Cash on Delivery (COD)ID - Credit CardID - Debit Credit CardID - Credit Card on Delivery (CCOD)

Thailand - Orders by Payment Method

wdt_IDwdtcolumnTH - ATM / Bank TransferTH - Cash on Delivery (COD)TH - Credit CardTH - Debit Credit CardTH - Credit Card on Delivery (CCOD)
12016-40,0057,5042,000,500,00
22016-50,0066,5032,900,600,00
32016-60,0069,9029,300,800,00
42016-70,0079,2019,900,900,00
52016-80,0076,2023,500,400,00
62016-90,0083,7016,000,400,00
72016-100,0076,1023,500,400,00
82016-110,0050,1048,601,300,00
92016-120,0073,2026,200,600,00
102017-10,0077,8021,400,700,00
112017-20,0078,7019,000,300,00
122017-30,0079,3025,000,100,00
232017-40,0079,0021,000,000,00
242017-50,0068,0032,000,000,00
252017-60,0071,0029,000,000,00
262017-70,0067,0032,001,000,00
272017-80,0065,0035,000,000,00
282017-90,0062,0038,000,000,00
292017-100,0061,0039,000,000,00
302017-110,0060,0040,000,000,00
312017-120,0062,0038,001,000,00
322018-10,0059,0041,001,000,00
wdtcolumnTH - ATM / Bank TransferTH - Cash on Delivery (COD)TH - Credit CardTH - Debit Credit CardTH - Credit Card on Delivery (CCOD)

Singapore - Orders by Payment Method

wdt_IDwdtcolumnSG - Cash on Delivery (COD)SG - Credit Card
12016-70,00100,00
22016-80,00100,00
32016-90,2099,80
42016-100,00100,00
52016-110,00100,00
62016-120,4099,60
72017-11,2098,80
82017-20,6099,40
92017-30,9099,10
232017-41,00100,00
242017-51,00100,00
252017-60,00100,00
262017-70,00100,00
272017-80,00100,00
282017-90,00100,00
292017-100,00100,00
302017-110,00100,00
312017-120,00100,00
322018-10,00100,00
wdtcolumnSG - Cash on Delivery (COD)SG - Credit Card

Philippines - Orders by Payment Method

wdt_IDwdtcolumnPH - ATM / Bank TransferPH - Cash on Delivery (COD)PH - Credit CardPH - Debit Credit CardPH - Credit Card on Delivery (CCOD)
12016-49,2047,4043,500,000,00
22016-510,3048,9040,800,000,00
32016-66,9050,6042,500,000,00
42016-79,6057,6032,800,000,00
52016-810,4060,4029,300,000,00
62016-911,6061,6026,800,000,00
72016-1010,1060,8029,100,000,00
82016-1113,6070,9015,400,000,00
92016-1213,8061,3024,900,000,00
102017-114,7062,5022,800,000,00
wdtcolumnPH - ATM / Bank TransferPH - Cash on Delivery (COD)PH - Credit CardPH - Debit Credit CardPH - Credit Card on Delivery (CCOD)

Thailand’s Siam Commercial Bank held a fintech event last week on behalf of its digital arm, Digital Ventures. ‘Faster Future: SCB Fintech Forum‘ drew in speakers from across the globe, from Wei Hopeman, Managing Partner at Asia based Arbor Ventures to Jeffrey Paine, co-founder of Singapore based Golden Gate Ventures, an early-stage VC firm that focuses on Southeast Asia.

“Southeast Asia looks like China in 2006, like India in 2011,” said Paine. “In China and India, the competition is usually local, but in Southeast Asia, the competition comes from around the world.”

During his panel, Paine outlined eight key tech sectors that he believes we will see more of in Southeast Asia within the next 3-5 years.

1. The age of differentiated commerce, more B2B

  • It is the age of niche B2B ecommerce. Southeast Asia will see the growth of niche verticals in the B2B space, for example, the rise of the industrial sector in Singapore
  • The industry will see a surge in ecommerce enablers that help traditional companies go online
  • Ecommerce will shift slightly to differentiated commerce. This refers to a culmination of good content, strong networks and an efficiency in selling. Ecommerce has evolved to an all-round experience, not simply putting something up for sale online

 

2. The rise of a ‘one stop shop’ financial platform

  • The region can expect a rise in fintech transactions over the next 2-3 years
  • Integration of big data in credit scoring will be prominent, especially in Indonesia. Big data should be able to minimize the amount of work and extend sources needed to provide loans.
  • The ‘one stop shop’ financial platform will allow you to purchase loans, insurance and credit cards in one place. This will be a place where a few winners can come into dominate market share
  • The rise of pure mobile online banks. Vietnam is already starting to adapt following the launch of Timo Bank, the country’s first digital bank
  • Financial services for ecommerce. For example, consumer credit will matter when a shopper buys something on a marketplace. This will also be in tandem with the rise of vendor financing for marketplaces
  • On-demand insurance will also become a trend in the next 3 years i.e. Asia Insurance
  • Blockchain infrastructure will arrive in Southeast Asia

 

3. Automobile innovation to benefit B2B & B2C

  • Innovations will be in the areas of software that helps drivers find parking, rent cars, connect with automobile care

 

4. The rise of healthcare tech in Thailand and Singapore

  • The birth of centralized data hubs and analytics will be integrated with healthcare
  • Creation of software for hospitals, clinics and private practices to make their workflow more efficient. Ex. Patient records, paying bills etc.
  • The application of IoT software for hospitals and senior homes
  • The rise of telemedicine platforms online and doctor on-demand services. This would benefit rural provinces as it’s a challenge to find doctors on demand when you’re not in a big city

 

5. The strengthening of enterprise SaaS

  • AI/Machine learning based predictive analytics software for business users, especially in the area of automated customer service and sales management software
  • Will take time to develop and be applied, but it should be used by HR departments and accounting/finance divisions to automate certain processes such as number crunching and database filing

 

6. Long-haul logistics

  • Long haul trucking would be particularly useful for the popular trucking route between Malaysia-Thailand and vice versa
  • On-demand trucking platforms could add more convenience to consumers, allowing them to have parcels delivered at a more flexible schedule. This would be a challenge in Indonesia due to the different islands within the country
  • Route planning innovation will also become a trend in logistics. This would help to tackle various roadblocks such as unidentified locations, problems with delivery addresses and more.

 

7. Increasing popularity of agritech

  • Agritech has been slow to rise, but should become a key trend within the next few years as agriculture is prominent in Southeast Asia
  • The development of financial services for farmers will pick up. Thailand and Indonesia have begun to develop government centric databases and e-procurement platforms, but neither has fully taken off
  • The creation of market linkage models, ex. farm to table platforms

 

Looking ahead

Southeast Asia is waking up, especially as each country’s government is pushing tech initiatives and creating guidelines such as sandboxes for fintech and exploring taxing for ecommerce.

According to Jeffrey Paine,

As soon as the government starts to push, large corporations will begin to take notice.

This trend is apparent in Thailand, with many institutional banks such as SCB itself, or Kasikorn bank venturing into digital finance services.

Real estate companies such as Sansiri are teaming up with SCB to explore property tech, focusing on research, development and startups, aligning with the Thai government’s 4.0 initiative that aims to move the country towards a more digitized framework.

Jeffrey Paine notes that for domestic startups, going regional is not impossible. China will play a significant role in the region’s development, and Southeast Asia needs two main vices; capital and time, in order to accelerate the region’s technology growth.

For more on SCB x Digital Ventures Fintech Forum and to watch the panel, click here.

Thailand’s startup media outlet Techsauce published two detailed reports this month; Investor Guide Q1 2017: Thailand Tech Startup Report and its annual Southeast Asia’s Top 75 Fintech Startups Report. What were the key takeaways to know about Thailand’s startup ecosystem and Southeast Asia’s tech investment landscape? We take a look at both reports:

How did Thailand startups do in terms of funding?

An introduction to Thailand

Total funding figure in Thailand is getting bigger – no less than $85.2 million as seen in the chart below. The exact number can’t be pinpointed as there were several undisclosed Series B investments.

Notable funding mentions: 

  • E-book platform Ookbee raised $19 million from Chinese giant Tencent to create a digital content ecosystem in Thailand
  • Fintech startup Omise raised $17.5 million led by Japanese firm SBI Investment
  • Ecommerce marketplace Orami (now Moxy) raised $15 million from Facebook’s Eduardo Saverin B Capital
  • 3 food tech deals were made in 2016. At the beginning of 2017, B2B food supplier platform Freshket has raised an undisclosed six digit funding round
  • Corporate Venture Capital was a trend in 2016 that saw numerous corporations shift focus to technology and innovation as both direct investors and limited partners. This trend is expected to continue well into 2017 with the emergence of property tech in Thailand, pioneered by real estate giant Sansiri

In the graph below, you can see that the number of funded startups has shot from 3 to 75 in only four years. The number of active angel investors and the number of VCs have also grown in tandem.

Data from the report also shows that ecommerce still remains the top category for investors and increased steadily on a year-to-year basis. The second category is logistics with funding raised by aCommerce, Giztix and more.

 

Only two months into 2017, and already eight startups have already raised funding this year.

The diversity of Thai startups attracting investors show that there is more room for verticals such as education tech (edtech) and travel tech.

The report also predicts that by Q2 2017, there should be more funding given to a variety of startups in different sectors and investment opportunities in Thailand’s ecommerce landscape.

Southeast Asia’s top fintech trends

  • While core technologies such as blockchain and AI have gotten a lot of publicity, startups that can realistically develop it or utilize it are still limited but extremely attractive to investors
  • Each country in this report is making moves to launch regulatory fintech sandboxes to test out financial technology framework – Indonesia, Malaysia, Myanmar, the Philippines, Thailand, Singapore and Vietnam.
  • Many fintech firms in the region have mandates to work with banks and regulators, which means expanding beyond their domestic market may be a challenge
  • The entry of Alibaba’s financial arm, Ant Financial, into the region has caused startups that offer similar services to quickly adapt or risk getting squeezed out

Fintech players by country

The image above shows that Singapore is well ahead of other countries in terms of number of fintech companies with 31 players, followed by Thailand with 14 players. More doesn’t necessarily mean better, it will be time until one emerges.

With each country taking initiative to become less cash dependent, for example, Thailand government’s PromptPay initiative, this will be a continued trend into Q2 of 2017.

Insurance technology is still a minority but with Thailand’s Asia Insurance introducing online insurance packages and companies such as AXA and FWD offering online insurance in Singapore, the space is growing.

Financial technology in Southeast Asia is still growing and must in a region where only 27% of the population has a bank account. That leaves around 438 million people unbanked and endless opportunities for fintech firms to bridge the gap that traditional financial institutions are struggling to fill.

2017 is already shaping up to be another year of startup growth in Thailand but investors will be more strategic with their money. As fintech matures, it can only nurture the growth of online transactions.

The original reports from Techsauce can be found here and here.

Southeast Asia in 2010 started to experience an ecommerce boom with the likes of Ensogo, Rocket Internet’s Lazada and Zalora, Groupon, etc. It seemed to be at the height of its peak with money pouring in, mergers and acquisitions happening every day, and Amazon finally moving in to capture the region’s potential but amid these buzzworthy headlines, down rounds plagued startups such as Lazada, were sold for scraps like Zalora Thailand, or shut down completely, such as Ensogo.

What happened? Smaller startups began venturing into other fields providing human resources (Getlinks), car wash services (Wash Mobile), recruitment (JB Hired), agriculture (EverGrow), hardware (DriveBot), and more. It seemed that startups were shifting focus to offer niche services to carve out their own demographic in a saturating market but could they sustain themselves?

A Sustainable Model: Fintech

Across the region and even in once-upon-a-time unicorns such as Flipkart and Snapdeal, news reported large reductions in hiring, peaking salaries, and a slowdown in capital flow shadowed the once profitable businesses VCs banked hard on. The customer behavior in Southeast Asia, more specifically trust, is simply not mature enough.

It also cannot be denied that a capital and inventory intensive model requires deep pockets. After running a successful ecommerce company in Thailand for three years, I realized it was necessary to go back to the basics, to start a business model that encompassed the three components of sustainability:

  1.       High margins
  2.       High customer lifetime value (LTV)
  3.       Low customer acquisition cost

A business with these characteristics usually has a strong foundation and presents a good investment opportunity because it shows promise for profitability down the line. While ecommerce does have low customer acquisition due to the nature of retail and lower commitment products, such as retail and consumer goods that are being sold, it severely lacks in margins and customer LTV (lifetime value).

Margins are often eroded away by high operation costs, packaging, shipping, and inventory while LTV is nullified by heavy competition as most ecommerce companies do not have exclusivity on products and pricing. After all, it isn’t in the best interest of product owners and manufacturers to only distribute their products through one single channel.

Fintech on the other hand, a recently booming industry, does not suffer from these disadvantages. Like most tech companies, there is no inventory to hold, the margins are much larger and once you have acquired a customer, you have an 80% renewal rate for at least the next four years (Bangkok Insurance’s internal data). By building better fintech, it would change the behavior of consumers in Southeast Asia and eventually fuel the growth of ecommerce in the region.  

fintech-southeast-asia

Lack of Innovation: More Room to Grow?

Fintech is ripe for entrepreneurs because existing legacy players such as Viriyah and MSIG in the market lack innovation. Companies like Bangkok Insurance, HSBC, and other traditional financial institutions are only beginning to realize the magnitude of the tech wave that has hit the world.

As the saying goes, it is hard to steer big ships, and ships seldom get bigger than the companies that make up our financial industries. These companies earn a vast majority of their profits from traditional channels, leaving the unexplored to opportunistic entrepreneurs like myself with Frank.co.th and many others who have managed to convince investors for support.

A recent report from Accenture found that global investment in fintech has skyrocketed from $930 million back in 2008 to over $12 billion by the beginning of 2015. Europe experienced the highest growth rate with an increase of 215% to $1.48 billion in 2014. Globally, fintech startups have raised investments totaling $19 billion according to a insight report published by Citibank. This has begun to eclipse other startup sectors as it continues to grow.

Challenges of Fintech

The next big thing does not come without its own challenges. Fintech startups need to realize very early on that there are many rigid regulations which were not created with innovation in mind. For example, in Thailand, selling insurance online requires a business to report to at least three different governing bodies all of which have their own set of rules to abide to. This increases admin work for small companies and also requires legal knowledge that most new companies lack.

Companies are also not allowed to call a customer to confirm purchase as that would be considered “telemarketing insurance sales” and requires a different license. One of the biggest challenges for fintech companies is encouraging users to trust young companies with their financial information, savings, and future to adopt its products and services.

It takes time and a lot of marketing dollars to explain to customers who you are and why they should trust you with their money. These challenges do get easier as more startups enter the space and educate their audience through smart marketing initiatives.

Rabbit, a company based in Thailand, is the first integrated online/offline payment platform in Thailand accepted in multiple retail stores, restaurants and used for public transportation. Its partnership with LINE earlier this year means over 5 million users are slowly allowing their financial information to be connected to some sort of a tech platform.

“This joint partnership [Rabbit LINE Pay] will strongly support government policy in driving Thai people into a cashless society,” says Nelson Leung, chief executive officer of BSS Holdings, the operator of Rabbit card.

Influence from neighboring countries such as Singapore and Malaysia, a lot of which have already set up country specific ‘sandboxes’ to trial for fintech regulations, are also moving towards a cashless society to drive the realization that there is a need for innovation in the financial sector.

Ecommerce is a big marketbut until the shopping habits of Southeast Asians are shifted to online spending habits, it can never reach its full potential. The emergence of fintech and its supporters mean that by building the fundamentals, companies in the entire ecosystem can benefit from its success. 15 years ago, people would call a travel agent and ask them to book a ticket. And now? When was the last time someone called a travel agent to book a flight or hotel room? Behaviors change, but it takes innovation and time.

BY HARPREM DOOWA, MD & CO-FOUNDER AT FRANK.CO.TH
sme-smartphone-atm

With enough liquidity, small merchants may serve as cash points in rural parts of Southeast Asia.

With only 23% ATM penetration rate (compared to global average of 70%), reports the World Bank, millions of underbanked individuals in the Philippines do not have easy access to bank branches and ATMs. But a partnership between FEXCO and ENCASH aims to tackle the low ATM penetration rate by turning mom and pop shops into ATM outlets, reported Tech Wire Asia. Imagine, suddenly, a local fruit-stand seller can be a cash point.

The Philippines has only 23.68 ATMs per 100,000 people. With an ATM penetration rate of 23%, far lower than global average of 70%.

In what is being called the “EasyDebit” solution, the plug-and-play tool allows cardholders to withdraw funds from any merchant with the device and downloadable app, which plugs into smartphones and gives cardholders cashback without having to locate an ATM. Cardholders simply swipe their cards, key in their PIN and “withdraw.” Money in the cardholder’s bank is transferred to the merchant’s account, who then gives the cash equivalent to the user.

The solution is meant to be affordable enough for small merchants through a rent-to-own scheme, which doesn’t require minimum balances or transaction amounts. And remittances from Filipino workers abroad to families in the countryside or even urban-to-rural remittances are sparking higher demand for easy cash access.

The company brings down the cost of joining a major ATM network by acting as these banks’ intermediary. FEXCO and ENCASH plan to introduce ‘EasyDebit’ in Cambodia, Indonesia and Vietnam after its initial run in the Philippines.

A version of this appeared in Tech Wire Asia on August 15. Read the full version here.

Red Dot Payment, a Singaporean online payments company, announced today that it received a seven figure investment round led by MDI Ventures, reports Tech in Asia. MDI Ventures is the corporate venture arm of Indonesia’s largest telco, Telkom.

The startup’s existing investors, such as Japan’s GMO Venture Partners, Wavemaker Partners and Skype Co-Founder Toivo Annus, also participated in this round.

What is Red Dot Payments?

What differentiates Red Dot Payments from other similar providers such as Singapore’s 2C2P, is the fact that it caters to specialized, industry specific payments needs. For example, it has a suite of tools just for hotels. Other key areas it specializes in are insurance providers and charities.

“With an increasing adoption of ecommerce and online transactions in the region, different types of industries will need a solution more focused toward their specific need,” says Nicko Widjaja, MDI Ventures CEO.

The online payments company provides online payment gateway systems, payment consulting and merchant acquisition services for businesses, and supports various different methods of payment such as Visa, MasterCard, TenPay and Alipay.

It offers various services such as InstanPromo, which provides customers with the option to choose from a list of available promotions before making payment, and InstanCollect, an e-invoicing solution for businesses with no online presence.

Red Dot Payments is currently already active in markets outside of Singapore, such as Thailand and Singapore. The new funds are meant to be allocated for further regional expansion.

Telkom’s VC, MDI Ventures is heavily focused on fueling the ecommerce growth in Southeast Asia. They also announced a $10 million funding round for aCommerce, a leading ecommerce service provider in the region.

A version of this appeared in Tech in Asia on August 12. Read the full version here.