Fintech startups in Southeast Asia are playing a significant role in the region’s internet economy, which is on target to exceed USD 300 billion by 2026. Predictions indicate that spending will rise by 121%, digital payments will reach 92%, and 426 million citizens—representing 62% of the population—will use mobile wallets.
The rise of fintech in the Association of Southeast Asian Nations (ASEAN) is also evident in the investments field. According to Statista Research, the Digital Investments sector will be the largest fintech market, with a total transaction value of USD 3.94 billion in 2023. The average transaction value is likely to be USD 180.80 per user.
The top 5 fintech startups in Singapore and Malaysia right now
The fintech sector has received considerable financial support from investors and venture capital (VC) firms for many years. VC investments foster growth, provide convenient financing, offer mentorship to startup founders, deliver networking opportunities, and support early-stage and late-stage businesses. Examples of top fintech companies in the region include Thunes, bolttech, PolicyStreet, and Aspire.
Trends, regulations, and technologies shaping the fintech industry
Fintech has been thriving thanks to innovative technologies that have applications in other sectors. Here are examples of key technologies in the sector:
Mobile wallets
According to the Mobile Apps Trends Report 2022 prepared by the global marketing analytics platform Adjust, fintech app installs have increased by 35%, with 57% of these being payment apps.
Furthermore, the report noted that mobile eCommerce is stronger than ever. The introduction of mobile wallets makes it convenient for customers to transact from anywhere and earn money through various apps.
Artificial Intelligence (AI) and Machine Learning (ML)
Financial service startup companies are adopting AI and ML solutions to power their innovative fintech products. These technologies can help in fintech by storing and analysing data, creating reports to highlight trends in the sector, calculating transactions, and automating various services.
Blockchain and cryptocurrency
In 2021, the Tech Collective noted that blockchain use was growing due to the “need for security, transparency, and digitalisation” in the region. The blockchain market looks likely to reach USD 15.88 billion in 2023. Blockchain and cryptocurrency bring efficiency, digitalise trade, reduce human error, enhance transparency, provide traceable transactions, and reduce fraudulent activity.
Some of ASEAN’s most active VC investment firms include Sequoia Southeast Asia, Insignia Ventures Partners, Alpha JWC Ventures, and East Ventures. Last year, the firms raised USD 151 billion in the first three quarters of the year. The VC firms announced plans to deploy this capital in 2023, but due to economic instability globally, they would be more selective than in previous years on the startups to invest in. They planned to focus on prudent growth, profitability, and business model sustainability.
The regulatory environment in Southeast Asia has been evolving over the years. Many countries realised the need to monitor the financial sector and provide guidance to encourage investment and innovation while protecting the customer. Singapore leads the way in implementing new laws for the sector, but additional laws are needed to accommodate banks as they adopt fintech.
Opportunities for fintech startups in Southeast Asia
The rise of fintech has created many opportunities for startups to bring profitable and innovative solutions to the market. Different digital payment features became more prevalent in an IDC report commissioned by the global payments platform 2C2P and the global membership association for payments and fraud prevention professionals Merchant Risk Council (MRC).
IDC’s Infobrief, “How Southeast Asia Buys and Pays 2022: New Opportunities, Connectivity, and Risks”, says that Buy Now Pay Later (BNPL) options have gone up 3.5X since 2021, whereas Real-Time Payments (RTP) will increase transaction values by 8X to reach USD 12,978.7 billion by 2026.
In 2022, Google, Temasek, and Bain & Company released their e-Conomy SEA Report 2022, which showed that ASEAN’s leading sectors were financial services, eCommerce, online media, transport & food, and online travel. Nascent sectors included healthtech, Web3, edtech, and Software-as-a-Service (SaaS). These sectors offer opportunities for fintech startups in Southeast Asia to make their mark.
In addition to technological, adoption and regulatory issues, creating fintech solutions that align with environmental, social, and governance (ESG) values is challenging. In its Banking and Capital Markets Report 2022, professional services firm Deloitte noted that ASEAN could generate USD 12.5 trillion in economic benefits by combating carbon emissions. This plan remains a concern as technologies like blockchain can cause significant harm to the environment.
Substantial risks to the sector remain in the form of reduced funding caused by global economic challenges, slow technology adoption, cybersecurity issues, and inadequate government support.
Ultimately, ASEAN should consider cross-border opportunities in trade and exchanging ideas to enhance the fintech sectors in their respective countries. The sector will continue to remain very popular, with a lot of growth potential and opportunities for solid investment.