According to the Fintech Innovation in Singapore Report, 2022’s fintech VC trends in the Association of Southeast Asian Nations (ASEAN) show that the region raised USD 4.3 billion in the first nine months. This figure was higher than the total amount raised between 2018 and 2020. The professional services firm PriceWaterhouseCoopers (PWC), the Singapore Fintech Association (SFA), and the Economic Development Board (EDB) Singapore compiled the report.  

Southeast Asia has become a leader in fintech—with innovative fintech startups emerging in many industries—and experts believe it will develop further in the next ten to twenty years. By 2030, ASEAN will have become the fourth-largest economy, behind China, the United States (US), and the European Union (EU). Singapore acts as a gateway for companies to reach and invest in neighbouring countries because of its favourable location, multiple free-trade agreements, pool of tech talent, and well-developed financial and technological infrastructure.

The rise of fintech: A deep dive into the VC investments and market opportunities in Southeast Asia

Factors affecting fintech startups in Southeast Asia

Southeast Asia has many reasons to be optimistic about its fintech future because it has many things working in its favour. First, its large, young, and tech-savvy population is open to adopting new technologies. When the COVID-19 pandemic occurred, the region quickly accelerated its digital transformation and incorporated tech into its products, developments, business operations, and services.

Additionally, the governments have played a significant role in supporting fintech ecosystem growth in their countries, providing support, funding, and regulatory improvements. Infrastructure developments have rapidly urbanised rural areas, boosted sectors like logistics and technology, and increased accessibility for residents in ASEAN. 

Furthermore, private-public partnerships with foreign investors have brought further infrastructure enhancements like 5G, which are essential for delivering a better user experience for Southeast Asians when they go online. 

Despite these advantages, the region still faces many challenges in the financial services sector. According to TechCollective, there was an 83% decline in fintech startups in 2022 due to reduced investment. Venture capital firms and investors began avoiding risky strategies and focusing on sustainable startups because of the deteriorating global economy. The state of the economy means investors will withhold funds, especially from bad startup leaders and other businesses that are either unprofitable or lack adequate environmental, social, and governance (ESG) policies.

For example, ASEAN continues to battle sustainability and climate change concerns in industries like Blockchain. Global sanctions and geopolitical tensions have also hampered cross-border transactions as consumers and startups deal with multiple regulations. Finally, cybersecurity issues threaten the success of fintech because the industry cannot survive if criminals are harassing and stealing from users.

Prospects for fintech in ASEAN

Nevertheless, ASEAN is still in line to profit from fintech now and in the future. Small and medium-sized enterprises (SMEs) remain underserved by digital financial services and continue using legacy systems or cash to conduct business. When combined with the large population in the region, it means there are adequate opportunities for fintech startups to emerge and offer innovative solutions to enhance accessibility and financial inclusion.

Fintech VC trends may shift back in favour of investment as there is a significant possibility of getting Southeast Asians to switch from their preferred cash transactions to using digital payment solutions. In addition, introducing payment models like Buy Now, Pay Later (BNPL) will benefit startups by getting consumers to spend more in situations where there may be limitations on access to cash.

Six national fintech associations from Singapore, Malaysia, Thailand, Vietnam, Cambodia, and the Philippines signed a memorandum of understanding (MOU) in 2022 to come together and establish ASEAN as a global fintech hub. They plan to collaborate on education, marketing Southeast Asia as a fintech market, updating regional regulations, and networking in mutual association events. As the global community begins to take note of ASEAN, it will bring more investment for fintech startups, and other foreign companies will seek to establish their businesses in the region.

Thriving through collaborations and partnerships across industries

With the lifting of COVID-19 pandemic restrictions worldwide, sectors like travel and hospitality will benefit from holiday goers seeking online solutions for booking trips, making reservations, paying for events, and more. The logistics sector will be able to manage online transactions for cargo payments and deliver goods to countries worldwide.

In addition, fintech is vital to the success of multiple industries because it has applications in healthcare, eCommerce, and other sectors. Innovators are building a future with decentralised systems, such as Web3, and ushering in a novel economy focused on sustainability. 

A green economy provides opportunities for startups to include fintech in every operation to stop paper wastage when printing receipts, which can lead to deforestation. Record keeping and tracking financial transactions through blockchain can reduce the paper trail and offer a more sustainable option.

Ultimately, the sector can only survive if the public trusts the services with more required to strengthen the fintech laws and deal with cyber insecurity.