Fintech is on fire. Better, it’s white hot. According to an oft-cited study released by Accenture, global investment in financial technology ventures tripled from US$928-million to US$2.97-billion between 2008 and 2013. This figure is expected to snowball to a whopping US$6 to 8 billion by 2018.
To put this within the context of the wider investment landscape, in the three years leading up to 2013, global investment in fintech grew more than four times faster than venture capital investment overall.
Here’s a quick lowdown on fintech or “financial technology” for those of us newer to the scene: broadly speaking, it describes an industry composed of companies that use technology to make financial systems more efficient.
Under this umbrella come a wide range of sub-industries: transfers and payment processing, stock and trading platforms, peer-to-peer lending, cryptocurrency – the list goes on. Diverse as they come, fintech startups share one trait: they seek to provide innovative technological solutions to enhance the efficiency of the financial system and the individuals involved in it.
BELIEVE THE HYPE
Fintech is no longer the exclusive property of tech geeks and libertarian revolutionists. In recent years, the term has become a buzzword in mainstream media and investor circles. From the BBC to The Straits Times in Singapore, major newspapers the world over have started running articles on the latest developments in the industry and their politico-economic implications.
A growing number of investors whose portfolios previously contained no fintech exposure are now positioning themselves for a share of the action – no one, it seems, wants to miss catching the next big wave.
So what is all the fuss about and why should we believe the hype?
First, the financial crisis of 2008 left banks pumping their resources into new policies to satisfy regulators and unable to spend money on innovation. This has provided a huge market for smaller companies to create innovative products that provide growth and big data solutions to financial institutions. Startups like Moneythor build products that enable their clients to enhance their customers’ digital banking experience and better understand their financial behavior through an engine that collects and analyses their transaction data.
Such startups are more often than not headquartered in Singapore which, as an established financial centre at the forefront of technology, has become a hotspot for fintech developers looking to corner the Asian market.
The technology that is being developed within the fintech industry has implications beyond the financial world. The blockchain technology pioneered by the inventors of Bitcoin enables Internet users, for the first time ever, to transfer unique pieces of digital property to each other in such a way that the transfer is guaranteed to be safe and secure. Everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. This is a big deal.
As legendary venture capitalist Marc Andreessen points out, it could potentially eliminate the need for any sort of third party – be it a bank or a governmental agency – to guarantee the exchange of any sort of digital or physical asset. The idea is that this would cut out middle man costs and vastly increase the financial autonomy of individuals.
To speak more generally, the fintech industry is just a huge market. Payments touch every sector of the economy. Todd Latham says that “the economy is driven on it.” It’s not hard to see how capturing even a small portion of that whole could prove lucrative.
However, what seems to have largely escaped popular discourse on the profitable and transformative power of fintech is its potential to effect social change among the economically disadvantaged of the world. This is really what we should be getting excited about. This is really what industry heavyweights should emphasize in greater detail.
Fintech in Southeast Asia could play a huge role in gradually pulling a combined population of more than 600 million people out of poverty (the ASEAN countries are the world’s third largest market after China and India) while proving to be hugely rewarding ventures for the investors and startups themselves.
Read more: Payment startup Nomanini sees over 1 million end-users per month
While internet, mobile, and banking penetration remain low in the markets such as Indonesia and Thailand, just 20 percent of Indonesia’s 250 million population still makes a substantial market size of 50 million banked individuals whose full capabilities as financial entities remain largely unexplored territory for international fintech investors and innovators.
PAYING THE WAY FOR A BETTER WORLD
Malaysian startup Soft Space has the vision of increasing financial inclusion in Southeast Asia. Their mobile point of sale (mPOS) platform lets merchants accept card payments easily and at low cost: all they need is a smartphone. Their product enables the previously unbanked – small merchants such as the freelancing confinement lady in Kuala Lumpur to receive card payments for their services and benefit from the efficiency and safety provided by existing banking systems.
Singapore-based SmartPesa is another mPOS attempting to penetrate emerging markets. Like Soft Space, they build on existing banking infrastructure and leverage the solutions that the population already trusts. They currently have a pilot user in Rwanda and their expansion plans for SmartPesa include cashout and airtime topups – features that will be of direct use and profit to the merchants who adopt their payment method.
We’re seeing a generation of payment systems that are tapping into the economic power of merchants with smaller profit margins but are formidable in their sheer numbers. Startups work hard to create solutions that improve their economic function. This is social enterprise at its best: business innovation in which all parties stand to profit in a sustainable and effective way.
IN FOR A BITCOIN, IN FOR A POUND
Bitcoin enthusiasts quickly point out the ideological power of the bitcoin: it’s Nozickian principles of autonomy at their very best practical application. Beyond that, Bitcoin could include a staggering 2.5 billion of the world’s unbanked into the world of remittances, payments, and other transactions that form the building blocks of economic development.
Marcus Swanepoel, the CEO and co-founder of BitX says Bitcoin can financially empower individuals in “geographies where financial systems are inefficient”. Just as Africa skipped computers and went straight to the mobile phone, he sees the potential for a similar “leapfrog effect” in emerging markets in the area of fintech: skipping cards for bitcoin payment solutions. He and his team of ex-
Google developers want to position themselves at the forefront of this cryptocurrency revolution.
For Hong Kong-based bitcoin remittance startup Bitspark, bitcoin’s social power lies in the financial flexibility cryptocurrency provides to its customers who are mostly overseas workers. Co-founder and CEO George Harrap cites a few instances in which Bitspark’s customers needed to remit a small amount of money home to cover their family’s medical bills – this was either not possible on traditional remittance services or came attached with a huge fee. Bitspark remitted the money in an hour, free of excessive costs and restrictions.
They recently partnered with Artabit, a pioneering Indonesian Bitcoin startup that shares a similar social mission to enable Indonesian workers to remit money home.
Onelyst is a unique Singapore-based startup that is trying to solve a gritty, not-so-pretty problem in the real world.
Mohamed Abbas and his co-founder Hizam Ismail are connecting licensed money borrowers to those in society’s lower-income bracket who need quick access to loans for medical and other pressing personal reasons. Its focus is on financially empowering a section of society that risks being exploited by the existing system due to lack of access to information and choices. Abbas asserts: “A transparent borrowing system for our vulnerable community should not be seen as a privilege. It’s an entitlement. We are working towards that vision.”
They have recently closed a seed round and are looking to raise more money.
Of late, forward-thinking impact investment funds have started to actively look into fintech, recognizing the potential for cryptocurrency to impact the lives of the unbanked.
The fintech industry will be mammoth in years to come. But what is special about this trend is that it will not only deepen the pockets of investors and startup founders; it has a chance to effect some real social change.
In both their visions and user-centric approach to the products they are building, these founders promise a fintech future for the region in which everyone stands to have a shot at some share of a very large pie.
The fintech startups mentioned in the article are currently featured on Techlist.asia, a database that seeks to connect Asian startups to investors from all over the world.