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ASEAN FinTech Census 2018

The financial services industry in the Association of Southeast Asian Nations (ASEAN) region is rapidly evolving as a result of disruption from new-age Financial Technology companies (FinTechs). FinTechs, which combine innovative business models with digital technologies to render financial services, are witnessing a visible ascendance in Asean, as well as around the world. Rapidly expanding economies, young-urban-digitally-savvy population, increasing mobile and internet penetration, and largely underserved, small- and medium-sized enterprises (SME) and consumer markets by traditional financial institutions, are all factors that have led to the rapid adoption of FinTech innovation in the region.

On the back of strong fundamentals and with FinTech adoption on the rise, Asean as an engine of economic growth and prosperity has caught the eye of global investors. Investment in the region’s FinTech sector has surged, jumping 45% year-over-year to US$366 million in 2017, according to Tracxn.

However, little has been discussed and published about the opportunities and challenges facing the FinTech industry in the region. To understand the key factors shaping the industry and bring to forefront the voice of the FinTechs in the region, EY has undertaken this research initiative and surveyed more than 250 FinTechs in early 2018. Participants include FinTechs primarily from Asean countries as well as outside of Asean, who are looking to enter the region. The findings are presented in this inaugural EY ASEAN FinTech Census 2018.

The Census analyzes the Asean FinTech ecosystem, in addition to providing a platform for FinTechs to express their views on a range of matters related to adoption, investment, talent and environment. The report examines in-depth, how governments across Asean have and can further facilitate thriving FinTech hubs. The Census also provides views from industry and domain experts on the Asean FinTech ecosystem.

Continued evolution of the FinTech ecosystem will help facilitate the overall growth and development of the Asean region. EY’s ASEAN FinTech team is committed to working with industry participants comprising FinTechs, investors, governments, education institutions, accelerators or incubators to help the region realize its potential and bring about greater financial inclusion.

Foreword

Liew Nam SoonManaging Partner, ASEAN Markets

Brian ThungManaging Partner, ASEAN Financial Services

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Contents

01 Methodology 03

02 Key messages 09

03 Fast facts 11

04 Profiling of respondents 13

05 Company profiling 15

06 Revenue 21

07 Investment 24

08 Talent 29

09 Regulation 32

10 Environment 37

11 The way forward 40

12 FinTech associations in Asean 44

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Methodology

• EY defines FinTech organizations as ones combining innovative business models and technology to enable, enhance and deliver financial services.

• The business activities of FinTechs are broadly classified under four models: business-to-business (B2B), business-to-business-to-consumer (B2B2C), business-to-consumer (B2C) and offline-to-online (O2O).

• FinTechs are further divided into 16 key subsectors including payments, blockchain, money transfer, data analytics, robo advisory, amongst others. Refer to page 16 for further details.

Definition of FinTech

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• Census questions focused on profiling respondents, as well as gathering information on revenue, capital, talent, regulations, environment and future growth trends at FinTechs.

• FinTechs firms received an email with a link to an online survey page. There were 80 questions, with the wide range of free text, multiple choice, ranking and scoring questions, that would take no more than 30 minutes to complete.

Survey design

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• A lists of FinTechs was developed from existing contacts, directories, industry associations and previous FinTech events, (including FinTech conferences). These organizations were screened for FinTech eligibility and contacts were sorted to remove duplication.

• Outreach channels included marketing the census on professional social media platforms such as LinkedIn, marketing on social media handles of FinTechs, as well as direct emails to key stakeholders and founders.

FinTech outreach

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• We received 251 responses from across Asean (170 responses) and non Asean countries (81 responses). Non Asean headquartered FinTechs are the companies planning to expand their footprint in the Asean market.

• Asean countries surveyed are Cambodia, Brunei, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

• The survey was officially closed on 31st January 2018, and then manual data cleansing exercise was undertaken, with final output based on analysis of the cleansed data.

• We have applied unweighted averaging of results to offer insights across key themes and trends. The results are presented in this inaugural EY ASEAN FinTech Census report. For detailed results and custom analysis, please refer to our interactive ASEAN FinTech Census Survey Dashboard on http://ey.com/sg/eyaseanFinTech.

Analysis and reporting

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Thailand“Nascent but emerging FinTech sector”

Fast Facts:

• # of FinTechs: 128.

• Investment in 2017: US$12M (-40% Y-o-Y).

• Key subsectors: Payments.

• Most active investors: 500 start-ups, Golden Gate Ventures.

• Regulatory Sandbox: Yes.

Malaysia“Emerging FinTech Hub in Asia”

Fast Facts:

• # of FinTechs: 196.

• Investment in 2017: US$75M (15 times increase Y-o-Y).

• Key subsectors: Payments, Consumer Finance.

• Most active investors: 500 start-ups, Cradle, Mavcap.

• Regulatory Sandbox: Yes.

Philippines“Drive towards Financial Inclusion”

Fast Facts:

• # of FinTechs: 115.

• Investment in 2017: US$78M (13 times increase Y-o-Y).

• Key subsectors: Payments including remittances.

• Most active investors: 500 start-ups, Kickstart Ventures, Spiral Ventures.

• Regulatory Sandbox: No.

Singapore“Asia’s FinTech hotspot”

Fast Facts:

• # of FinTechs: 490.

• Investment in 2017: US$141M (+68% Y-o-Y).

• Key subsectors: Wealth Management, Alternate Lending, Payments.

• Most active investors: Startupbootcamp, GMO Venture Partners, Wavemake Partners.

• Regulatory Sandbox: Yes.

Indonesia“Booming digital payments market”

Fast Facts:

• # of FinTechs: 262.

• Investment in 2017: US$26M (3.7 times increase Y-o-Y).

• Key subsectors: Mobile payments, Alternate Lending.

• Most active investors: East Ventures, Kejora, 500 start-ups.

• Regulatory Sandbox: Yes.

Vietnam“Limited FinTech activity”

Fast Facts:

• # of FinTechs: 77.

• Investment in 2017: US$3M.

• Key subsectors: Payments.

• Most active investors: IDG Ventures Vietnam.

• Regulatory Sandbox: No.

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Source: Tracxn accessed on 9 Dec 2017

FinTechsnapshot: ASEAN

ThailandPhilippines

Vietnam

Singapore

Malaysia

Indonesia

How FinTech sector is shaping up globallyThe Census results show that a record number of FinTechs (89%) believe that customers are open to adopting FinTech services and majority of them are optimistic about future growth of the sector (61%). As the financial services sector navigates its way through disruption and innovations, we have identified key emerging FinTech themes. These themes will determine how the FinTech sector will shape up globally over the next few years.

Sub-sector specialization

Globally, as well as within each FinTech jurisdiction, we observe that each FinTech sub-sector is at a varying degree of maturity:

• In Indonesia there are about 78 payments start-ups whereas c.20-30 start-ups are in the lending, and savings and investments sectors each, reflecting the latter sub-sectors’ potential infancy.

• In parallel, there are c.25 active payment FinTechs in Switzerland, and a similar number in Philippines (c.30), evidencing the differences in scale of the same sub-sector across global FinTech hubs.

Going forward, this trend will dictate where innovation is leading i.e., getting significant start-up interest, compared to where sub-sectors may be potentially getting too crowded i.e., room for innovation is depleting.

Payments has gained scale in certain markets

• Payments as a sub-sector of FinTech has achieved significant scale in certain markets — developed countries such as London (~30% of number of FinTechs) and Singapore (~20% number of FinTechs), as well as developing jurisdictions such as China. Some of the world’s largest FinTech unicorns are from this sub-sector, such as Klarna from Sweden, Stripe from the United States and Adyen from Netherlands.

• In Asia-Pacific, social media platforms, e-commerce players and on-demand service providers (e.g., ride-hailing) with large captive consumer bases, have already or are starting to offer payments as a differentiated service to its consumers. This trend has yet to play-out in the western world.

• Current regulatory regimes have started to acknowledge this — PSD2 Directive in the EU aims to enhance consumer protection, increase competition and acknowledges that

the payment sub-sector cannot persist as a standalone to traditional financial services sector.

Payments FinTechs density in Asean countries

Vietnam

33%

30%

29%

27%

21%

Malaysia

Thailand

Philippines

Indonesia

Singapore

47%

Policy support

We observe that there is strong policy support for promoting innovation and financial inclusion, which has been a key driver in many markets for the FinTech sector

• Both London and Singapore are proactively backing a FinTech push and have taken a number of regulatory steps to promote innovation.

• Other regimes might require more of such support and FinTech innovation in these hubs has been mostly bottom-up (e.g., China, India, Indonesia). Only in recent years, they are ‘playing catch up’ in response to the recent success and increasing scale of the sector.

Source: Tracxn, accessed on 9 December 2017

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Taking advantage of geo-political positioning

Challenger hubs are coming up alongside relatively well established FinTech hubs. Some examples include: Malaysia neighbouring Singapore, Lithuania near Estonia, where they are leveraging their geographic proximity to capture any spill-over from an innovation and talent perspective.

• Malaysia pitches itself as low cost cousin of Singapore. The cost of living is a third of Singapore, which might see more companies putting non-client facing jobs like operations, marketing and technology support in Malaysia.

• Lithuania have been living under the shadow of tech savvy Estonia and at the onset of Brexit, leveraged its ability to offer single window clearance for getting EU licenses. For talent, it offers larger number of trained staff at a lower costs than Estonia where there is voluminous demand from a vibrant start-up ecosystem, driving the cost of acquiring and retaining talent even higher.

Investor specialization

• We have started to observe sub-sector specialization themes in the investor community as well. As a complex and broad sector, investors realize that they cannot possibly create capability or expertise across the space, albeit they must pick their areas of focus.

• In a survey of 125+ investors in October 2017, all were active and very interested in the FinTech space. Investors expressed focus on average in six sub-segments out of a total of 14. Most sought after specializations include: Data analytics, Blockchain, Financing, Payment Solutions, RegTech and InsurTech. Investors have started to build teams around these capabilities across the globe, or hire experts to differentiate themselves.

Cumulative investments in top 5 sub-sectors in South-East Asia (in US$M)

Payments Investment Tech

InsurTech Consumer finance

Alternate lending

269

189

86 83 756%

More capital chasing less demand

• In a survey of 125+ institutional investors deeply interested and active in the FinTech sector in Asean, conducted in October 2017, it was noted that there was greater than US$2B in capital commitments available. On the flip side,

Source: Tracxn, accessed on 9 December 2017

a survey of 230+ FinTechs, conducted in the same time-frame for the same jurisdiction, capital requirements were established at just greater than US$1Bn.

• Effectively, there is currently two dollars chasing every dollar in potential FinTech opportunity. At the same time, while having capital is important, it is not the only factor that will attract FinTechs.

• In 2017, global VC backed FinTech start-ups raised US$16.6B across 1,128 deals. This compared to US$13.8B across 1023 in deals. Globally there are 25 FinTech unicorns valued at US$75.9B.(1)

(1) Source: CB-Insights_Fintech-Trends-2018

Collaboration between financial institutions and FinTechs

• Till few years ago banks were wary of FinTechs as narrative in the industry was more around competition between FinTechs and financial institutions. However, as innovation swept across continents, both sides realized that collaboration and not competition is the way forward. FinTechs realized that they will benefit from deep pockets, regulatory prowess, huge customer base and trust enjoyed by banks. Banks also realized that it makes sense to collaborate with FinTechs rather than try to build everything in-house.

• In Asean, banks have been actively collaborating with FinTechs to drive efficiency and enhance customer experience. Most banks have an incubator, accelerator or innovation lab, which helps drive collaboration with FinTechs. Some Asean banks have also launched FinTech-focused investment funds.

Estimated numbers of incubators, accelerators and innovation labs (by country)

Source: State of FinTech in ASEAN, October 2017

6

Singapore

52

Vietnam

24

Indonesia

20

Malaysia

10

Thailand

5

Philippines

5

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Shortage of talent

• About 60% of FinTechs in our survey agree that there is shortage of required talent in their respective countries. Globally, retaining and attracting high quality technical talent is observed to be one of the most prevalent challenges faced by FinTechs.

• Technical talent most sought after includes Data Scientists, Financial Engineers, Mobile Marketers and Computer Programmers. Some countries like Australia are attempting to import technical talent from other countries. London, New York and San Francisco continue to jostle between one another for talent, with Singapore and Sweden closing in from behind.

• A more sustainable solution to talent shortage is to nurture domestic talent. Hong Kong and Singapore are already moving towards this direction by partnering with schools to train students to develop FinTech knowledge and capabilities.

Democratization of access to information and infrastructure

• To promote healthy competition, drive innovation and benefit the end customers, new regulations such as General Data Protection Regulation (GDPR), Payment Services Directive (PSD2) and MIFID II have been proposed by regulators in Europe. In the UK, open banking regulation came into effect in January this year.

• In Asia, Monetary Authority of Singapore (MAS) is encouraging financial institutions to adopt open APIs as a key foundational layer for innovation and interoperability. Hong Kong Monetary Authority (HKMA) has also launched the draft Open API framework. As more regulators embrace open banking, it will revolutionize the way the financial services are consumed and will be a key driver of the FinTech sector in coming years.

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Summary findings

ASEAN FinTech census gathers insights directly from FinTechs highlighting key areas of growth, opportunities and potential challenges. The analysis is based on 251 FinTech responses, and is a fair representation of FinTechs across ASEAN and subsectors. We have analysed FinTechs’ responses on Revenue growth, Capital requirements, Regulatory support, operating Environment and plans for Future expansion, to come up with the following key insights.

expect next funding round to be greater than US$1million60%

FinTechs believe that there is a lack of start-up or FinTech talent in the country they operate in

60%

FinTechs have revenue growth as an immediate future goal in coming 12 months

61% plan to expand beyond home or current markets87%

78%believe government should increase tax incentives, government funding and talent initiatives to grow and promote the industry

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Key messages

• Government policies and actions play a vital role in shaping up the FinTech ecosystem, and promote innovation and competition. Governments across Asean have taken steps to facilitate the development of the sector. 58% of the respondents want more support from regulators and policy makers.

• Tax policies, talent and government funding are top three key areas where about 80% of FinTechs believe that more steps should be taken to promote the sector.

Regulation

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• Both historic and future revenue growth indicators are measure of success of FinTechs. Census shows that historically 42% of FinTechs registered a revenue growth of greater than 30%. About 65% of the companies expect a revenue CAGR of greater than 30% in future.

• As FinTechs plan to grow, Census results indicate that about 68% of FinTechs have runway of less than one year and plan to raise funds in immediate future.

Revenue

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• To keep the growth engine running, it is imperative that FinTechs have enough channels of funding available and are able to obtain funds easily.

• Our study shows that most of the FinTechs (about 45%) still rely on self-funding or boot strapping. About 76% of respondents agree that enough funding channels are available, but 52% find it difficult to obtain funding.

• In aggregate, 60% of FinTechs expect next round of funding to be greater than US$1M, and 23% of respondents expect an IPO in future.

Investment

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• The skills of the people running the start-ups is key to their success and so is the future availability of the right talent. The census finding indicates a shortage of technology and software, product management, and sales and marketing skills. The challenge is across countries albeit in varying degrees.

• Majority of FinTechs (61%) have hired foreign talent and about 35% of faced challenges in recruiting foreign talent.

• Most of the FinTechs still rely on personal connections (57%) and recommendations (48%) to hire talent.

Talent

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02

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10

• Presence of healthy competition and availability of support networks beyond founders and investors is critical for growth of FinTechs. About three-fourths of the FinTechs in Asean believe that they will be able to compete internationally.

• As most of the start-ups have lean operations and relatively less staff, most of them (73%) feel that co-working space is beneficial. However, need for accelerators and incubators is lower in Asean.

Environment

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• Census results indicate that FinTechs are optimistic about future. About 64% plan to diversify into other services within FinTech, and 54% plan to exit in next five years.

• Outside Asean, the rest of the Asia and Europe are two most important regions for FinTechs to expand into. The USA, UK and China are the top three preferred destinations outside Asean.

• Majority of the FinTechs (63%) see greater opportunities of expansion outside home market However, compliance with new regulations (57%) is the top concern for the companies expanding aboard.

The way forward

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10

11

58%Asking for more regulatory support

Regulation

TalentFinTech leader profile

End customers

51%serve banks and other financial institutions

Business models:

41%B2B2C

37%B2B (inclusive of B2Government)

60%agree there is a lack of FinTech talent in the country they operate in

58%find tech & software talent insufficient to meet their needs

40%have a financial license

Regulatory reforms needed (top 2):

Increase tax incentives for angel investors in early stage investment

Policy reforms in areas that make it easier to hire employees

Education:

62%Masters

86%of FinTechs have all male founders

Sector profile (top 3)

Fast facts

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80%Respondents are CEO

33%Payments

25%Loan app/ financing

21%Money transfers/ remittances

Revenue

Type of revenue models (top 2):

33%have average revenue per month >US$50K

Investment

68%Runway of less than a year before funding runs out

45%are self-funded

60%expect next funding size to be greater than US$1m

Investment in Asean Fintech (2017)

US$366m

Environment

Globally competitive Biggest competitors

89%agree public is open to FinTech

36%customer acquisition is a key concern

33%say traditional financial service providers

77%agree they will be able to compete internationally

Outlook

Goals for coming 12 months

87%plan to expand beyond home or current markets

61%Grow revenue

45%Obtain funding

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Gross domestic product (GDP):1,2

$2.63t (October 2017)

6th largesteconomy in the world

$7.4t (2030e)

Digital penetration:3

(February 2018)

350.6mInternet users

58%Internet penetration

390.8mMobile users

1.4xMobile connections per capita

55%Social media penetration

Population:2

646m (2017)

47.6%urbanized population

Young demographic profile:2

28.8median age (2017)

ASEAN Key Highlights

Source: 1. ASEAN Economic Progress Report, July 2017; IMF World Economic Outlook, October 2017 2. “ASEAN SMEs: Are you transforming the future?” EY Report, 2018; 3. “Southeast Asia digital, social and mobile 2018”, ASEAN UP, 1 February 2018.

Percentage of transaction52%

Flat fee per transaction43%

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Profiling of respondents

The ASEAN FinTech census collected data from 251 companies across ASEAN providing a good representation of FinTechs across the region. About 80% of respondents are CEOs with 57% being serial entrepreneurs.

Gender

86%of FinTechs have all male founders

Respondent position

80%The majority of respondentshold senior positions with 80% being CEOs

Founder

57%of the founders are serial entrepreneurs

Highest level of education

62%Masters

28%Undergraduate

8%Doctorate

2%High School

Work status

93%Work full-time

93% of the respondents are full time employees while 5% work on part time basis and 2% are equally divided into studying part time and working on casual basis.

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9 out of 10 founders are between 26 and 35 years of age

Age of founders (multiple responses)

Note: Analysis is based on data for up to 5 founders for each respondent company

<25 20%

26–35 92%

36–45 77%

46–55 25%

>55 6%

EY is committed to supporting entrepreneurs across their lifecycle and have supported programs like “EY Entreprenuer of the year”, Singapore Fintech Festival - Investor Summit. FinTech landscape in Asean is unique in terms of young age, education level and immense commitment to develop financial product and services by leverage technology at their core. We partnered with the grassroots FinTech associations in Asean markets to give a platform to FinTechs to share their aspirations and areas where they need support from the ecosystem to create a “better working world”.

Varun Mittal, EY ASEAN FinTech Leader

Company profiling

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The Census represents companies across a wide range of FinTech sectors. 68% of respondents are from Asean whereas 32% respondents are from outside Asean. This latter group represents companies looking to expand their presence in South East Asia market. About 80% of companies are in market ready stage out of which 58% were established between 2015–2017.

Headquarter of respondents

Product/Service Stage

Age of company

5%Thailand

7%Philippines

29%Singapore

3%Other ASEAN

32%Non ASEAN

10%Malaysia

48%

4%Ideation

6%Prototype

80%Market Ready

10%Proof of concept

<1 yr 15%

1–2 yrs

2–5 yrs 23%

5–10 yrs 8%

>10 yrs 6%

2 out of 3 FinTechs were born in the last 5 years and nearly half in the last two years

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14%Indonesia

Type of FinTech (multiple responses)

Payment Solutions 33%

25%

21%

18%

16%

13%

12%

11%

10%

9%

7%

6%

6%

6%

5%

4%

17%

Loan application or financing Money tranfers or remittance

Data Analytics

Blockchain or DLT

Robo-Advisory, Personal Finance ManagementInsurTech (UBI, Telematics)Trading,Fund ManagementRegTech, Robotics(e-KYC, AML, Digital ID)

Cloud, Open API

Cryptocurrency

Enterprise ManagementSystems

Crowdfunding

Accounting

Digital Identity

Institutional Tools

Others

Others include FX, Credit management system, currency exchange, corporate venture capital, invoicing, etc.

1 in 3 companies are engaged in the payments space, which grows to more than half (54%) if money-transfer or remittance is included.

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About 80% of respondents operate on B2B or B2B2C business models. 47% of the B2B respondents derive their revenue through big banks and corporations whereas 46% of B2B2C respondents derive their revenue through retail and start-ups or SMEs. Banks and financial institutions form the biggest group of end customers (51%) representing strong collaboration between incumbents and start-ups.

Number of employees

3%

>250

12%

51–250

38%

11–50

47%

1–10

8.5 out of the 10 FinTechs have headcount of less than 50, representing a typical start-up profile of these businesses.

Value proposition of the company (multiple responses)

Better or more effective

solutions74%

54%

51%

43%

41%

38%

37%

18%

12%

Greater Convenience

Seamless and intuitive

user experience

Financial inclusion

Innovative idea

Speed of transactions

Cheaper pricing

Greater security

Others

Majority of FinTechs aspire to offer better and more effective solutions to the customers — fit for purpose. This is followed by greater convenience and enhanced user experience as respective value-plays.

Note: Others include customers such as medical professionals, schools, hospitals

End customers (multiple responses)

51%

Banks and other financial intermediaries

47%

Retail consumers

45%

SMEs or start-ups

39%

Corporations

20%

Government

14%

Sophisticated investors

14%

Others

Note: Others represent 2% of companies that follow combinations of above models

Business model (multiple responses)

41%B2B2C

37%B2B (inclusive of B2Government)

1%Online to offline

18%B2C

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ASEAN Financial Innovation Network (AFIN)The ASEAN Financial Innovation Network (AFIN) has been established to support Fintech & Financial Institution integration and enhance financial inclusion. Technology is transforming financial services and holds potential to improve efficiency and choice in the sector as well as contribute to more inclusive economic growth. FinTech innovation also creates significant opportunity to accelerate financial inclusion and development across the region.

ASEAN has the necessary assets and skills to accelerate financial innovation for the benefit of inclusive growth. The digital transformation of financial services and adoption of financial technology can help to expand the reach and usage of financial services across the region. ASEAN encompasses a large and growing population, several of the fastest growing markets globally and is home to a growing pool of both capital and expertise in financial services and Fintech innovation. Improving access to financial services, particularly for SMEs, across the less developed markets of ASEAN, can also give a boost to growth and regional economic integration in this era of digital innovation. AFIN will be a catalyst in helping these assets across the region to connect and work together to realize this potential.

Financial inclusion remains a major challenge across the East Asia Pacific region, especially in ASEAN countries.

For example, the percentage of adults with formal bank accounts ranges between 22% in Cambodia and 36% in Indonesia, compared with the EAP average of 69%. Even lower is the percentage of adults with debit cards, ranging from 1.7% in Myanmar to 26.5% in Vietnam. Meanwhile, the percentage of adults who use debit to make payments ranges from 0.4% in Myanmar to 8.5% in Indonesia, compared with the regional average of 14.8%. Digital transformation and innovative technologies promise to offer viable means to overcome the costs and physical barriers to financial inclusion.

The aim of AFIN is to foster the development of a more robust and innovative market for Fintech services across ASEAN. AFIN will help financial institutions to more easily and cost effectively experiment with and test Fintech innovations, providing technical guidance and fostering knowledge sharing among members of the network. For Fintechs and other specialized service providers, AFIN will also facilitate interaction with new financial institutions and entry to new markets in which their expertise and services can help address financial inclusion challenges. Through testing and learning between these parties, AFIN will help enhance stakeholders’ understanding and insight into the challenges of Fintech adoption and needs of the financial sector across the region.

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The services and operations of AFIN will center on an API Directory and Industry Sandbox. This technology platform will provide information about API based services providers, their business and technology to potential users. It will also enable financial institutions and Fintechs to set up and operate segregated and secure testing environments in which their teams can cost effectively undertake initial assessments as well as design and integration work. This will enable many of the smaller financial institutions across the region to more readily learn about and test with Fintechs, while having access to support from AFIN and other users.

AFIN will promote convergence towards compatible API standards but is not setting API standards or access rights for the market. AFIN is working hand in hand with industry and

regulators across the region to at this early stage of market development and will promote structured dialogue among these stakeholders about the role that API standards play in market development and their implications for technology, operations and business models. Whereby AFIN will encourage users to work towards common frameworks and approaches, AFIN will not pretend to define or impose standards. However it is expected that through practical experimentation and development, AFIN may help to facilitate and accelerate emergence of commonalities that are favourable to API banking.

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Financial Institutions across the region have asked AFIN to prioritise onboarding Fintech services into the sandbox in certain areas, including

• KYC: banks are interested in solutions that can help to digitize client on-boarding processes and enable them to more easily provide services to un- and under-banked SMEs and individuals.

• Credit scoring: financial institutions would like to be able to experiment with a wider range of alternative credit scoring analytics solutions and service providers, in particular those that will strengthen risk management for lending to target groups for financial inclusion.

• SME lending solutions: appropriate products and services to support lending to SMEs, merchants and other small businesses are a core interest for financial institutions seeking to expand access to finance.

AFIN is actively seeking Fintech services providers working in these areas and with an interest to support collaboration and financial inclusion with banks across ASEAN.

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Revenue

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Average revenue per month (rpm) in US$

Average past revenue CAGR (last three years*)

• Most players with average rpm exceeding US$50k belong to the payments, trading, RegTech and loan application/financing subsectors.

• Majority players in emerging subsectors such as blockchain and robo-advisory are still operating at a small level with less than US$1K average rpm.

• Revenue growth highlights proven demand for FinTech in Asean. 41% of FinTechs have registered average CAGR in revenues of greater than 30% in the last three years.

• 14% of respondents have registered nil revenue CAGR as the census also includes players with products or services in prototype or proof of concept or ideation stage.

<1K 1K — 10K

10K — 50K

50K — 100K

100K — 500K

500K — 1M

>1M

19%

23% 25%

12% 13%

5% 3%

The census covers a wide range of FinTechs with rpm ranging from <US$1K to >US$1m.

<0% 1–10% 11–30% 31–70% 71–150% 151– 300%

301– 1000%

>1000%

14%

23% 22%

10% 11%8% 10%

2%

*or since founding

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Profitability

Expected revenue CAGR

0% 1 — 10%

11 — 30%

31 — 70%

71 — 150%

151 — 300%

301 — 1000%

>1000%

2%

9%

25%21%

18%

11%14%

1%

The census features FinTechs with varied revenue models

52%Percentage of transaction

30%monthly or annual subscriptions (SaaS) based on users

14%monthly or annual subscriptions (SaaS) based on usage

8%“Freemium” model

8%Percentage of funds outstanding or invested per annum

53%of FinTechs earn <US$1K average profits per month

41%of FinTechs are yet to break even

7%Others*

*Apart from the above mentioned models, FinTechs have specified one-time application development or implementation fee as a standard revenue model. Others include % of assets under management, profit and loss sharing, performance fees etc.

Revenue model (multiple responses)

FinTechs who are currently generating profits, took approximately 2 years to break-even. In case of FinTechs who are still unprofitable, 82% are expecting to take less than 2 years to break-even.

FinTechs mentioned revenue growth as an immediate future goal in the coming 12 months.

61%

Forward looking revenue projections

43%Flat fee per transaction

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How long will the CAGR last?

100%

90%

64%

31%

22%

4%

4%

3%

2%

2%

Up to 1 year

2 years

3 years

4 years

5 years

6 years

7 years

8 years

9 years

10 years

31% FinTechs expect their growth to sustain beyond 3 years

Runway before funding runs out

68% FinTechs have a buffer of less than a year before their funding runs out

1 month 1–6months

6 months — 1 year

1–2 years

2–3 years

3–4 years

2%

28%

38%

21%

6% 6%

Average cash burn rate per month (US$)

<100K 100K — 200K

200K — 300K

300K — 400K

>400K

80%

13%2% 3% 2%

• Most FinTechs whose funding is expected to runout in less than a year are looking to acquire funding of US$1-5m in their next funding round.

23

Investment

07

FinTech funding trend in Asean

Funding (value) CAGR:

92%

2012 2013 2014 2015 2016 2017

14

10

3036

71

86 85

6727

190

252

366

Source: Tracxn accessed on 9 Dec 2017

Value (US$ m) Volume

Fund raising landscape

Raised as much as needed

36%

Never raised

21%

Couldn’t raise enough

14%

Tried but failed

3%

Currently raising

18%

Over-subscribed

8%

24

• While funding growth has jumped exponentially in the region and 44% of the FinTechs have been able to raise as much funds as needed (or more), most respondents have found fundraising to be difficult.

• Notably, start-ups face credit crunch at the outset, as most traditional financial institutions are reluctant to lend to companies with track record of less than three years.

• In Singapore and Thailand, it is relatively easy for FinTech players to access a variety of funding channels.

• FinTechs in Malaysia and Philippines require additional support to get access to funding in order to fully leverage the variety of funding channels available to them.

Asean is witnessing visible growth in FinTech fund-raising. In 2017, investments in the ASEAN FinTech market jumped 45% to US$366m compared to US$252m in 2016.

37% 11%High Easy

24% 52% DifficultLow

39% 37% ModerateMedium

Ease of obtaining funding

Availability of funding channels

Asean FinTech players are looking for growth-stage equity to continue scaling their businesses

FinTechs responded that obtaining funding is an immediate future goal in the coming 12 months

45%

respondents have raised capital only through a single round of funding

63%

• Majority of respondents acquired funding of less than US$500K in their last capital-raising cycle. Going forward, respondents are optimistic about funding growth as 47% of FinTechs are looking to raise between US$500K to US$5m.

• 48% of the smaller-sized FinTechs (i.e. players with average rpm less than US$100K) expect their next funding size to be less than US$1m.

• 63% of the larger FinTechs (players with average revenue per month greater than US$100K) expect their next funding to be greater than US$5m in size.

Amount of funds raised to date (US$)

<500K 500K — 1M

1M — 5M

5M — 10M

10M — 20M

20M — 100M

>100M

48%

14%

23%

5% 7%2% 1%

Last funding size (US$)

<100K 100K — 500K

500K — 1M

1M — 5M

5M — 10M

10M — 20M

20M — 100M

>100M

27% 27%

14%

20%

5% 5%2% 1%

25

Venture Capital (VC) presence across Asean

28%payment FinTechs expect next funding size to be US$1m–5m while

24% expect higher range of US$5m–10m

34% loan application or financing FinTechs expect next funding size to be US$1m–5m

40% robo-advisors expect next funding size to be US$500K–1m

Source: State of FinTech in ASEAN, UOB

Next expected funding size (US$)

<100K 100K — 500K

500K — 1M

1M — 5M

5M — 10M

10M — 20M

20M — 100M

>100M

4%

15%

21%

27%

16%

8% 7%

2%

Funding avenues (multiple responses)

45%Self-funded or boot-strap

33%Angels

29%Friends or family

22%Venture capital firms

8%Private equity firms

5%Government funding

3%Debt funding

2%Public listing and bank credit

• Other than the traditional funding avenues, FinTechs have also received funding through accelerators, token sales (ICOs), grants as well as from family offices, parent companies and strategic partners.

• Notable Corporate VC funds in South East Asia.

Siam Commercial Bank Digital Ventures

US$50m

Mandiri Capital US$37m

Kasikorn Bank Beacon Fund

US$29m

Indonesia

37%

63%

Malaysia

58%

42%

Phillippines

87%

13%

Singapore

23%

77%

Thailand

67%

33%

*Based on country currently headquartered inNote: Chart is representative of 154 respondents

Yes, enough VCs No, need for more VCs

26

• VC funding is South East Asia is largely focused on seed and Series A stages. But as sector is growing/scaling, Private Equity players are getting involved to provide late-stage growth equity.

• In Singapore, the government is seen to provide attractive incentives to VCs to encourage risk-taking, including reduction of regulatory red tape, protection of intellectual property and allocation of public money for early investments.

• Indonesia is also seeing strong funding activity from local conglomerates, as well as foreign players, although activity may be restricted to a smaller sub-set of large-ticket deals.

• Risk-taking needs a further boost in Philippines, Thailand and Malaysia.

Level of funding support provided by government

Indonesia

Malaysia

Phillippines

Singapore

Thailand

26% 39% 33%

17%58%25%

20%47%33%

50% 19%27%4%

6%40%26%29%77%FinTechs mentioned that government funding schemes are not easily accessible

52%FinTechs want government funding to be made more accessible

What aspect should the government work on to improve funding? (multiple responses)

Indonesia Malaysia Philippines Singapore Thailand

Make funding more accessible 38% 43% 67% 59% 10%

Come up with more assistance schemes 35% 29% 20% 11% 30%

Wider range of criteria 6% 29% 7% 14% 10%

Up the amount of incentives 9% - - 2% 10%

Increase amount of government funding 9% - - 7% -

Others 3% - 6% 7% 40%

While most FinTechs in Asean want easier access to government funding, players in Thailand want more assistance schemes and limited government involvement in funding.

Government should not be involved beyond creating a culture that rewards private funds and individuals to take risks. Let private companies do it but create a culture where the business leaders of the country are willing and excited (peer pressure) to make investments in new business models! Give awards in a very public way to people and funds who champion entrepreneurship

Masii.com, FinTech firm headquartered in Thailand

27

2%

No support Low Medium High

Stages of FinTech,by Larry Cao, CFA, Director of Content, CFA Institute

FinTech has taken the financial services industry by storm.

According to Google Trends, current interest in FinTech globally is ten times as high as that three years ago. There’s been much talk about disruption, particularly earlier in this period. So how would FinTech industry develop? Would it replace or enhance the financial services industry?

We believe there are clear patterns emerging in FinTech’s growth, both in terms of the popular areas of activities and in the stages of development.

State 0: The Pre-FinTech Years

Recall how everything looked before FinTech came onto the stage?

The IT departments at financial institutions have universally been big spenders. The money went not only to hardware and software vendors but also to in-house teams.

The regulatory burden makes it extraordinarily hard to update systems at a financial institution. Often management would have to sacrifice user friendliness out of concerns that putting in a new system could give rise to system stability issues. Moreover, financial institutions adopted one size fits all approach over the years. They have also not been aggressive as a group in serving the unbanked and underbanked.

Typical Stage 0 Companies: Financial institutions. They purchase and develop technology solutions at their will.

Stage 1: The Early Days

Some entrepreneurs smelled opportunities. They wanted to offer services with improved user friendliness by leveraging low-cost technology. It helped them to reach out to the unserved and underserved segments, which financial institutions were not able to cover profitably.

Peer-to-peer lending, mobile payment, and robo advice are the three areas with the most activities around the world in the early days of FinTech development.

Typical Stage 1 Companies: FinTech start-ups and VCs. Together they have created much buzz and disturbed the sweet dreams of a sleepy industry. The disruption talk was overblown though. In most markets, successful FinTech start-ups have chosen to serve the unserved and underserved.

Stage 2: The Power of Collaboration

The most significant development that signals the entry into stage 2 for a market is the active collaboration between powerful players from both the financial services and technology sectors.We hypothesized that “the collaboration between powerful fin and powerful tech is the most promising path to powerful FinTech” in May 2016. Although this is still in the early stages, we believe this type of collaboration is promising for three reasons:

1. Mutual respect. Stage 1 is marked by the mutual “despise” of financial service executives and technology innovators. Starting down the collaboration path alone is significant as it indicates that both parties have come to realize that they can help each other.

2. Domain expertise. The fundamental reason is of course success in both finance and technology requires deep expertise built up over time with a variety of entry barriers, or “moats”. Equal partners may benefit from the balanced perspective and access to domain expertise.

3. Culture. Both fin and tech professionals agree that their corporate cultures are dramatically different. Partnerships allow them to work together without having to adopt the other party’s culture.

Typical Stage 2 Companies: Leaders in financial services and technology.

Stage 3: Nirvana

The financial services industry is clearly in transition. We believe that, in the end game, the industry will be dominated by linkups between financial institutions and technology innovators. A small number of FinTech start-ups will also make it to the finishing line. As for the legacy systems, the more likely scenario is that customers will move their businesses to successful Stage 2 and Stage 1 companies over time as eventually operations running the legacy systems will become unprofitable.

A technology luminary has famously said, “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” We believe it applies equally to the case at hand. Although we believe collaboration is the name of the game at this point, the risk of long term disruption is real. FinTech players worldwide will serve their shareholders, clients, and employees well by actively plan and execute a strategy that will improve their chance of success through the three stages of FinTech development.

28

29

Talent

08

Availability of talent • Talent shortage is the key challenge facing FinTechs in Asean. About 60% of companies feel there is a lack of required skills.

• 88% of companies in Thailand and 73% each in Malaysia and Philippines said that there is shortage of FinTech talent in the country.

• FinTechs in Indonesia and Thailand unanimously agreed that hiring the right talent is a key challenge. On the other hand, companies in Singapore face relatively fewer challenges, though 7 out of 10 respondents still believe that there are issues in hiring right talent.

• For a flourishing FinTech ecosystem, it is imperative that Asean countries create an intra-Asean support system that promotes easy movement of talent within the region.

60%of FinTechs feel that there is a lack of suitable talent in the country they operate

Trouble hiring talent who meet the needs and growth of the industry (Yes responses)

Thailand 100%

Overall 77%

Singapore 70%

Phillippines 82%

Malaysia 100%

Indonesia 90%

29

• Lack of domestic talent means that 61% of FinTechs have recruited foreign talent.

• On positive side, countries like Singapore, Malaysia and Thailand have made it easier for FinTechs to hire foreign talent. However, companies in Indonesia face difficulties in this regard.

• To further promote the sector and ensure right skills are available, Asean countries need to develop a policy framework that accommodates the mobility of foreign talent through simple and flexible immigration policies and programmes.

Recruitment of foreign talent

Issues faced in recruiting foreign talent (Yes responses)

61%of FinTechs have recruited foreign talent

Thailand

Singapore

Malaysia 41%

Indonesia 62%

Overall Asean 35%

43%

33%

24% FinTechs mentioned growing employee base as immediate goal in the coming 12 months

Areas with insufficient talent (multiple responses)

Technology and software

58%

Product management

21%

Others include industry specific, business development, combination of banking, finance and technology

Sales

17%

Marketing

16%

Design

14%

Operations

12%12%

Operations

Compliance

12%

Finance

11%

Strategy

10%

Legal

8%

Others

7%

Human resource

4%

Management

4%

30

Top three areas with talent shortage by country (multiple responses)

• Majority of FinTechs find technology talent insufficient to meet their needs. This is followed by product management skills. As the industry matures, talent pool shortages are now evident in sales and marketing areas as well. These challenges remain similar across FinTech subsectors, whether its payment or data analytics firms.

• Legal, human resource and management skills are least difficult to find.

• Technology and software skills remain a challenge across most of the countries. In Malaysia, FinTechs feel there is insufficient talent in sales and compliance whereas shortage of finance professionals is quite high in Thailand. Indonesia and Singapore face shortage of product management skills.

• To nurture talent, Asean countries should encourage STEM (science, technology, engineering and mathematics) education in schools and universities. A review of infocomm curriculum should be undertaken. Education institutions should develop FinTech specialized courses and programs.

• Governments should also develop government funded initiatives for skill development and promoting start-up culture.

Top recruitment avenues (multiple responses)

57%Personal connections

45%LinkedIn

48%Recommendations

40%Jobs portal

20%Company website

13%Contacts through FinTech associations

Tech & Software Product Management Design Marketing

Compliance Sales Finance

71%31%

Indonesia

23%23%

Malaysia

73%27%27%

Philippines

41%24%18%

53%19%

14%

Singapore

75%50%

33%33%

Thailand

31

Regulation

09

• About 78% respondents said that it is either moderate or difficult to conform to local financial sector regulations.

• Companies in Thailand and Indonesia find local regulations too onerous whereas Singapore-based firms find regulatory confirmation relatively less complex than other markets.

Responses by country

Indonesia 65%

Malaysia 75%

Phillippines 44%

Singapore 49%

Thailand 60%

Level of support given by regulators to assist FinTech start-ups in getting started

FinTech start-ups in Asean are asking for more support from a regulators and policy makers.

58%Asking for more support

How hard is it to conform to local regulations?

31%10%

59%Indonesia

45%10%

45%Malaysia

56%11%

33%Philippines

43%32%

25%Singapore

18%18%

64%Thailand

Easy Moderate Difficult

32

Average legal fees in a year (USD)

30%

15%

10%

45%

<10K 10K — 30K

30K — 80K

>80K

On an average legal fee spends seem reasonable across Asean countries.

Effectiveness of open banking protocol

More than 70% of the respondents support open banking as it offers a myriad of opportunities for start-ups players. Open APIs allow FinTechs to access customer data, leverage sector knowledge or infrastructure, and design new customized/ personalized products at much lower cost. Additionally, it promotes continuing collaboration with financial institutions.

72%FinTechs believe open banking is effective

Potential growth initiatives

Top 2 counties with highest net effective

Increased tax incentives for angel investors in the early stage investment scheme

51% 17%27% 5% 78%

76%Government mandated open data protocols (Open API)

30% 18%45% 6%

78%Policy reforms in areas that make it easier to hire employees, e.g., payroll tax reform and skilled migration visas

34%44% 15% 7%

61%Opportunities to pitch for Government tenders and projects

29% 29%32% 9%

Capital gains tax relief for tech start-ups first incorporated in your country 73%39% 19%35% 8%

57%Educational materials and information sessions about best practices for cyber security

19% 32%38% 11%

78%Increase budget for government funding initiatives, such as accelerating commercialisation for early stage companies

44% 17%34% 5%

Measures that recognise the difficulties of having to bootstrap initially, like free public transport and school fees etc.

60%30% 31%30% 10%

66%Creation of more referral arrangements between national regulators and regulators in other markets

29% 26%38% 7%

Net effective

Thailand Indonesia Malaysia Philippines Singapore

Very effective Fairly effective

Not very effective Not at all effective

33

78%Respondents feel increase tax incentives, talent initiatives and government funding are effective steps to grow and promote the industry

Key takeaways:Government support, policy and regulation are key to foster innovation and create a sustainable financial services ecosystem. Governments across Asean countries have initiated a number of steps to promote FinTechs in their countries. Going ahead, regulators need to maintain this policy momentum and have continuous dialogue with ecosystem players to ensure financial markets remain competitive and secure. We explored a range of potential growth options with FinTechs in the region, which they believe are most effective.

• About 78% of the participants agree that “increasing tax incentives for angel investors in the early stage” is top growth initiative. 90 % of FinTechs in Malaysia and Philippines believe that such move will be very effective.

• More than 70% of companies said that ‘capital gains tax relief for tech start-ups incorporated in their country’ will be positive for the industry.

Tax tops the list

01

• 78% of FinTechs said that increase budget for ‘government funding initiatives, such as accelerating commercialization for early stage companies’ is a key potential growth initiative.

• Respondents from Philippines and Singapore particularly gave high weightage to this initiative.

Government funding

03

• FinTechs believe there is a lack of availability of skilled labour in Asean. They also face huge challenge in hiring foreign talent.

• 78% of companies feel that ‘policy reforms in areas that make it easier to hire employees, such as payroll reforms and skilled migrant visa’ are required to grow the talent pool.

• More than 90% of firms in Indonesia, Malaysia and Singapore consider this as an important initiative.

Talent reforms

02

• About 66% of the FinTechs believe that ‘creation of more referral agreements between national regulators and regulators in other markets is crucial for developing the Asean financial services sector.

• Building an Asean FinTech ecosystem could be challenging given it is a huge complex heterogeneous market. However, given the potential of the region, it is imperative that all market participants, including regulators, collaborate and work towards shared goals.

Referral agreements

04

34

For a long time, London was considered the place to be for ASEAN’s FinTech companies wishing to make it big in Europe. However, with Brexit just around the corner, Britain’s capital is about to lose the key advantage of being the gateway to Europe for non-EU players. The question is how can a country with three times fewer people than London take its place as the continent’s FinTech hub?

It takes a blend of a forward-thinking educational policy and hassle-free migration options to create a climate where talents flourish and want to stay. When it comes to Lithuania, it offers both a growing number of local IT specialists and a simple way to import talent via the EU Blue Card program. Entrepreneurs from non-EU regions like ASEAN can also apply for a special Startup Visa, approved by the country’s government.

Despite its relatively small population of less than 3 million, Lithuania has an impressive number of tech-savvy professionals, 2000 of whom already work in FinTech companies. Latest data from the country’s Statistics Department shows that there are more than 31,000 IT specialists in Lithuania, with almost 9,000 in the making. The vast majority has no trouble working in an international environment, as 84% of young talents are proficient in English. Cases of companies like Singapore’s InstaReM and UK’s Revolut are solid proof of this.

Revolut, the UK-based challenger bank, had their office opened in Lithuania last year. Having applied for a European banking licence from the Bank of Lithuania, Revolut is planning to further strengthen and expand their Baltics’ office in Vilnius. Lithuania not only helps develop Revolut’s solutions but also is the company’s third largest market globally. This shows that Lithuanians are not just financial technology creators but also one of the early adopters.

Fastest gateway to the EU market

Talent aside, there is another reason why Lithuania is riding the wave of the FinTech revolution. The Bank of Lithuania, the body that regulates the whole FinTech ecosphere, is a government institution ready to embrace next-gen technologies. One might think of Lithuania as Europe’s Singapore — both are small in size but progressive in terms of innovations. And, being a part of the EU market, Lithuania is able to issue a license valid in 28 countries faster than anyone else.

Lithuania: Gateway to EuropeIs Vilnius the new London?

• Population: 2.8M

• Capital: Vilnius

• Member of WTO, EU, Eurozone, NATO

Lithuania

Lithuanian talent has been building Revolut from the very beginning. The company has always had close ties with the country and the launch of our local team is another step towards strengthening our relationship.

Andrius Biceika, Revolut Country Manager for the Baltics

35

The Bank’s payment system — CENTROlink — can be praised for its non-discriminatory nature, as it offers equal terms for payments to all players — banks, credit unions, and non-bank institutions. This approach allows companies like Revolut, Contis Group and InstaReM, among many others, not only to reach 34 SEPA countries with ease but also to directly issue IBAN accounts.

The ease of starting operations can be measured in the time it takes to get all the required permits. Registering a company takes three days, and a Payment Institution or Electronic Money Institution license can be received in just three months, 2-3 times faster than in other EU jurisdictions. The country’s value proposition is enriched by other features, including remote Know Your Customer (KYC) procedures, a sandbox regime for FinTech startups in their first year, as well as one of the lowest corporate tax rates in the EU.

Having a ready-to-use regulatory sandbox (with a blockchain version in the nearest future), Lithuania can help ASEAN FinTechs to develop and test their solutions on the spot before deploying them to the entire EU market. Newcomers can all benefit from the positive regulatory environment, creative and tech-savvy workforce, and access to the 512-million-strong European market.

The Bank of Lithuania is responsible for the financial market development, thus we decided to roll out the red carpet for new entrants to inspire competition in the financial sector,

Marius Jurgilas, Member of the Board of the Bank of Lithuania

We were looking for a perfect HQ location in the EU. In Lithuania we found a FinTech-friendly and fast regulator, as well as excellent international-grade talent. With all this, Lithuania is hands-down the best European base for cutting-edge FinTechs.

Prajit Nanu, co-founder and CEO, InstaReM

After my first visit to Vilnius I just felt that this city is a small version of Silicon Valley and this was absolutely unexpected. The city, its infrastructure, the prevalence of technology made an impression on me.

Jared Isaacman, CEO, Harbortouch

36

Environment

10

Competitiveness of Asean FinTechs • Though the start-up industry faces challenges from multiple fronts, FinTechs in Asean are quite upbeat about the outlook and their ability to compete with established players.

• More than three- fourths (78%) of the companies feel that Asean FinTechs can compete globally.

• 67% of FinTechs believe that they can win against other international players.

• There are mixed views on quality of FinTechs. 43% feel that there is lack of quality FinTechs in the region whereas 23% disagree.

49%

29%

15%

7%1%

44%

23% 25%

6%2%

32%

11%

34%

19%

4%

Asean FinTechs will be able to compete internationally

Asean FinTechs will be able to win against international FinTechs

Lack of quality FinTechs in Asean

Agree NeutralStrongly Agree Disagree Strongly Disagree

Biggest competitors (multiple responses)

33%Traditional financial services provider

20%Other FinTechs in same country

32%Other FinTechs in same region

3%e-commerce and telcos

37

Other FinTechs in the same country

Other FinTechs in the same region

Traditional financial service providers

Ecommerce and telcos

Others

Indonesia46%

29%

21%4%

Malaysia30%

20%

30%5%

15%

Singapore8%

35%

37%5%

15%

Phillippines22%

44%

22%11%

Note: 12% of the companies feel their biggest competitors are FinTechs from other countries.

• Incumbents remain the biggest competitors to FinTechs as customers are still more comfortable banking with traditional institutions or the propensity to move may still be low

• About 32% of FinTechs consider FinTechs in the region as key competitors. Asean FinTechs face strong competition from more established FinTech players, particularly Chinese players, who have been aggressively expanding in South East Asia.

• For Indonesia, the biggest competitors are other in-country FinTechs as the sector is thriving due to a largely underserved banking population.

Internal Challenges (multiple responses)

• Availability of the right talent (39%) is the biggest challenge facing FinTechs. This is followed by product development and fundraising.

• Talent-related challenges are being faced equally by small companies as well as larger players (more than US$500k rpm).

• Challenges such as product development (25%) and convincing investors (22%) are more persistent for companies that are earning less than US$50k rpm.

39%Attracting the right talent

25%Product development

22%Convincing investors of start-up potential

17%Maintaining high performance culture

14%Product market fit

18%Creating suitable systems and process

15%Business model viability

Note: For detail results, please refer to our ASEAN FinTech Census Survey Dashboard

38

External Challenges (multiple responses)

• Customer acquisition is the top external challenge faced by FinTechs. Companies across the spectrum have mentioned this as a key problem as customer acquisition costs may be too high and propensity of customers to move too low.

• As discussed earlier, FinTechs find it difficult to obtain funding. Additionally, banking industry’s organisational complexities make it difficult for FinTechs to on-board and build relationship with these institutions.

36%Customer acquisition

33%Lack of funding

30%Building partnerships with banks and other Financial Intermediaries

24%Building relationships and channels to market

25%Access to private funding/investors

23%Government or regulatory issues

Note: For detail results, please refer to our ASEAN FinTech Census Survey Dashboard

• Accelerators and incubator programs have not been very successful with FinTechs in the region with only 39% and 30% of companies requesting assistance from accelerators and incubators, respectively.

• Companies getting assistance through these programs are even lower. Though such programs help entrepreneurs to gain access to network, business advice and financing, it at times could hamper business growth given the commitment needed from the founders to these programs.

• 73% of the companies feels that co-working spaces are beneficial as it becomes difficult for FinTechs in an early stage to set up a standalone office.

• Co-working space culture is more popular with FinTechs that have raised less than US$500k in funding till date.

• Just below half of the respondents (49%) have shifted to co-working space in the past. Among those who has shifted, 50% are companies that have raised less than US$500k.

• However, companies that have raised more than US$5m have evolved toward renting their own office space.

Accelerators and Incubators (Yes Response) Co-working space

Is company ready to compete globally or be ready to do so in the next 12 months?

Accelerators Incubators

Requested assistance

Provided assistance

39% 30%

37% 25%

Has your companies shifted to co-working space

Co-working space is beneficial

73%Yes

49%Yes

• 77% of the companies feel that they have the right set of skills and technologies to compete globally or will be ready in next 12 months.

77%Yes

39

Future exit plans

Note: Data is representative of respondents who have plans to exit

The way forward

11

54%FinTechs plan to exit in the next five years

Note: Data is representative of 203 respondents

FinTechs with IPO plans across sub-sectors*

Proposed exit strategy

35%

23%

14%

6%

6%

Acquisition

IPO

Trade Sale

Merger

Hold

Asean FinTechs with current monthly average revenue above US$500K have IPO plans for the future

• Most Asean FinTechs, especially those with average rpm less than US$50m, have mentioned acquisitions as their proposed exit strategy. While FinTechs with higher average rpm (especially from US$500K to US$1m) have IPO plans for future.

• The trade sale route is mainly being looked at by FinTechs with current average rpm of less than US$1K as a future exit strategy.

30%Payments

31%Loan application/ Financing

34%Money transfer/Remittance players

40

Are you planning to expand into other countries?

87%FinTechs plan to expand beyond home/current markets

How do you plan to scale your company?

36%FinTechs plan to scale into a niche offering (Singular Service)

64%FinTechs plan to diversify into providing other services (Multiple Services)

Note: Data is representative of 184 respondents Note: Chart is representative of 203 respondents

• 87% FinTechs plan to expand internationally. Notably, 32% have an immediate goal to expand overseas in the next 12 months.

• Most FinTechs in Thailand (92%), Singapore (78%) and Malaysia (73%) have plans to expand beyond home markets. While players in Indonesia (49%) and Philippines (47%) are less keen on expanding outside, with large latent demands still untapped in home markets.

• More than 90% of FinTechs operating in sub-sectors such as payments and data analytics are keen on expanding internationally. Crowdfunding FinTechs (21% of respondents) are more focused on local markets.

• 55% respondents are looking to expand internationally by diversifying to offer multiple services

41

Having been conceptualized as a result of a distressing personal experience of an enterprising individual, today Singapore-based InstaReM is a leading digital cross-border remittance service provider, reaching over 3.21 billion people across four continents. Thanks to InstaReM’s unique payment mesh and an extensive network of 8000+ banks built over last four years, businesses and individuals in Asia-Pacific are able to remit money to 60+ countries worldwide. InstaReM promoters attribute their success largely to its ASEAN roots.

The InstaReM story began as a quest to address a decades-old universal challenge. Realizing that international money transfers — dominated by Money Transfer Operators and Banks — were opaque, time-consuming and expensive, Mumbai-based Prajit Nanu, along with Michael Bermingham, a veteran in regulatory compliance in Asia, EU and US, decided to build a solution that promised to provide quick and transparent cross-border money transfers at close-to-live exchange rates. Thus, InstaReM was incorporated in August 2014 on the premise of instant remittances.

A seed funding of US$ 500,000 from Global Founders Capital in January 2015 helped the duo develop their money transfer platform. Another US$5 million in Series A funding from Vertex Ventures, Fullerton Financial Holding and Rocket Internet in March 2016 helped them build a payment mesh, and partner with a network of banks across the globe. Early successes with an innovative money transfer platform and regulatory licenses in Asia-Pacific enabled InstaReM to raise another US$ 13 million in July 2017 in Series B round from marquee investors like GSR ventures, SBI-FMO ventures, Vertex Ventures and Fullerton Financial Holdings. This made InstaReM shift gears by strengthening its global payment infrastructure, acquiring new licenses and building a global team.

“Our strategic decision to base InstaReM in Singapore has paid off well. As the financial hub of the region, Singapore has a FinTech-friendly regulatory framework and was a good springboard for us to expand into the Asian markets. InstaReM’s ASEAN base gives it a distinct competitive edge. Singapore, along with other ASEAN members also has some of the largest expatriate and migrant communities in Southeast Asia who happen to be our target demographic,” says Prajit.

With Asia-Pacific operations having stabilized by end of 2017, InstaReM is ready to spread its footprint globally in 2018. The ASEAN company is now looking to grow aggressively by launching operations in the high-traffic remittance markets like European

InstaRem: Aiming to Solve World’s Cross-Border Remittances Challenge

Union, United States, India, Japan, Indonesia, Thailand and Latin America in the coming months.

Europe is going to be the next major destination for InstaReM. For expansion into this important market, InstaReM has chosen Lithuania over London, the traditional FinTech hub in Europe.

“InstaReM has been one of the first FinTechs to discover the potential of Lithuania. Apart from a supportive regulatory regime for FinTech, Lithuania also offers a great geographical advantage. Reaching out to the rest of Europe is easy from Lithuania as the EMI licence issued by the Bank of Lithuania allows operations in the common market of the EU by passporting through the SEPA region. This makes Lithuania a viable alternative to London as a preferred FinTech destination in Europe,” says Prajit.

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Top preferred countries

outside Asean for expansion

Future expansion — Geographies

j23%

Americas

16%MEA

41%Rest of Asia-Pacific (Including Australia)

32%Europe

92%ASEAN

16% USA

15% UK

13% China

Note: Analysis based on aggregation of top 3 preference for each respondent

Reason for expansion (multiple responses)

21%

63%

18%

15%

11%

7%

5%

Greater opportunities for expansionStrategic shift in customer focusMore funding available or Easier to obtain funding

Lower operating costs

Ease of attracting or retaining talentBetter access to experts or mentors in the industry

Others

Top concerns (multiple responses)

57%

50%

39%

31%

21%

17%

15%

6%

Compliance with new regulations

Customer acquisition

Fitting products into their market

Adoption rate

Customer data governance or protection

Incumbent competitor

Scalability of current technological platform

Others

• FinTechs wants to expand their business globally in order to expand their reach, acquire new customers, access funds and attract skilled talent.

• However, compliance with new regulations is the biggest hurdle that FinTechs face in such expansion to newer markets. For more than 50% companies customer acquisition is also a big concern.

• In Asean, Indonesia (19%) is the most favored destination for expansion outside home country. This is followed by USA (16%) and UK (15%).

Asean, with a population of 600 million people, and China and India to its east and west is the bridge between two of world’s largest markets. Initiatives like Asean FinTech Innovation Network would enable FinTech start-ups to scale across countries and achieve democratization of access to the financial services ecosystem for providers and consumers. It is a powerhouse of innovation, which is getting cross pollinated through commercial and cultural bridges to emerging markets globally.

Varun Mittal, EY ASEAN FinTech Leader

FinTech Associations in Asean

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Singapore FinTech Association (SFA)

Singapore FinTech Association (SFA) is a cross-industry and non-profit organization the purpose of which is to support the development of the FinTech industry in Singapore, and to facilitate collaboration among the participants and stakeholders of the FinTech ecosystem in Singapore. SFA is a member-based organization with its members representing the full range of stakeholders in the FinTech industry from early stage innovative companies to large financial players and service providers. To further its aim of developing the FinTech industry in Singapore, SFA also partners with institutions and other associations from Singapore and globally to cooperate on initiatives relating to the FinTech industry.

FinTech Philippines Association (FinTech PH)

FinTech Philippines Association (FinTech PH) is an independent industry association representing the interests and growth of the FinTech community in the Philippines. FinTech PH aims to position the Philippines as a hub for technological innovation in financial services.

As the representative voice of the burgeoning FinTech community in the Philippines, FinTech PH seeks to accelerate the growth and success of its members by attracting investment and partnerships domestically and abroad, advocate for effective and future-focused regulation, cultivate interest and technical skills to promote innovation, organize an inclusive community of startups and institutions, and promote the goals of the industry.

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Indonesian FinTech Association (AFTECH)

The Indonesian FinTech Association (AFTECH) is an industry-body that seeks to promote technology-centric financial services to promote financial inclusion. The Association brings together unified voice of the industry and continues to establish itself as a facilitator of conducive ecosystem through strategic initiatives and collaborations among stakeholders in the financial sector.

The activities of the Association are broadly divided into two areas. First, relates to policy and regulatory affairs. The working groups regularly publish working papers, position papers and regulatory inputs to government agencies. Second, relates to community and communication development. The Association has an internal routine workshop inviting experts to discuss current issues, such as Expert Gym and Expert Lab.

In January 2018, the Association in partnership with UnionSPACE (co-working space) launched FinTechspace, Indonesia’s first dedicated co-working space.

Thai FinTech Association

Thai FinTech Association was formed in July 2016. The Association gathers members from the private, public and financial sectors to promote Thailand’s FinTech potential.

The Association help facilitate ecosystem collaboration, which includes all stakeholders including FinTech start-ups, financial institutions, regulators, accelerators, venture capital and other business partners. It aims to reduce cost of financial transactions, increase accessibility to financial products and services, promote fair competition, and support Thai FinTech startups to compete and expand to global market. The association is playing key role in setting up National FinTech Sandbox and liaising with main relevant parties to develop National FinTech Roadmap to promote the sector.

FinTech Association of Malaysia (FAOM)

FinTech Association of Malaysia (FAOM) was launched in November 2016. It is founded by a group of entrepreneurs, founders, enthusiasts and community leaders. The association aims to be a key enabler and a national platform to support Malaysia to be the leading hub for FinTech innovation and investment in the region. It also supports FinTech innovation by engaging with industry players and regulators in policy making, provide professional development opportunities to its members and partner with other FinTech hubs across the world by connecting with stakeholders locally and globally.

Vietnam FinTech Association

Vietnam FinTech Association is a non-profit association, and the center of gravity for FinTech in Vietnam. As the largest Vietnam FinTech association their mission is to create an ecosystem that enables Vietnam to leverage the potential it has to become a world-class FinTech Hub. Their vision is to be the driving force in creating a world-class FinTech hub in Vietnam.

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Contacts

Jan Bellens Global Deputy Sector Leader, Banking & Capital Marketsjan.bellens@sg.ey.com

Liew Nam Soon Managing Partner for EY ASEAN Marketsnam-soon.liew@sg.ey.com

Brian Thung Managing Partner for EY ASEAN Financial Servicesbrian.thung@sg.ey.com

Varun Mittal ASEAN FinTech Leader varun.mittal@sg.ey.com

Jaslyin Qiyu EY ASEAN Financial Services Brand, Marketing and Communication Leaderjaslyin.qiyu@sg.ey.com

Ankita Srivastava EY Banking and Capital Markets Knowledge Analystankita.srivastava@in.ey.com

Varun Parmar EY FinTech Strategyvarun.parmar@sg.ey.com

Danil S Handaya Financial Services Country Leaderdanil.s.handaya@id.ey.com

Evan K Wiradharma Financial Services Advisory Country Leaderevan.wiradharma@id.ey.com

Indonesia :

Chan Hooi Lam Financial Services Assurance Country Leaderhooi-lam.chan@my.ey.com

Shankar KanabiranPartner and Financial Services Advisory Leadershankar.kanabiran@my.ey.com

Malaysia :

Vicky B-Lee SalasFinancial Services Country Leadervicky.b.lee-salas@ph.ey.com

Christian G LauronFinancial Services Advisory Leader for the Philippineschristian.g.lauron@ph.ey.com

Philippines :

Thailand :

Roungkarn Sriprasertsuk Financial Services Advisory Partnerroungkarn.sriprasertsuk@th.ey.com

Ratana Jala Financial Services Assurance Partnerratana.Jala@th.ey.com

Duong Nguyen Financial Services Country Leaderduong.nguyen@vn.ey.com

Vietnam:

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