Funding challenges faced by Southeast Asia’s fintech firms towards strong growth

According to the report Asean Fintech Census 2018 studied by EY, a powerful 87% of financial technology (fintech) firms in Southeast Asia are planning to bolster their footprint beyond the current market. The survey conducted on 170 Southeast Asia headquartered fintech based in 1 key subsector including payment, blockchain, data analytics, robo-advisory and money transfer. In the survey, they mention that 61% of the fintech firms are planning to gain revenue growth as their actual future target within the next 12 months with 46% of respondents expecting to achieve a compound annual growth rate (CAGR) of 30% for their revenue.

Most of the fintech firms are confident that they will enter the industry internationally with majority of them planning to expand outside their home or current market in the next 12 months. For their target outside of Southeast Asia, the most preferred destination for the growth and expansion which is the industry growing rapidly are United States, United Kingdom and China. At the current situation they see their biggest competitors being traditional financial service providers and other fintech players.

Fintech industry in Southeast Asia and worldwide are seen to be visible ascendance nowadays. As in the Southeast Asia Fintech offer interesting opportunities for both fintech players and investor. Rapid development of Fintech innovation in Southeast Asia cause of several factors covers various parties; effective economic progress; young, urban and digitally-savvy populations; increasing mobile and internet penetration; and largely underserved small- and medium-sized enterprises and consumer markets.

 

Barriers to growth from funding challenges

From a survey, funding remains an issue for finfech firms. In the earlier development stage for most of the firms, more growth-stage equity and capital is needed, mostly the firms expect for their next season of funding to be more than US$1m. However, more than two-thirds of the firms being studied of having a platform of less than a year to plan and gain funds for growth. Furthermore, the report stated that 45% of the respondents depend on self-funding. In addition, majority of the respondents agreed that there are enough funding channels available, and 52% still found it difficult to obtain funding on their own.

The situation of limited funding option on the fintech firm happened to most of the start-up companies. Venture capitalists and banks are often the first port of call for fund-seekers, although most will not take on the credit risk of companies with a track record of less than three years. Nowadays, government have provided initiative to help the fintech firm that can leverage for seed funding. Other than that, there are many incubators and accelerator programs provided for the firms. More importantly, they should look to access the wider network of business opportunities and investors such as venture capitalists who can help them to scale and also be the source of funding.

 

Government support and talent are keys to growth of sector

In the study, it shows that fintech firms difficulty to find talents became an issue to them, with most of the firms mention that there was a lack of start-ups or fintech talents in the markets they operate in. The skill gaps are in product management, technology and software, and sales and marketing. Most of the fintech firms are still relying on personal connections and recommendations to hire talents. Fintech firms also believe that the government can give catalyst to enable the growth of the sector. Particularly, increasing tax incentives for angel investors in early stage investment and policy reforms to make it easier to hire employees are the top two areas that they are looking for.

From the Managing Partner, EY Asean financial services, Mr. Brian Thung say that “The availability of talent and skills needed to run FinTechs at the different stages of their growth can make or break success. Governments play a vital role in shaping a conducive fintech ecosystem that helps to attract and develop the right talent pool, and promotes innovation and collaboration and healthy competition. It is convincing to see that governments across Southeast Asia have taken steps, such as establishing the Financial Innovation Network to facilitate the development of the sector.’’