Fintech Research
Is fintech funding in Asia picking up again?
Fintech funding in Asia has been tepid due to a confluence of factors, notably high interest rates, uncertainty about the global economy – and especially that of the United States – and general investor disenchantment with growth-first business models. That said, there are signs that the drop-off in funding that began in 2022 may have finally bottomed out. A new report by DealStreetAsia suggests that a modest recovery may be underway in Southeast Asia.
Nubank is both big and profitable
Brazil’s Nubank is continuing to prove the naysayers wrong. In the second quarter, the massive digital lender nearly doubled its net income from a year earlier to US$487 million. Revenue reached a record US$2.8 billion. It now has 104.5 million customers, including about 60% of Brazil’s adult population. The bank is also Latin America’s most valuable publicly-traded financial institution with a market capitalization of nearly $66 billion.
Grab loses US$53 million in Q2
Grab lost US$53 million in the second quarter in the latest sign that its super app business model continues to face serious challenges. To be sure, Grab’s fintech business performed well, but because of the way the Singaporean firm has constructed its business, there is no separating that unit from its ride-hailing and food-delivery arms.
APAC fintech funding falls to US$3.7 billion in H1 2024
Fintech funding in the Asia-Pacific (APAC) region is continuing a steady deceleration. A new report by KPMG shows that fintech investment in APAC decreased 21.7% year-on-year in the first half of the year to US$3.7 billion from US$4.6 billion during the same period in 2023. While the total number of deals in APAC rose to 438 from 406, not one of the 10 largest deals globally occurred in the region.
Is Revolut worth US$45 billion?
In its nine years of operation, UK fintech unicorn Revolut has always had outsize ambitions, depicting itself as a game-changing disruptor in the financial services sector. In some respects, the company has been successful. It is one of the most valuable startups in Europe and swung to a pre-tax profit of US$554 million in 2023. Its ability to reach profitability in less than a decade compares favorably with other prominent fintechs and platform companies leaning heavily into digital financial services. However, it is questionable whether Revolut is worth the US$45 billion valuation it is reportedly seeking.
GoTo lost US$174 million in H1 2024
In the first half of 2024 Indonesian super app GoTo lost US$174 million. While such a figure would barely have raised eyebrows back when interest rates were low and VC funding flowed freely, these days investors are more discerning – especially since GoTo is a public company listed on the Indonesian Stock Exchange (IDX). Like its counterpart Grab, GoTo has found it challenging to adjust to being a public company after being able to shrug off massive losses for years in private markets.
In one market after another in Asia Pacific, we are learning that the old maxim remains true: what goes up, must come down. Fintech funding was ascendant before the pandemic, briefly dipped during that crisis’s early months, and then surged to new highs. What finally crashed the party was an increase in the cost of capital (we can thank high interest rates and inflation for that) that has reduced the attractiveness of betting on loss-making – but potentially game-changing – fintech startups. Of all the markets in the APAC region, India has been among the most resilient because of its confluence of economic growth, financial digitization and unmatched scale. However, even India is not immune to challenging macroeconomic conditions.
Why Vietnam's fintech sector is resilient
Vietnam is one of the largest markets in Southeast Asia with a population of more than 90 million, but in terms of fintech development it remains somewhat nascent. In 2023, fintech funding fell 84% to just US$35.3 million, according to data compiled by research firm Tracxn, a significant decrease from 2022’s US$227 million. However, the fall in funding was consistent across most of Asia last year given unfavorable market conditions. The long-term outlook for Vietnam’s fintech industry remains positive, and it is in the process of rolling out a regulatory sandbox, while banks are beginning to invest more in digital technology given the competition they face from fintechs.
Southeast Asia fintech funding falls 20% in H1 2024
Fintech funding in Southeast Asia fell 20% year-on-year to US$851 million in the first half of 2024, according to a new report by India’s Tracxn. While early-stage investments showed some resilience, seed-stage funding fell by 27% to US$234 million. The second quarter of 2024 was particularly quiet for fintech funding in the region, falling 85% to US$477 million from the same period a year earlier.
Ever since it realized that the inherent difficulties in making a profit from ride hailing, Grab has been working to build up its digital financial services offerings. While the super app value proposition looks increasingly shaky, the Singapore-based company has nonetheless developed a wide range of fintech products across Southeast Asia.
Some of these offerings have been more successful than others – and Grab has, as a public company, had to exit businesses that are unprofitable and do not show significant potential.
More...
Fintech funding in Indonesia is down, but not out
While Indonesia is one of Asia’s most important fintech markets, it has not been able to escape unfavorable macroeconomic trends. Amid high interest rates, stubborn inflation and less investor patience for unsustainable business models, funding in the fintech sector of Southeast Asia’s largest economy has fallen sharply in the past few years. Data compiled by Tech In Asia show that in 2023, deal count dropped by about 50% while total deal value fell by 53% to US$850 million. Though funding has yet to pick up significantly, there have been a few notable transactions thus far this year.
Papara leans into M&A and international expansion
Turkey’s lone fintech unicorn has growing global ambitions. Papara, an Istanbul-based payments firm valued at roughly US$2 billion, recently acquired SadaPay, one of the most prominent Pakistani fintech startups. While the sum that Papara paid for SadaPay has not been disclosed, startup funding tracker Crunchbase estimates it could be about US$50 million.
Navigating demographic shifts with fintech in Japan
The Japanese fintech sector exhibits a rich diversity, underscored by robust growth in digital payments. This is evident in the ascendancy of e-wallet ecosystems such as d-Barai, PayPay, and LINE Pay. Also growing briskly are fintech segments such as Buy Now, Pay Later (BNPL) services, digital banking, crowdfunding, insurtech, and regulatory technology (regtech). The broad adoption of fintech across different segments of financial services signals a departure from Japan’s traditional reliance on cash transactions.
Why Sea has a growing fintech business
Super apps in Southeast Asia have been forced in recent years to confront a harsh reality: More is not necessarily better, at least when it comes to the number of services provided by the same app. Sea Group, the most valuable listed company in Southeast Asia, has never branded itself as a super app, but its business model has sought to tap the synergies among its gaming, e-commerce and fintech arms. Recently, however, the fintech business has begun to grow rapidly – and not necessarily because of integration with Shopee.
Sea’s fintech business had a solid first quarter. Revenue rose 21% to US$499.4 million, while adjusted EBITDA was US$148.7 million, up 50.3% year-on-year. Sea’s digital financial services revenue and operating income are primarily attributed to its consumer and SME credit business. As of March 31, 2024, consumer and SME loans principal outstanding was US$3.3 billion, up 28.7% year-on-year.
While Sea’s first digital bank was in Singapore, and it also has one in Malaysia, we like the prospects for its online banks in the Philippines and Indonesia. These markets have ample low-hanging fruit, and Sea can bring onboard customers who are entering the formal banking system for the first time, not just those who are opening a secondary account just to benefit from a promotion.
SeaBank Philippines posted a profit of P110.7 million in the January-March period, the company’s first profitable quarter since launching its app in June 2022. SeaBank attributed the profitability to the doubling of its loan portfolio to P13 billion over the previous year and a 75% growth in deposits to P20.23 billion. What is interesting about Sea’s bank in the Philippines is how it has carved out a niche as a so-called “rural bank” – for which licensing requirements are less stringent than the six official digital banks in the country.
We suspect SeaBank Philippines’ loan portfolio is benefiting from the tie-up inked last with WeFund Lending, owner of the JuanHand app. Under the agreement, SeaBank announced last November that it planned to provide roughly 300 million pesos in loans to eligible borrowers through the JuanHand app. JuanHand offers loans from US$36 to US$902 payable within 30 to 120 days.
Meanwhile, Sea is also considering increasing its fintech presence in Indonesia. While it already has SeaBank Indonesia, which was originally Bank BKE before Sea bought it, the Singaporean company is expected to acquire a 10-15% stake in HiBank, a subsidiary of PT Bank Negara Indonesia Tbk (BNI), according to Royke Tumilaar, BNI’s president director. The deal could close as early as the end of June, and would give Sea a new channel from which to tap digital financial services opportunities in Southeast Asia’s largest economy.