Fintech Research

Southeast Asia’s preeminent platform companies are adjusting to a painful new reality: More is not always better. Sea Group, Grab and GoTo have all expanded at a torrid pace amid a free flow of venture capital funding that only recently started to dry up with the end of ultra-low interest rates and the arrival of greater economic uncertainty. The tougher business environment will put to the test their shaky super app value proposition, especially the idea that fintech works best as part of a broader digital services ecosystem rather than as a pure-play business model.

Kakao’s fintech results continue to be mixed – a tale of two platforms in some respects. Much like its strategic investor and perhaps spiritual guide Alipay, Kakao has developed a digital bank and payments app as two separate units. Thus far, the online lender Kakao Bank has consistently outperformed the e-wallet Kakao Pay, and that held true once again in the third quarter of the year.We have lauded Kakao many times for developing a profitable financial services super app. It is the only company outside of China to achieve such a feat. However, it might be worth considering at this point if the two separate units are sufficiently complementary.

Xiaomi is one of China’s and the world’s largest smartphone makers. But the company is not content with that position – given low margins and extreme competition in the sector –  and has long been searching for new avenues of growth. That’s how Xiaomi began to move into fintech several years ago. As it turns out, transitioning from technology hardware into digital financial services is much more challenging than Xiaomi likely imagined.

Indonesia is gradually turning into a success story for peer-to-peer (P2P) lending, which is able to meet demand for credit that traditional lenders cannot. In the past few years overall lending by fintechs has been growing much faster than that of banks in Southeast Asia’s largest economy, according to the Indonesian Joint Funding Fintech Association (AFPI).

You can’t be a big platform company in Indonesia these days and not foray into fintech, not with 181 million unbanked people and many others who are underbanked. Compared to most of its competitors, Bukalapak has been more deliberate about its entry into digital financial services, but it benefits from having fewer costly business units: no ride hailing or food delivery, for instance.

The wheels are coming off the bus of Sea Group’s cash-burning tripartite digital services ecosystem of gaming, e-commerce and fintech amid jitters in the global economy and investor skepticism of the company’s growth-first model. If you thought that even as it hemorrhaged cash by the hundreds of millions of dollars, Sea’s expansion to places like Poland, India and Colombia did not make a lot of sense, you are not alone. The question now is if the company’s austerity measures can both stop the bleeding and reassure investors that its fundamental business model is sound.

In a year that has seen fintech funding slow in many markets, Indonesia is proving to be something of an outlier. In the first half of 2022, Indonesian fintechs managed to raise US$1.8 billion, exceeding the total of US$1.6 billion raised in 2021.

Southeast Asia’s preeminent platform companies have all bet big on fintech to boost their fortunes and lift them from the red into the black. It is a great idea in theory, but challenging to execute in practice. Competition is intense in the region and the super apps have to compete against pure-play fintechs and others not weighed down by unprofitable units that have nothing or very little to do with financial services. The super app concept only works if there is sufficient synergy among the different services provided by the platform company.

Pakistan continues to be one of Asia’s hottest fintech markets, buoyed by growing investor interest, one of the world’s largest unbanked populations and government support for digital finance-supported financial inclusion. Pakistan represents an exceptionally large opportunity for fintechs: Only 1% of its almost US$4 trillion of payments are made digitally. The past month has seen a number of notable deals that show the market is maintaining solid momentum despite a global economic slowdown and greater investor scrutiny in tech startups.

In Asia and globally fintech funding has been slowing amid economic jitters and rampant inflation. Some cash-burning fintechs are finding that they are running out of cash to burn. Still, there are some exceptions, and India is a notable one. According to a new report from Boston Consulting Group (BCG), from January 2017 to July 2022, the Indian fintech market received US$29 billion in funding from 2,084 deals to date, accounting for 14% of global funding and No. 2 in deal volume. Unlike many other countries, India’s fintech funding has not dropped off sharply this year.

Page 1 of 5