Fintech Research

As fintech startups stare down the barrel of a dot-com-like crash, it is becoming clearer by the day that only the strong will survive. And the strong in this industry, where ironically (given this is financial services) being profitable has not been paramount, tend to have loads of cash to spend. The UK’s Revolut is one of those fintechs who really seems too big to fail, and that is why despite tough macroeconomic conditions the company is pushing full speed ahead into different Asia-Pacific markets including Singapore, Australia and India.

Ride-hailing companies can be profitable, as Uber is proving, and so can fintechs, but can ride-hailing companies become profitable fintechs? Untangling that word salad is something of a heavy lift, much like turning an app-based taxi service into a bank. But there is a clever shortcut that deep-pocketed tech giants like Indonesia’s GoTo can take to bolster their fintech prowess. They can invest in a struggling incumbent bank and make it profitable.

Once upon a time, before China’s tech crackdown began in earnest, Ant Group went on an overseas shopping spree, investing in a wide variety of up-and-coming fintechs. Though the company never stated the idea clearly, many observers assumed Ant was laying the groundwork for some kind of cross-border payments ecosystem in Asia – where it made the bulk of its investments. Things have not turned out that way (at least not yet), but some of Ant’s individual investments are proving to be winners, giving the company a strategic presence in some of the region’s most promising markets for digital financial services. Other investments, however, have not proven so successful.

Despite a slowdown in fintech funding amid a shaky global economy, Indonesian fintech remains a bright spot in the Asia-Pacific region. While the deal flow has tapered off somewhat from late 2021 and the first quarter of 2022, the second quarter still saw a few big-ticket deals.

What happens to airlines that fail to win digital banking licenses? In the case of Capital A, they have to count on a sharp rebound in travel demand to help revive their core business, which could eventually be better bundled with the AirAsia super app and various fintech services. However, Capital A continues to lose money as seen in its mixed first quarter results.

Fintech funding in Asia appears headed for a sharp slowdown amid an uncertain global economic outlook. However, Pakistan remains a bright spot in the region, benefiting from its extremely low baseline compared to the region’s other major emerging markets. Indeed, startup funding in Pakistan reached a record US$350 million in 2021, while in India it reached an all-time high of US$38.5 billion. In 2022, despite the shaky global economy, Pakistan may surpass last year’s record. As of May, Pakistani startups had already raised US$167 million.

The United States’ largest tech companies have a significant presence in most Asian markets, whether Microsoft in software, Google for search, Facebook as a social media platform or Amazon in e-commerce. However, most U.S. tech giants have largely yet to make much of an impact in Asia’s burgeoning fintech scene. 

For several years, the Asia-Pacific region has been a hotbed of fintech funding. Despite, or perhaps because of the coronavirus pandemic, fintechs have had very little trouble raising cash. After all, when the whole economy is moving online, banking needs be digital too. However, shaky global economic and geopolitical conditions appear to be finally starting to weigh on Asia fintech funding, with the second quarter seeing a clear drop-off in big-ticket fundraising. 

Sea Group’s share price has tanked over the past six months, falling 75% to roughly US$78. The company has underperformed in many respects, even in its profitable gaming unit Garena. As Garena’s growth slows, Sea will have even more trouble financing its unprofitable e-commerce and fintech units, unless the company finds a way to reduce costs. Yet it continues to expand aggressively in regions far from home, with Latin America a key area of focus.

Pakistan’s fintech sector has long been a sleeper. Investors are now awaking to the significant opportunities in a country with 100 million unbanked people (the third largest unbanked population in the world), growing smartphone penetration and internet connectivity, incumbents with a weak digital game, and government policies aimed at using digital financial technology to boost financial inclusion. With just 1% of Pakistan’s US$4 trillion in annual payments currently made digitally, the sky is the limit. 

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