Fintech Research

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. 

The honeymoon period is over for Southeast Asia’s platform companies, even the venerable Sea Group. While boasting a strong ecosystem Sea is still consistently losing money in two of its three divisions. Being bullish on Sea means believing that the profitable gaming arm Garena can carry Shopee and Sea Money indefinitely. Investors appear to be having their doubts, especially as Garena’s growth has slowed recently. Sea’s share price has fallen 63% in the past six months and 43% over the past year and is now trading at about US$127.

Pakistan is the largest nascent fintech market in Asia, with an unbanked population of 100 million. About 70% of the population lacks a bank account. In absolute numbers, there are more unbanked people in both India and Indonesia, but those markets have much more developed fintech ecosystems than Pakistan. The investors and firms that are able to get in on the ground floor in Pakistan and establish strong business models will be able to reap substantial rewards.

Long before the pandemic disrupted the world, Southeast Asia’s preeminent platform companies began integrating financial services into their apps for practical reasons. Their cash-burning core services, like e-commerce, ride hailing and food delivery, were failing to make money. Fintech was seen as the answer. Struggling airline AirAsia, now rebranded as Capital A, sees similar promise in digital financial services, but it still needs travel to recover for its digital services ecosystem to thrive.

Ant Group-backed Akulaku is one of the more promising fintech startups to emerge from Indonesia in recent years. In mid-February, Akulaku secured a US$100 million strategic investment from Thailand’s Siam Commercial Bank, which followed a US$125 million investment in 2021 co-led by Hong Kong’s Silverhorn Group. Akulaku is now valued at US$1.5 billion to US$2 billion.

Vietnam is one of the last major markets in the Asean region where fintech remains at a relatively nascent stage. The payments segment accounts for the lion’s share of fintech investment, a whopping 93% as of late 2021, according to Statista. There have been several key investments in that segment of late, as well one in retail investing.

China’s fintech apex was probably in the mid-2010s, before the crypto crackdown. Since then, it has been a long downhill ride. Investors finally figured that out this year amid a broader crackdown on the tech sector that has clipped the wings of the country’s largest fintechs. But China’s loss is turning out to be India’s gain as investors – including, ironically, Ant Group –  pour money into the subcontinent’s fintechs like Paytm, whose record-breaking IPO in November raised US$2.5 billion.

The more things change, the more they stay the same in Asia’s fintech market. While an increasing number of different markets in the region are attracting funding, Singapore remains dominant in Southeast Asia. In fact, the city-state accounted for almost half of the 167 deals made in the region the first nine months of 2021, according to a new report by UOB, PwC Singapore and the Singapore FinTech Association (SFA).

What is the largest potential fintech market in Asia and perhaps the world that flies under the radar? Many observers would be surprised to learn that the answer is Pakistan. With a population of 221 million, Pakistan is the fifth most populous country in the world. The majority of the population – 70% – is unbanked, including 100 million adults.

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