Moving East: FinTech establishing a presence in Asia
Moscow-based venture capital firm Life.SREDA’s recent announcement, that it will launch a $100 million InspirAsia financial technology (FinTech) accelerator, based in Singapore, is the latest in a series of high-profile FinTech developments occurring in Asia. Over the last year, prominent accelerators and venture capital firms have established themselves in the Asia-Pacific region as FinTech investment continues to blossom.
In 2014, Accenture’s FinTech Innovation Lab and Startupbootcamp FinTech launched accelerator programs in Hong Kong and Singapore, respectively. In Australia, Tyro Payments opened a FinTech hub in Sydney in the heart of the nation’s financial sector. In the U.S., Citi Ventures recently partnered with Plug and Play, a California accelerator, to start a global FinTech accelerator program with a location in Singapore.
The opening of innovation hubs and programs coincides with increased attention in FinTech startups among private equity and venture capital firms. Last year, Apis Partners introduced a FinTech Emerging Market Fund, seeking to raise nearly $300 million to invest in innovative products in South Asia and Africa. 1337 Ventures, a Malaysian-based venture capital firm, recently partnered with Malaysia’s largest bank, Maybank, in an effort to uncover promising FinTech startups in emerging markets in Asia, including the Philippines, Thailand, and Malaysia. Hatcher, a venture capital fund based in Singapore, is looking to raise $100 million to invest in more mature FinTech companies in Asia. These firms are just a few of the venture capital firms and private equity firms active in the region.
Clearly there’s money to be made. While the levels of investment pale in comparison to North America, a recent report by Life.SREDA notes that FinTech firms operating in Asia raised nearly $800 million in 2014, second only to North America. Not surprisingly, China, Japan, Singapore, Thailand, Hong Kong, and Malaysia are the hotspots where a significant amount of FinTech activity and investment is taking place.
Whetting investment firms’ appetites even more is the fact that Asians are increasingly going digital, in large numbers, and fast. A recent survey from McKinsey & Company estimates that more than 700 million Asian consumers use digital banking on a regular basis. The study further confirms the rapid growth and adoption of the Internet and of smartphone technology. These have resulted in double-digit growth in the use of digital banking services and Internet-banking penetration, compared to a similar study in 2011.
Asian consumers are also increasingly turning to digital payments beyond banking. According to a separate study from McKinsey & Company, the consulting firm predicts global payments revenue will increase 8 percent annually through 2018, when annual revenue will reach $2.3 trillion. Asia-Pacific is the region contributing to the growth, with China leading the pack. This makes sense when you consider that there are more than 200 million mobile payment users in China, transacting $3.6 trillion in value from 4.5 billion transactions in 2014 – an increase of 134 percent in value and 170 percent in the number of transactions year-over-year.
The Asia-Pacific region also leads the world in remittance activity. In 2014, $436 billion in remittances flowed to developing economies – a 4.4 percent increase from 2013. India, China, and the Philippines makeup nearly 40 percent of that figure, with $160 billion in total remittances flowing into those three countries alone. At an average cost of 8.4 percent for migrants to send money home, there is significant opportunity for innovative firms to establish themselves in this space and reduce the various frictions and high costs associated with foreign exchange.
Given the level of consumer interest and adoption in payment systems and the growing importance of remittances to developing economies, it’s not surprising that prominent FinTech firms are extending themselves into the Asian markets. Peer-to-Peer money transfer services including Transferwise, Azimo, and CurrencyFair are increasingly expanding their operations into Asian markets, to disrupt the international money transfer business by reducing obstacles and costs associated with transferring money from the nearly 250 million international migrants to their families at home.
In addition, digital payments platform Ripple recently announced the creation of a new office in Sydney in an effort to satisfy demand in the Asia-Pacific region for real-time settlement systems. Separately, BrainTree is expanding from its satellite office in Sydney into Hong Kong, Singapore, and Malaysia. The move will expand its digital merchant terminal, allowing both large and small companies to accept digital payments from multiple currencies. Stripe is also contemplating whether to enter the Singapore market, given that BrainTree, one of its competitors, is now involved in a country that sits in first place on Mastercard’s Mobile Payments Readiness Index and that has one of the top FinTech ecosystems.
Based on the Asia-Pacific region’s economic importance and the number of people now experimenting with and adopting digital lifestyles, it is hard to see FinTech investment and expansion declining in a region known for its financial prowess, especially as it is increasingly becoming a hotbed for financial innovation. The opportunities and revenue potential from this region alone will continue to drive investor and consumer interest in FinTech far into the future.