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SINGAPORE'S fintech venture capital (VC) activity perked up in the first half of this year, with US$79.24 million capital invested in 10 deals till now. The invested amount exceeds the total of US$68.61 million that was invested in the entire of 2016 over 30 deals, according to the latest issue of KPMG's Pulse of Fintech report.
To be sure, this year's first-half capital investment falls short of the 2015 figure of US$186.11 million, invested over 28 deals. But the 2015 numbers were skewed by large mega deals such as that of forex fintech M-Daq, which raised US$83.45 million in Series C financing.
Pointing to the M-Daq deal, Chia Tek Yew, KPMG Singapore's head of financial services advisory, observed that average deal sizes are also significantly influenced by the presence of any large individual deals in a particular year. At the same time, the number of deals year-on-year is an indication of the continuing interest by investors - both financial and corporate venture capital firms in the sector.
Mr Chia also felt that the changing deal sizes in fintech is more an evolution of the overall fintech business model, from being disruptors to becoming collaborators with banks.
In 2015 and the early part of 2016, fintech investments were largely in the space of retail e-payments and peer-to-peer (P2P) crowdfunding, which required significant funding in order to extend across multiple jurisdictions. The need to obtain regulatory licences also meant that these good ideas had to be funded by investors for a longer period before revenue-generation activities could commence, Mr Chia noted.
In 2016, there was a shift in the banks' view of fintech companies, which saw an increasing interest in adopting innovative ideas and becoming more open to collaboration, rather than seeing fintechs as competitors, he added.
"Fintech companies also saw such collaboration as an easier way to enter the market and avoid the need to obtain regulatory licences, and a faster and more cost-effective way to acquire customers. Banks started to set up corporate VC arms to also invest in the fintech companies that they are partnering, albeit in smaller funding sizes."
The Monetary Authority of Singapore (MAS) has encouraged banks to adopt innovative technology that underpins the fintech industry. This includes leveraging the power of cloud computing, the connectivity of APIs (application programming interfaces), the decentralised trust platforms of blockchain, and the cognitive capabilities of machine learning and artificial intelligence (AI).
"The experimentation with these new technologies and its application in specific banking use-cases have added new dynamism to the industry, which had historically invested more in core banking systems than in customer-facing technology that brings better, cheaper and faster services and solutions to customers," Mr Chia noted.
He added that 2017 is seeing more use-cases coming out from these technologies and that it is likely 2018 and 2019 will see some proofs of concept resulting in enterprise adoption. This is particularly so in the areas of blockchain smart contracts and AI-based solutions for customer insights - including for credit and insurance underwriting risk modelling - customer due diligence, and transaction monitoring.
Mr Chia said fintech innovation will take shape in three ways. The first is where innovation is applied to business process innovation. This includes applying robotics process automation or a blockchain smart contract to allow for faster and more cost-effective processing of transactions.
The second form, he added, is when there is business model innovation, where new technology-enhanced processes allow one to change the way of doing business. "This could be in how you can access new customer segments, distribute your products or services and even to change your product offerings."
The third form is when you have innovative disruption where you can potentially disrupt your industry or an adjacent industry, Mr Chia noted.
"This is where Alipay, which was originally set up to solve payment-related pain points within the Alibaba platform, has now evolved to become a disruptor of the payments industry. Alipay could eventually be known as a financial-services player which happens to have an e-commerce platform. Similarly, GrabPay may one day be known as a leading payments player which happens to have a taxi or public transportation platform.
"It is in this third form of disruptive innovation that we see potential for future unicorns. Underpinning these future unicorns will be an uncanny ability to leverage the power of cloud computing, efficiency of blockchain smart contracts, and the intelligence of machines," Mr Chia said.
He added that the fintech revolution can be a boon to the huge under-banked population in Asia and other parts of the globe. Governments in Asean are keen to ensure that the underbanked are not left behind in this digital journey and have pushed local national banks to increase their involvement in this community either through legislation, as has been seen in Indonesia, or through aid and grants, which is done in Singapore, Mr Chia added.