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Singapore gets lion share as fintech funding surges in Asean

FUNDING for the financial technology sector in Asean is surging, fuelled by the potential of its young and underbanked population.

Reflecting Asean's demographics, payments and mobile wallets are attracting the highest level of funding in Asean, registering a tenfold increase from US$8 million in 2012 to US$83 million in 2015, according to a State of FinTech in Asean report.

Funding has rocketed from an abysmal US$9 million in 2012 to US$338 million year-to-date 2017, the report said.

"Asean as an engine of economic growth and prosperity has caught the eye of global investors, and there is an abundant supply of early-stage funding in the region," it said.

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The report was producted by United Overseas Bank, with insights from EY, and is supported by the Singapore FinTech Association and the Asean FinTech Network.

In 2016, investments in the South-east Asian fintech market increased to US$252 million, compared with US$190 million in 2015, a rise of about 33 per cent. Total investment in the first nine months of 2017 has already exceeded that of 2016 to reach US$338 million.

Most of the funding in the region is from seed and angel investors, it said. Beyond the traditional forms of funding from angel investors and venture capitalists, crowdfunding, venture debt and bank venture funds have also contributed to the rise in dry powder available for investing in Asean fintechs.

The rise of fintech funding in Asean mirrors that for Asia, the report found.

The global fintech industry attracted more than US$24 billion in investment in 2016, 10 times the level received in 2010.

Fintech investment in Asia exceeded North America for the first time in 2016, led by blockbuster deals in China, including Alipay and raising US$4.5 billion and US$1.2 billion respectively.

Singapore is home to the lion's share of the 1,228 fintechs in Asean, at 39 per cent, said Tracxn, a start-up data provider.

Two in five Asean fintech startups have chosen Singapore as their home base. They are drawn to several factors, including the country's ecosystem of diverse players, conducive regulatory environment and its web of international links that promote the exchange of ideas, the report said.

"Singapore's developed financial infrastructure and supportive regulatory policies have positioned the country well to compete with other global fintech hubs such as Hong Kong and London," it said.

Indonesia, Malaysia and Thailand are fast catching up with Singapore as a preferred fintech home, supported by high levels of mobile adoption, rising rates of Internet penetration and an increasingly urban, literate and young population. "This has attracted large numbers of investors and fintechs to focus their attention on the region."

While fintechs are still in their early stage in Asean, digital platforms such as e-commerce have proliferated, backed by Internet giants which have the financial muscle to make large, billion dollar investments in the next unicorns of Asean. The battle for the consumer wallet and mindshare will continue to drive investment as Internet giants seek to establish a foothold in Asean, starting in Singapore, Indonesia and Thailand.

Drivers of fintech in Asean is the region's robust economic growth and a young urban population. Asean has more than 630 million people, with around 50 per cent of that population under 30 years of age.

By 2030, this large young population will enjoy increased levels of literacy and contain many first-time job seekers. South-east Asia's urban population is also expected to increase by an estimated 100 million, to 373 million people by 2030.

Almost half (43 per cent) of all fintech activity in Asean is focused on developing solutions in the area of payments and mobile wallets.

"This innovation push is underpinned by high levels of mobile usage and rising rates of Internet penetration, an increasingly urban, tech-savvy, literate and young population, and a segment of the community underserved by traditional banking solutions," the report said.

Asean's low banking penetration also makes it attractive for fintech companies to develop solutions and go to market. As at 2014, more than half of the adults in Asean or 264 million adults do not have access to banking services.

The gap widens in rural areas, where 74 per cent of the population do not have access to a bank account.

Additionally, all the Asean countries - including Malaysia, Singapore and Thailand - which have high levels of bank penetration, rate low in regard to credit availability in the micro, small and medium-sized enterprise sector.

"Fintechs in the region are also exploiting this credit gap to offer services to this underserved segment, which is not the traditional target segment of financial institutions," said the report.