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Region offers expansion opportunities

Studies show keen interest in Asean, but there are fears of regulatory constraints and tighter funding.

A STUDY conducted on behalf of Westpac Banking Corporation and Austrade showed that Asean is seen as an expansion opportunity for fintech entrepreneurs, but there are challenges in navigating different and complex regulatory systems across the region.

These business leaders also need to understand vastly different consumer tastes, and build a network of trusted local suppliers - challenges that can make or break any expansion efforts.

The Economist Intelligence Unit (EIU), as commissioned by the two Australian firms, conducted a survey of 25 executives to assess corporate attitudes towards fintech in Asean, all of whom had an interest in operating in the region.

According to the executive summary, released exclusively to The Business Times, about half of respondents are looking to enter the region in the next three years. As for the 44 per cent that are already in the region, the most common markets where executives already have a presence are Singapore, Indonesia and Malaysia.

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Seventy-six per cent of fintech executives said their top motivation for doing business in Asean was to expand their customer base. This was followed by expanding the same product opportunity in new markets (56 per cent) and new product opportunities in new markets (52 per cent).

In order to enter Asean markets, the most common strategy has been to form a distribution or other strategic partnerships (44 per cent).

This is followed by participation in the Asean startup ecosystem via innovation hubs, meet-ups, hackathons or other similar activities (32 per cent), introduction of new products or services (32 per cent), and entering a new product or service market in which they had not previously competed (32 per cent).

The primary value of existing or potential Asean partnerships are said to be greater industry knowledge (52 per cent), followed by referrals to other partners (40 per cent) and customers (40 per cent).

Government policy - in areas of licensing requirements and regulations - is flagged as the biggest barrier to introducing new products or services in Asean, according to 40 per cent of the respondents.

This challenge is followed by cultural barriers (36 per cent) and a lack of people with the requisite skills (28 per cent).

The types of local support to develop their business in Asean varies greatly. Local banks or other financial institutions, for example, were viewed favourably (48 per cent of fintech executives said they provide "sufficient" support) whereas only 28 per cent said the same about government programmes.

The concerns over regulation also apply to Asean-based fintech firms looking to expand beyond their home countries, an EY survey showed.

EY earlier this year surveyed 170 fintech firms based in this region to get feedback on the upcoming trends and challenges ahead. It further received 81 responses from fintech firms of non-Asean countries but with plans to expand their footprint in the Asean market.

The companies are based out of the Asean countries of Cambodia, Brunei, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

More than half of the fintech firms see greater opportunities for expansion outside their home market, the study added. Outside of Asean, the rest of Asia and Europe are two most important regions as expansion markets for them. Specifically, the US, the UK and China are the top-three preferred destinations outside Asean.

But what holds them back is the compliance with new regulations in foreign jurisdictions. This also comes as the skills of the people running the startups is key to their success, as is the question of having the right talent in the future.

The study further noted a shortage of technology and software, product management, and sales and marketing skills, with the challenge felt across countries albeit in varying degrees.

More of half of the fintech firms have hired foreign talent and about 35 per cent of them faced challenges in recruiting foreign talent. Many still rely on personal connections and recommendations in hiring.

"Government policies and actions play a vital role in shaping up the fintech ecosystem, and in promoting innovation and competition," the study said, noting that 58 per cent of the respondents wanted more support from regulators and policymakers. Tax policies, talent, and government funding are top three key areas where eight in 10 of fintech firms believe that more steps should be taken to promote the sector.

To be sure, the EIU study noted that in light of the perceived lack of requisite talent, both advice on and referrals to potential sources or talent (12 per cent) and mentoring (12 per cent) rated surprisingly low, when asked about the value of existing or potential Asean partnerships.

There may also be some niggling concerns on whether fintech firms in Asean are armed with enough funds to keep going.

The EY study showed that about 45 per cent of fintech firms still rely on self-funding or boot-strapping. About 76 per cent of respondents agreed that enough funding channels are available, but about half find it difficult to obtain funding.

All in, six in 10 fintech firms expect the next round of funding to be greater than US$1 million, and 23 per cent of respondents expect an IPO in future.

"As fintech firms plan to grow, results indicate that about 68 per cent of them have a runway of less than a year, and plan to raise funds in the immediate future."

This brings up a closer look at revenue, with the study showing that historically 42 per cent of fintech firms registered a revenue growth of greater than 30 per cent. About two-thirds of them expect a compound annual growth rate in revenue of greater than 30 per cent in the future.

The presence of healthy competition and availability of support networks beyond founders and investors is critical for growth of fintech companies, the report said. About three-fourths of those in Asean believe they will be able to compete internationally.

"As most of the startups have lean operations and relatively fewer employees, most of them feel that co-working space is beneficial. But the need for accelerators and incubators is lower in Asean."