According to the January 2017 report by Hootsuite and We Are Social Singapore, there are currently 644.1 million people in Southeast Asia. Of which, 53% are internet users making the region ripe for growth and expansion for Fintech adoption.
Fintech, or Financial Technology, refers to new technology or innovation that disrupts traditional ways of conducting financial transactions. This includes digitising processes that were previously handled with paper money and human interaction.
Globally, Fintech is new but rapidly expanding with Southeast Asian region a fast follower. This trend is leading to significant changes in how things are done. For instance, regulatory frameworks across the region are constantly being revised to enable entrepreneurs and startups to enter the market easily.
In Singapore, the launch of the Smart Nation initiative has identified fintech as an emerging industry. The Monetary Authority of Singapore (MAS) is leading by implementing a regulatory sandbox that enables entrepreneurs to innovate further.
Paired with the Smart Financial Centre, with funding of $225 million, this has reduced the barriers to entry for fledgling startups and SMEs. This change in regulatory frameworks has inspired its neighbouring countries to do the same, with Malaysia across the border being the first ASEAN country to issue a regulatory framework for equity crowdfunding in 2015, and marketplace lending shortly after.
Indonesia has also improved their regulatory system by issuing new credit bureau licenses to improve centralized credit data collection and availability. The list is expanding. These revisions bring about a climate of change, introducing new technology that constantly disrupts the way SMEs function.
It is well known that by any metric: Number of firms, employment or GDP contribution, SMEs form the largest ecosystem. Fintech offers a unique opportunity to “enable” and “empower” SMEs to deal with their biggest challenge around Managing their finances - obtain loans, receive & make payments in a seamless and smooth way. This is the beginning of real change.
As a sector that contributes between 23 and 58 percent of the Gross Domestic Product of the region’s various countries, many transactions arise from SMEs. These may include the use of paper money or cheques, processes that are labour-intensive and time-consuming. However, with the rise of payment services like Omise in Thailand, M_Service in Vietnam, and Doku in Indonesia, SMEs can now reach customers without credit cards to transact on an e-commerce platform.
In Singapore, the introduction of PayNow, a payment service that allows transactions to be made to the user’s mobile number on mobile banking apps, has made banking transactions more convenient than ever. PayNow is one of the many payment services available on the market. With signs and stickers signifying hawker stalls’ acceptance for payment methods like LiquidPay and Kashmi becoming a common sight island-wide, e-payment is dominating the payments scene for SMEs one step at a time.
E-payment services are much more secure and efficient as they can be done anywhere with internet connectivity. It also allows almost instantaneous transfers, with some apps allowing funds to be accepted by businesses within 24 hours. Payments landscape has, and continues to see, a tremendous level of innovation to lower costs, faster turnarounds and remove friction points.
Lending & Financing
Whilst SMEs are key to driving economic growth in Southeast Asia, the fact that they are small and medium enterprises also mean that they encounter difficulties in securing loans from traditional financial institutions. A report by Deloitte states that less than 60% of SMEs in five countries the region have access to bank loans.
Furthermore, where banks find small loans under $100,000 costly and risky, lending partners on these platforms are more flexible with loan amounts. This leads to faster approvals and quicker funding for SMEs, which in turn can propel the region to greater growth and expansion.
Another key issue SMEs face is the lack of financial literacy or financial literacy tools available to managers. As previously mentioned, obtaining bank loans can be an issue for SMEs as managers are not used to producing business and financial plans, being more accustomed to the single-entry accounting system more suited to them.
However, the emergence of accounting software such as EZ Accounting Software in Singapore, Flow Account in Thailand and Xero across the region means that processes such as generating financial reports or transaction tracking are simplified, and quotations and invoices produced by the SME are standardised.
Indeed, the rise of fintech and its tendency to change how things were done before allowing SMEs in Southeast Asia to grow. As the penetration rate of internet users in the region increases, fintech will be adopted by more SMEs, propelling them into seamless and secure transactions with their customers, an increase in their working capital finance, as well as smoother accounting processes.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Rakesh Bhatia is an experienced banker with over 26 years of experience with HSBC - across Asia, UK and Middle East - followed by a stint as the CEO of an independent Private Bank in India. Having done a variety of global, regional and country roles, his knowledge of the financial services industry ranges from Commercial & Corporate Banking, Trade & Receivables Finance, Investment banking and FinTech in recent years.
With his background as an International Manager at one of the most global organisations in the world, he has understood and assimilated different cultures.
For the past three years, Rakesh has travelled extensively across Silicon Valley, New York, London, Hong Kong, and Barcelona to interact, learn and gain insights into the trends and growth of FinTech, on its new business models, delivery modes, analytics, data usage and customer engagement merger and evolution.
As a traditional banker, he is aware of the magnitude of disruption caused by new technologies, and understands the significance of a merger between traditional and new businesses to build a powerful hybrid of a future financial company.
His current focus is to help companies - young and established - to navigate, bridge and emerge in the new world of Financial Technology.
He is a co-founder of a startup Hektor SG, a Singapore based financial intelligence app aimed at millennials to empower them with financial liberty to achieve their goals. He also holds C-level executive positions at B2B & B2B2C FinTech companies across SME Online Lending, Insurtech, SME Global Platform and a Co-working cum incubator in India.