Homegrown fintechs are more likely to access later-stage funding that are out of reach for startups in other verticals.
Despite a massive pool of available capital fueling the ambitions of homegrown startups in Singapore, fintechs may be more likely to snag investor attention and score growth-stage funding rounds than other less fortunate startups who are stuck at seed funding.
Later-stage deals have been accounting for a larger share of Singapore fintech funding in the past four years with capital injections over $5m representing nearly half (43.2%) of total fintech funding in 2017, according to Fintech Global.
Analysts point out that funding level in the early stage ventures for fintechs in the Lion City have actually decreased in volume over recent years as the sector benefits from heightened investor attention.
“We believe this is due to the maturing of the fintech sector, where funding is switching towards later stage vendors, who have established the data to prove their potential return on investment. This allows them to deal more effectively with venture capital investors compared with early stage ventures,” Nick Maynard, analyst at Juniper Research told Singapore Business Review.
The percentage of funding for Singapore fintechs within the US$5m to US$10m stage as a share of total deals steadily grew from a measly 5% in 2014 to 18.2% in 2017. On the other hand, funding within within the $1m to $5m range or those qualifying for seed funding rounds have steadily decreased from 95% to 56.8% over the same period.
The FinTech fundraising landscape in Singapore is dominated by Payments & Remittances and Cryptocurrencies companies which raised a combined total of over $250m. The top four ICOs in the country collected $75m worth of funding in the first half of 2018 whilst RegTech has attracted over $25m in the last 12 months, according to Mariyan Dimitrov of Fintech Global.
“There is probably a certain “hype” playing currently in fintechs’ favour, and to the detriment of traditional startups. This hype is due to the belief some might have that a fintech is the ultimate technological frontier that will allow to automate, digitise, optimise and disrupt traditional models,” according to Dimitri Kouchnirenko, founder of invoice financing platform incomlend.
One need not look far for notable deals in Singapore’s fintech space after Sea Limited raised $575m in post IPO equity in June which comes on the heels of an earlier $550m capital injection in May 2017. It joins Tryb Group who recently scored $30m in private equity investment and online auto marketplace Carro which raised $60m in Q2 in notable fintech transactions in the past 12 months.
“Singapore has a very vibrant FinTech funding landscape,” said Varun Mittal, EY Asean FinTech Lead. “This year, we also saw the first FinTech firm listed on the Singapore Exchange; there is also a strong ICO funding activity in Singapore.”
Singapore’s status as a well-established financial center also adds to the appeal of investing in fintech especially since such startups are able to gain access to sophisticated infrastructure and network to target as both clients and partners along with a thriving support system in the form of accelerators and incubators, according to Dimitrov.
“On the B2B front, Singapore is the regional or even global headquarter location for many banks and insurers. Hence, it is much easier to do a large deal with financial services players here,” observed Mittal.
“The global aspect of certain segments of financial services, specifically B2B, allows companies to scale up more easily and expand internationally. As such, FinTech companies have easier time attracting larger pools of capital to support this expansion and position themselves as leader in a maturing space,” echoed Fintech Global's Dimitrov.
In addition to a thriving support network, Mittal said that homegrown fintechs are also able to cement their market dominance in the B2C front as they can enjoy rapid adoption rates due to the Lion City's well-educated tech-savvy population.
It helps that the regulatory environment in Singapore is also amongst the most encouraging towards fintech startups which has set up a clear industry transformation map for financial services, including measures to encourage open APIs (Application Programming Interfaces), digital payments, biometrics, automated KYC (Know-Your-Customer) checks, as well as blockchain, noted Maynard.
“One important way it has done this is by signing co-operation agreements with other regulators to collaborate on fintech, which it has done with Abu Dhabi, Australia, Denmark, France, Hong Kong, India, Japan, Malaysia, Philippines, Poland, South Korea, Switzerland, Thailand and the UK, as well as the Association of Supervisors of Banks of the Americas,” he added.
The regulatory sandbox by the Monetary Authority of Singapore in June 2016 has also been lauded as it encourages innovation amongst startups in a controlled manner.
“From a policy perspective, Singapore has been a great advocate of FinTech, supporting startups and driving initiatives such as sandboxes, FinTech festivals, global MOUs, and supporting the local FinTech association,” added Mittal.
Despite a robust support network, Singapore still has to work double time to overcome stiff competition from other huge markets in order to maintain its attractiveness to investors. KPMG's Pulse of Fintech report indicated that China and India continued to lead activity in the region with six and four massive deals, respectively.
Ant Financial’s US$14b in China round was a massive outlier, boosting total investment in Asia to $16.8b in the first half of 2018.
It is not only Singapore that is making strides towards an investment-friendly environment, as EY indicated that close regional competitor Hong Kong has been stepping up partnerships with schools to train students to develop FinTech knowledge and capabilities.
The Hong Kong Monetary Authority (HKMA) has also launched the draft Open API framework. "As more regulators embrace open banking, it will revolutionise the way the financial services are consumed and will be a key driver of the FinTech sector in the coming years," EY said.
However, the future remains full of growth for Singapore as it still has a large wave of investment activity to ride on. According to KPMG, global investment in fintech (US$57.9b across 875 deals) has already exceeded last year's annual total as strength continued at all deal stages.
“In a post-Brexit era, Singapore has a larger role to play. Many companies are moving their headquarters to new locations, and Singapore would be one of the best candidates,” added Mittal.
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