Singapore is Asia’s fintech hub. Globally, it ranks fourth in a ranking of fintech hubs – only behind New York, London and San Francisco. To understand the faith reposed by fintech investors in Singapore, we need to look at some figures. Total investment activity (VC, PE and M&A) in fintech in Singapore grew from $29.4 million in 2014 to $576.4 million in 2019 – a leap of more than 19 times in a span of merely five years.
However, COVID-19 hit in early 2020, and there’s still no end in sight. Quite naturally, one would expect that the fintech sector would be impacted by the pandemic as venture capitalists shy away from investment, but on the contrary, investments in Singapore’s fintech sector are expected to see notable growth yet again this year.
What is Singapore doing right?
At the recently concluded RHT CABA ASEAN Summit 2020, Sopnendu Mohanty, the chief fintech officer at the Monetary Authority of Singapore (MAS), spoke about the fintech landscape in Singapore, in a discussion moderated by Ch’ng Li-Ling, partner at RHTLaw Asia.
“You would expect that during the COVID-19 crisis the investment numbers would be dropping dramatically. But surprisingly, from the start of 2020 till now, we have garnered S$777 million of equity funding in the fintech space. This number is very close to the September 2019 values,” he said, and only 6% to 7% off from last year.
In fact, in the first six months of 2020, Singapore saw investments worth S$462 million, 65% more than the S$280.2 million seen in the same period last year.
This is because Singapore has developed certain gold standards to continue attracting money even through the crisis. “We have ensured the kind of fintechs that are being developed truly adds value not just to us, but also to the ASEAN market and other markets around us,” he added.
On a closer look, almost 48% of the fintech investment in Singapore has gone into SME digitisation – which means these are fintechs helping SMEs digitise faster. According to Mr Mohanty, “They are contributing in a way to the future construct of the digital economy. So, they are in the business of helping somebody to really recover through the crisis.”
When a return to normalcy happens, all SMEs and businesses will have to use digital tools. This is an opportunity for businesses to upgrade themselves to recover faster from the crisis. The fintechs that are helping them digitise are seeing the biggest investments. They have a massive growth potential and “are going to be part of the new construct. In fact, they are going to be the core,” according to Mr Mohanty.
He also expects to see fintech investment growth in the area of digital twins – the digital replicas of physical entities.
Singapore has developed certain gold standards to continue attracting money even through the crisis. We have ensured the kind of fintechs that are being developed truly adds value not just to us, but also to the ASEAN market and other markets around us.
In his view, recent trends and developments have shown that there’s a need to stay focused on helping others. “Any fintech that is helping the economy to recover will attract investment, and Singapore fintechs will focus on that going forward”.
Second, anybody helping to translate legacy infrastructure/ processes to modern will be an attractive investment option, in addition to helping the economy recover.
And finally, “as a fintech hub, we believe in equity participation from people around us. We want to ensure that whatever we build, we must collaborate with other regions or other countries so that we succeed together. Collaboration is the key here to ensure we do a better job,” he said.
The backbone supporting growth
This impressive development would not have been possible without favourable policies supporting such growth. Mr Mohanty said policymakers in Singapore have largely been supportive of emerging technologies.
The best way to explain this is the regulatory sandbox, which was designed for regulators to experiment with new technologies, understand the risks and frame the appropriate regulatory requirements that will help offset risk and allow innovation to succeed.
Another example is Singapore’s collaboration with the World Bank Group and other partners in Asia to build a platform called the ‘API exchange’ – backed by the MAS. This allows the industry to collaborate and experiment with newer technologies, understand the product, test it in the ecosystem and then put it into production.
In 2019, Singapore announced that it will issue licenses to five digital bank players who will be allowed to take deposits and provide other banking services to SMEs, retail and non-retail customers. The inclusion of such fintech players is sure to raise the investment activity in Singapore, and will help accelerate the inclusion of the unbanked or underserved population in the region.
Singapore’s regulators are not just preaching but are also spearheading initiatives to encourage the adoption of future technologies. “The first one to get into the business of running a hackathon was MAS and it was called the G20 TechSprint – primarily designed to challenge all innovators around the world to tell regulators how they can upgrade themselves with better systems of regtech and compliance tech to do what they are doing. In addition to being supportive, Singapore regulators are also adopting newer technologies,” says Mr Mohanty.
Policymakers in Singapore have largely been supportive of emerging technologies. Singapore’s regulators are not just preaching but are also spearheading initiatives to encourage the adoption of future technologies.
The commitment of the government towards the fintech sector is clear. As the pandemic wreaked havoc across markets, the MAS announced a fiscal package of S$125 million to support the recovery of Singapore’s financial and fintech sectors. The MAS also launched a S$6 million solidarity grant to offset operational costs such as workers’ salaries and office rent borne by Singapore-based fintech companies.
In the future
Singapore will continue to see a gamut of innovations and investments in the fintech space. But a holistic approach needs to be taken. Fintech players need to understand that their product should serve a purpose, plug a gap and not just be an extension of an existing fintech product. Affordability of the product is also paramount to ensure it can be accessed as the market rebounds from this crisis.
Regulators will continue to play a crucial role in the fintech ecosystem. In addition to allowing more fintech operators, they will also need to promote the homogenous interoperability of policies favouring not only companies, but also its consumers.
In this context, governments must promote technical knowhow and adoption among people to create an environment for fintechs to thrive in.