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Understanding fintech in Southeast Asia

Varun Mittal
The emerging markets fintech specialist speaks about the transformational impacts of fintech in Southeast Asia
An interview with
Global Emerging Markets FinTech Leader at Ernst & Young
Phnom Penh downtown by night

Southeast Asia has been one of the frontrunners in fintech adoption globally. A large, youthful, tech-savvy population, deep mobile internet penetration and strong government support in many of the region’s countries have made it one of the fastest-growing fintech markets globally.

In this interview, Varun Mittal, EY Global Emerging Markets FinTech Leader and author of the book Singapore: The Fintech Nation, talks about fintech activity in the region and the impacts of the pandemic on the industry.

This follows the first part of the interview, in which Mr Mittal spoke about the making of Singapore’s fintech ecosystem. Here, he also talks about Singapore’s role in the development of fintech in the region.

Unravel: In what ways has COVID-19 adversely impacted fintech development in the region?

Mr Mittal: There are parts that have been impacted negatively – for example, companies that are in B2B sales. Anything that’s been travel related, talent-related, has been impacted. A lot of discretionary projects have been put on hold and only urgent expenses are being undertaken. So for example, a number of fintechs were selling things like conversational banking – that is clearly lower priority as compared to digital KYC or digitising document flows, which are higher in priority.

Similarly, insurtechs have to face several challenges because a lot of traditional insurance sales happened face to face. While much of this has moved to video conferencing, which might be adequate, but makes it much harder to reach a conclusion and close deals.

Unravel: What aspects have benefitted?

Mr Mittal: B2C companies have benefitted, including things like investment apps, robo-advisors, training apps and anything wealth and investment related, as people stayed home but transacted. Additionally, anything related to digital payments saw a spike for obvious reasons.

Unravel: What are the ways in which the pandemic has accelerated the development or adoption of fintech in the region?

Mr Mittal: A lot of stuff that would normally take six months for approval now happens in six weeks, so approvals have become very quick. Separately, many fintechs have been aggressive in their growth, so financial institutions have also been under pressure to move fast. Some small examples are areas like SME account onboarding where directors may be overseas; building digital KYC processes to open accounts, and the like. Much of this was forced by the pandemic as many could not travel across borders, but now the banks cannot take a step back from these and these changes will stick.

Unravel: What about the emerging trend of central bank digital currencies? Are we seeing that in Cambodia?

Mr Mittal: Yes, and we also see that Singapore is trying to do some of that. And the idea they’re looking at is the digital form of the existing currency they have. But technically there is a counterparty, there is a central bank backing it. 

Unravel: What are the most promising areas for fintech development in Southeast Asia presently? What are the areas that you see the biggest developments happening and the biggest impacts coming from?

Mr Mittal: In terms of opportunities I would see investing as one huge opportunity across ASEAN. If you see Indonesia, a bunch of wealth platforms have raised a lot of money. Most of the wealth platforms in Singapore have announced rounds of funding. In Singapore, the combined assets under management of wealth robo advisors combined is less than $4 billion, compared to $2 trillion managed by banks. The target addressable market is huge from that perspective. And that’s happening in most other markets in the region too.

The wealth investment space has also become massive because interest rates are falling. So, consumers have less incentive to keep the money in their savings bank accounts. COVID-19 has simply provided a fillip because people have embraced doing all of this digitally. These two factors have reinforced one another. My prediction is that we will see the greatest activity over the next two years in the wealth investment and retirement planning space.

Separately, in terms of impact, I think it will be SME digitisation that will have the greatest impact in the region. SMEs are increasingly becoming more digital – be it in terms of their back-office operations, accounting procedures, HR processes, or inventory reconciliations, among other things. We have hundreds of thousands of SMEs in the region that employ a huge share of the working population. Digitising that part of the economy will boost both production and consumption.

There is a lot of talk around automation, but I think I would focus on digitisation more, because it works at every scale. SME digitisation, in my view, is going to be a big pillar of economic growth, and an opportunity for fintechs to make an impact.

Unravel: Are we seeing intergovernmental-cooperation at the ASEAN level to catalyse fintech development?

Mr Mittal: We have seen some in the area of payments – Singapore’s PayNow is now interoperable with PromptPay. They are probably looking to do that with India also. But that’s about it, because rest of the stuff is regulated locally. So, there can be sessions to benchmark to align and everything, but not much else happening in this respect, which is understandable because of the countries’ different priorities.

Unravel: How important is Singapore’s role in the regional development of a fintech architecture or marketplace for fintech?

Mr Mittal: Singapore has a few important roles to play. The first is as a source of capital and a seat for global talent. The second is as a gateway to ASEAN countries – for ASEAN companies to go global and for global companies to enter different ASEAN markets. And third, I think Singapore has an important role to play from a regulatory leadership perspective. As a small, controlled market, it can be used as a testbed and applications than can then be scaled up across the region.

* In the first part of this conversation, Mr Mittal spoke about the development of the fintech ecosystem in Singapore and its importance to the region.

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Global Emerging Markets FinTech Leader at Ernst & Young

Varun has been working at the cross-section of digital business building and financial services. He is currently a partner at Ernst & Young, leading global emerging markets fintech and ASEAN digital banking practices – supporting fintech startups, financial institutions and regulators. Previously, he was the first marketing and sales employee at helloPay (acquired by ANT Financial, Alibaba Group), led payments for Samsung in ASEAN and developed regional mobile payment solutions at Singtel Group. Varun is co-founder of the Singapore Fintech Association & ASEAN Fintech Network. He has written multiple books covering the journey and evolution of Singapore as a global fintech hub.

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