Opinion: Southeast Asia’s fintech pivot

Photo credit: rakchai / 123RF.

Grab and Go-Jek are fighting tooth-and-nail to serve commuters in Indonesia. Yet, their biggest battle may be in another arena.

Grab is said to be raising a fresh US$1.5 billion in new capital. The money isn’t what’s significant – such massive funding rounds have become too commonplace anyway. Instead, look at its purpose: to bolster Grab’s nascent payments platform.

Why is Grab suddenly interested in payments? Although it has raised more money than Go-Jek and has a footprint in more countries, the latter’s mobile wallet product Go-Pay has become a mainstay in Indonesia. It became the fourth most widely-used e-wallet in less than a year of existence.

These moves by two of Southeast Asia’s biggest and fastest-rising tech firms are part of a larger trend: a regional pivot towards fintech.

Why is this significant? First, payments is the last frontier of ecommerce in Southeast Asia. Cracking payments could mean making Southeast Asia’s online marketplaces – and many other kinds of startups – financially sustainable. That’s a prospect that has so far eluded even Lazada, the biggest bulldog in the region.

Second, financial services, like banking and insurance, are still greenfield areas untouched by the latest technology, and that is starting to change.

The signs

Tech in Asia’s data sketches out the contours of this pivot. For two consecutive quarters – three if you count Q1 2017 – the number of venture capital deals in fintech has outstripped ecommerce. This could be a historic first:

Tech in Asia Tech Venture Investment Report H22016 from Tech in Asia

Of course, ecommerce’s total deal value continues to surpass a nascent field like fintech. But that could change in the future. Also, the numbers don’t quite do justice to fintech’s rise. Here’s why: many of the tech companies venturing into fintech aren’t labeled as such.

Grab and Go-Jek are just two examples. Garena, the oldest billion-dollar company of the three, isn’t a payments company. But it has a payments arm, called AirPay, which apparently surpassed US$510 million in annual transactions. To be clear, it still has room for growth: global payments company Adyen processed US$90 billion in 2016.

Want more examples? Lazada too isn’t a payments company, but it’s integrating its payments product with Alipay. Carro, a Singapore startup running a used car marketplace, is even getting into car financing.

This is an old playbook. EBay bought PayPal. Alibaba started Alipay. Tencent runs WeChat, a chat app that became one of China’s biggest commerce platforms and, according to one calculation, processes over US$500 billion a year. It’s simple vertical integration, and Southeast Asia is following China’s lead.

Why now?