The fintech landscape in the eyes of Hong Kong startup founders

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“I’m not really a fan of the term disruption. I think it’s hostile,” said Aaron Siwoku at the Start Fintech Conference in Hong Kong in July this year. Siwoku founded Toast, a P2P money transfer app.

Regardless of the appropriate word to describe Asia’s evolving financial services landscape, leveraging the experiences of industry pioneers can save fintech startups time and money. At the conference, fintech founders discussed the mistakes they made, lessons learned, and existing opportunities.

Profits from addressing pain points

Mikaal Abdulla, co-founder and CEO of Hong Kong-based 8 Securities, a mobile investment platform, said that most of the things the company does fail. “If you’re not willing to try things and have them not succeed, and be honest with yourself, […] your team, and […] your customers, you’re not going to get very far,” he said.

Abdulla said successful startups derive profit by addressing pain points, and his company started by offering clients zero-commission trading. “A commodity in a transaction is eventually going to go to zero anyway,” he said. “So our view was why don’t we go be the first to do it?” From a business perspective, this drove down marketing costs as customers gravitated toward the novel, free service.

In Singapore, Siwoku noticed that foreign laborers from the Philippines and Indonesia had to queue for hours at Western Union stores just to remit money home. He realized that the entrenched money transfer operator, built on an agency model, was hesitant to adopt digital services because it would displace their existing partners.

Consequently, Siwoku founded Toast even though he had to go up against the US$9 billion competitor. “If we can solve this problem for these people and create an app that provides convenience, security, safety, and peace of mind, this will create an active user base,” he said. His company eliminated the need for queuing and allowed transactions to be completed in minutes, not hours.

Business model determines success

One thing Siwoku noticed about successful startups is: “They used legacy infrastructure to solve a distribution problem.” Toast was made compatible with the widely accepted NETS Flashpay and EZ link travel cards, which are used for transit or making purchases.

Siwoku acknowledged that the remittance market is huge. According to The World Bank, US$575 billion was remitted globally last year. Operating in markets with a large potential can bolster startups, but success requires execution, which often begins with the business model.

“Sometimes, your business model has to be more innovative than your product,” Abdulla said. “All the innovation doesn’t have to be in your products.” As a cloud-based service, Abdulla’s company views prospective customers as anyone with a smartphone and a savings account.

Although Toast is also mobile-based, its model differs. It has select physical “relationship centers” to assist customers with any questions or issues. This addresses one of the inherent challenges for fintech companies, that is customers with the assets—older generations—are less inclined to adopt new technologies.

There are hurdles when diversifying

There are benefits to being in Asia, though, as many from the second generation are taking over businesses from their retiring parents. Across Indonesia, Malaysia, Singapore, Thailand, and the Philippines, for example, more than 60 percent of listed companies are family conglomerates.

“It’s a good time for these new millennial entrepreneurs and business owners to adopt new fintech solutions,” said Andy Chan, co-founder and CEO of Hong Kong-baesd Qupital, a startup that provides companies with advances for unpaid invoices. For capital providers, it is creating a new investable asset class—receivables.

Diversifying across retail and institutional channels can increase revenue possibilities but also brings hurdles. Abdulla, who spent his entire career in B2C, launched B2B white-label services a year ago. “It has been a rude awakening,” he said. He recommended startups find the appropriate middle ground between collaborating and competing with traditional institutions.