Top Indian fintechs such as Pine Labs, Credgenics, Vayana Network, Mswipe, Infibeam Avenues, and Razorpay are seeking to duplicate their business models for the SEA market, employing similar strategies, however with different approaches.
The South East Asian (SEA) market is at the forefront of the minds of a number of Indian fintech companies as they reach an era of maturity and prepare for global rollouts.
Although digital payment (mostly Retail POS) along with BNPL (buy now and make payment in the future) is among the more well-known segments but players in debt collections and supply chain financing are making progress. Some of the major players are Pine Labs, Razorpay, Mswipe, Vayana Network, Infibeam (CC Avenue) and Credgenics trying to grab some of the market in their specific segments.
What is the reason to swim with us in the SEA?
First of all market participants have all the necessary elements: a growing young and mobile-first generation and a streamlined government policy and tax incentives, faster venture capital investment, favorable demographics as well as low financial penetration and the list goes on.
With the population of 570 million , and an estimated GDP (Gross Domestic Product) projected to grow to $4.7 trillion by 2025. The six most populous countries of Southeast Asia(Indonesia, Malaysia, Singapore, Vietnam, Philippines, and Thailand) are among the largest and fastest-growing regions, according to the findings of a study published by Bain and Company, Google and Temasek.
Digital payments across the globe are expected to surpass $1 trillion in value by 2025. Other services such as insurance, lending, and investment are still developing, and are predicted to increase by more than 20% a year up to 2025.
On the regulatory aspect experts have explained how that dedicated regulators of fintech-related businesses, such as the Financial Services Authority (OJK) in Indonesia — are making the process of introducing foreign fintechs more seamless.
“Setting up a business SEA is just as simple or challenging as in India. There are regulations everywhere, but you need someone to assist you in understanding and implementing the rules more effectively,” says Ketan Patel the CEO of Mswipe.
In addition, the rising desire to reduce dependence on one major player (China) is an opening for Indian competitors to grow their their operations within the region.
“While Chinese tech platforms Alibaba and Tencent were strategic investment partners in SEA previously, the recent regulatory clampdown in the area of Big Tech in China has restricted their expansion globally according to Sampath Sharma Nariyanuri, a fintech analyst for S&P Global Market Intelligence.
“With US payments companies such as PayPal and Block (formerly Square) generally limited to mature markets that have high credit card penetration, Indian fintechs have a unique chance to enter emerging markets and expand their global reach,” he adds.
Take the JV route
Many fintechs want to adopt this Joint Venture (JV) route to get into in the marketplace i.e. either “help” an existing fintech develop value-added services such as loyalty programs and tools for managing business, or provide their own triedand tested and tested products for the emerging market by collaborating with an existing partner. Whatever the case collaboration is the best option to get into entering the SEA market.
“We have devised an easy plan of action: we enter using our technology and expertise and form a JV with local partners who know the market and the people. If not, it could take between 2 and 3 years to get to know the market, communicate with locals, build connections, review potential partners and so on.” Says Ketan of Mswipe.
The company already has two JVs so far, says it’s not yet time to announce the numbers since it’s just launched into the market. The Falcon Edge-backed company began with the launch of the world’s most popular Point of Sale (PoS) terminal designed for retail located in Singapore as well as Indonesia.
On the other hand Mswipe is a company that offers BNPL to SMEs and insurance that merchants can sell through PoS (soon to launch) The company is planning to launch a single product at a given time in the market that is emerging.
“We are going to establish ourselves as an leader in the market and then determine whether we can promote the limits of lending. A number of fintechs have employed these (international foray) to get funds. They haven’t been able to tell their tales exactly. Investors are also noticing this. We’d like to go very slowly” Says Ketan.
Find a reference
In order to enter to the SEA marketplace, your option is between building your own or joining JVs with an established partner. This is a good option only when you have the capacity to manage and local know-how. But, you’ll require an “guiding companion”.
Similar to Mswipe the trade financial platform Vayana Network is clear about adopting a partnership model and has partnered alongside strategic partner. These are ‘market entry specialist/consultancies’ that help foreign startups enter the market.
These people are familiar with the rules both inside and outside. They can assist you in getting the doors open and have that first , informed conversation. If not, it’s somewhat difficult. It is possible to make incorrect decisions says Vinod Parmar the Global Head of Sales and Marketing, Vayana Network.
This is particularly true for fintechs that deal directly with traditional banks as well as corporates (unlike the new-age ecommerce or tech platform) that might not be warm or friendly.
While the company established an affiliate in Singapore at the end of 2020 its real activities and efforts began this past April. Presently, Vayana is in advanced discussions with five banks from Indonesia as well as three banks in Vietnam as well as one from the Philippines (one was signed) in order to provide credit for MSMEs within the respective regions.
“By 2022’s end we’re hoping to be in partnership with at minimum five banks on the globe and provide supply chain finance via our system,” says Vinod.
Acquisitions to give you a boost
In addition to JVs, companies are likely to engage in strategic acquisitions in order to boost leads or gain an advantage.
According to Sampath according to Sampath, the M&A (mergers as well as acquisitions) option is an appealing growth option for businesses that have access to capital, because the lower cost of capital makes it simpler to move into more exciting categories.
“Acquisition priority will be determined by the necessity of expansion (product or geographical) and rebalancing the portfolio of customers (large corporate customers versus smaller companies) and the enhancement of risk modeling capability (fraud analytics) as well as value-added offerings (loyalty programs and commerce enablement services BNPL services),” he explains.
Consider, for example, Pine Labs that purchased Malaysian start-up Fave which provides promotions and cash loyalty points and back-to-buying points on purchases made online. The acquisition will aid the merchants of the former to increase sales from their existing customers.
Pine Labs is also one of the very few players who have entered the highly extremely competitive, packed and fastest-growing BNPL segments. According to reports, many other Indian fintechs are attempting at the potential and are currently establishing operations.
Yet, BNPL would be a difficult nut to crack when the competition grows. Numerous fintech companies, such as big regional players GoTo, Sea, Razer, Grab, Gojek, and Oriente have launched BNPL products, along with pure-play regional companies like Akulaku, Atome, Hoolah and Kredivo. Australian BNPL provider, Afterpay, also entered Southeast Asia by acquiring EmpatKali which is a BNPL service focusing specifically on Indonesia.
The market is ready for companies like Pine Labs to take advantage of. The Sequoia-backed fintech offers BNPL solution to merchants in Malaysia and Singapore, followed by its latest network-based “Pay Later product for Singapore as well as the Philippines through a partnership agreement with Mastercard along with DBS Bank.
It is partnering with banks such as CIMB, Standard Chartered, and CitiBank Malaysia, and is cooperating with brands like Atome, Grab, and Al-Ikhsan to offer similar services.
In terms of SEA plan, Dheeraj Chowdhry, Chief Business Officer and Head of Pay Laterfor Southeast Asia, Pine Labs announces that the company’s next destinations include Indonesia, Thailand, and Vietnam in which the Pay Later program will be introduced.
“The Pay Later plan opens up some huge white spaces previously not available within the BNPL space. In addition to the established segments such as consumer durables and electronics the new categories include wellness cosmetic treatments, tyres and insurance too are purchased by installments. BNPL will remain one of the main areas of focus for us as part of the course of our SEA strategies,” he adds.
The company has refused to reveal its numbers of targets in the market at today.
In fact, Razorpay–which bought an entire part of Malaysian fintech company Curlec in February — is looking to develop payment solutions for the market and look into other regions of Southeast Asia. Curlec develops new technology solutions over existing infrastructure for payments to make it easier for businesses to accept recurring payments as well as manage their cash flow.
The acquisition will assist both companies to develop and scale their payment services. Razorpay will also gradually modify and create products that are specific to the specific region.
The company has not responded on Business Headers questions in thequestions about its SEA strategy and operating state.
Launches are pushing new launches
The company will launch in the same area the listed startup HTML0Infibeam Avenues HTML1will shortly offer its flagship Mobile PoS service, along with near field communications (NFC) and contactless card technology. It will begin by offering Indonesia and the Philippines. Philippines and Indonesia through its brand name CCAvenue. This will occur in tandem with the plans it has for Australia which is where it has recently established its own wholly-owned subsidiary, ‘Infibeam Avenues Australia Pty Limited’ in order to tap into the rapidly growing digital payment market.
The company has already established internationally-based operations across the UAE, Saudi Arabia, Oman as well as in the United States.
When it comes to scouting partnership opportunities the MD says, “As of now, we are not planning any acquisitions, and we will concentrate on organic growth and entry within these areas. However, we’re open to partnerships for growth.”
The company has just launched its SoftPoS technology for payment, called CCAvenue TapPay. It will promote the same technology for both of the new markets.
There are many challenges
Due to the demographic and economic similarities between the two markets and the demographics of both countries, replicating the model of business for Indian fintech isn’t an issue.
In terms of the market’s receptivity is concerned the merchant and retail ecosystem is maturing rapidly and the banking ecosystem is still adjusting to the changing. Therefore, fintechs operating in the B2C sector are somewhat “unchallenging” to break into the market contrasted to B2B.
“The banking practices in a few areas of SEA regions are only beginning to become digital. It will take a little more effort to get the B2B community to be a part of this market. You must do some research on corporates as well as banks.” Vinod of Vayana Network. Vinod Vayana Network. Vayana Network.
Local partnerships can be found.
Then, there’s then the infrastructure problem.
Similar to that of the Indian government India, SEA authorities insist on local hosting and storage of data. While cloud-based systems for data are in place however, the backend infrastructure is not yet fully developed. There are local providers in the regions however they’re not “straightforward” in comparison to the global brands.
Companies have a tendency to work with service providers such as Amazon Web Services and Microsoft Azure because of a variety of reasons, including the security and reliability aspect, as explained by Vinod.
“The normal setup process can take longer in some markets due to the different regulations and data localisation issues. The archipelagic architecture that exists between Indonesia along with the Philippines creates more complexity because maintenance and distribution costs in these markets are more expensive,” says Rishabh Goel Co-founder and CEO of Credgenics.
But, it’s not an unsolvable problem and technology teams can tackle it, claims an analyst in the sector on the confidentiality of the interview.
Credgenics is in the SEA market since the beginning of January and is in various stages of discussions and discussions, including those that are in advanced stages and a few pilots, along together with several major banks and multi-finance firms (MFCs) located in Indonesia. The company has established its primary office at Jakarta, Indonesia, and Singapore and has set a goal to open a million loans within twelve months.
The region faces similar challenges in the collection process that lenders confront with India as a market that is still developing. In India, NPLs (nonperforming loan) are high and collections have been handled using traditional and manual processes. There are limited SaaS (Software-as-a-Service) collections platform players in SEA and globally too,” says Rishabh.
localisation is a different issue for companies who need to market their product to the target audience. Certain markets, such as Vietnam are completely operating using the language of the country. From a technical standpoint the startup needs to be multilingual in order to be able to serve the needs of customers.
“Our company (B2B) is about servicing MSMEs and not the B2C technology provider. Local engagement is an integral aspect of our business” Vinod says. Vinod.
Be ready for the challenge
While Indian fintechs possess the leverage, scale and need to expand into the region, they’ll face stiff competition by local Fintech titans as well as new players that are increasing their game.
Regional tech companies like Grab as well as Gojek have expanded into the financial sector, Chinese tech companies like WeChat and Alipay have joined the market through local partnership. Fintechs with a pure-play model like Funding Societies, InstaReM, PayMaya and StashAway provide digital financial services within specific areas like credit, remittance, and investment
“The sector is in a great place for Indian fintechs, who have the potential to make use of their scale and know-how in operating in an infrastructure for payment that is low-cost. But, they will have to be mindful of the manner in which they release their products and who they partner with,” says the analyst.
“Also regulations in various countries that have different rules and laws can hinder companies in the fintech industry from expanding beyond one SEA market. Be aware of SEA laws,” he signs off.