Southeast Asia has arrived at a crossroads at which it may borrow multiple influences from fintech ecosystems across the US, China and India, said Tilman Ehrbeck, managing partner at early-stage investor Flourish Ventures.
But how these fintech innovations are adopted and executed in the region will depend on macroeconomic and regulatory factors, including per capita income, how far a population is banked, and the local regulator’s stance on innovation.
The Reserve Bank of India’s (RBI) move to launch the unique identity system (UID) in 2010 was one key example of how a single piece of regulation had long-lasting repercussions on how fintech innovation may be shaped in a single market.
The move allowed entrepreneurs to build businesses around the UID, after which the RBI put together a United Payments Interface (UPI), which threw the doors wide open on how they could address fintech problems, spurring a multitude of innovation in the South Asian market.
This UID however, does not yet exist in Southeast Asia. As such, Southeast Asia fintech innovation has tended to draw more inspiration from China in the form of non-financial platforms or superapps like Grab, GoTo and others.
“Because Southeast Asia is relatively underbanked, there is this notion of finding entirely new ways to create financial services for consumers or for small businesses. This is why the non-financial platform play is probably most relevant in Southeast Asia as a region because of the demographics, per capita income and the low penetration of the traditional banking system,” explained Ehrbeck in an interview.
Ehrbeck added that Southeast Asia is also drawing inspiration from US-led fintech innovation, particularly in open financial data exchanges. The emergence of startups like Indonesia-based Brick, which develops APIs that make it easier for tech companies to add identity verification and access user financial data, is one such indicator.
“There are also lots of innovation happening in the API infrastructure space in the US which is private sector-led, with no top-down government or regulatory intervention. That might be what is going happen in Indonesia and the Philippines,” shared Ehrbeck.
US-headquartered Flourish Ventures is a fintech venture investor which was spun out of the Omidyar Network in 2019 with a portfolio of $200 million already built and a fresh commitment of $300 million. Roughly half of the fresh capital committed at spin-out has been deployed.
Flourish focuses a range of areas including neobanks, insurtech and embedded finance. It has a global portfolio of around 65 companies, of which roughly 25% are from emerging markets including India, Bangladesh, Indonesia, and Singapore. Some of its Southeast Asian portfolio companies include Grab Financial, Qoala, Tanihub and ShopUp.
Edited excerpts from an interview with Ehrbeck:
