Fintech in Asia has grown by leaps and bounds in the past 3-5 years. Interestingly, there has been an increase in FinTech services this past year, especially in payments, cashless transactions, e-commerce, and logistics. At the Techsauce Global Summit 2020, representatives from two of the leading VCs in the region discussed the Covid-19 pandemic impacts and the sluggish economic growth has had on the Fintech investment landscape.
Speakers of this panel discussion are:
Mr. Ganesh Rengaswamy is the Co-Founding Partner of Quona Capital, a global VC that focuses primarily on FinTech for access to Finance. The firm backs innovators who aim to enhance the quality and availability of financial products and services for underserved consumers and enterprises. Quona mainly operates in Asia, Latin America, and Sub-Saharan Africa regions.
Mr. Vitavin Ittipanuvat is the Head of Investments at Beacon Venture Capital, a Thailand-based Corporate Venture Capital fund under Kasikorn Bank that primarily operates in the Southeast Asian Market. Beacon VC focuses on investments in early to growth-stage technology startups that cover FinTech, Consumer Internet, and Enterprise Technology.
Ganesh states that before the pandemic, the firm was pursuing around 16 or 17 different investment theses, after COVID hit, the number had dropped to around 5 or 6. The reason for the decrease is that the firm requires a certain level of clarity on certain areas when investing in a company. Also, with the crisis, that clarity has gone away for a lot of the potential investments. However, despite being much more cautious and mindful in their investments, the firm still remains active, having made 3 investments in the past 6 months. Ganesh states despite the lack of clarity earlier on during the pandemic, great clarity has come during the middle of these times regarding what they should be focusing on and what they should be staying away from.
Quona’s most recent investments in the region consist of 2 companies in the SME digitalization space such as accounting/bookkeeping and retail tech and another company within the agriculture financing industry.
Ganesh believes that the pandemic has slowly helped to bring back the Fin in FinTech. In the last few years, many FinTech companies have predominantly been focusing on the technology side of FinTech and almost forgetting about the Fin side, fundamental financial principles as lending or payment principles were not prioritized as they should have been. However, as Covid has hit and a large number of countries are going into lockdown, institutions such as banks are unable to collect on their loans or perform KYC checks in person thus are being forced to rethink the digitalisation of these processes and principles and thus bringing back the Fin into FinTech.
Mr. Vitavin’s response was similar to that of Ganesh’s in terms of the pace of investments, both firms are very similar. Beacon VC are typically very selective with their investment, the firm looks to ensure that the investment makes sense to both sides and that they can mutually create new value for both Beacon and the portfolio company.
The firm recently invested in a local payment company, which, previously, may have been considered undesirable due to its slow growth rates. However, Mr. Vitavin said that the investment was made because the company has been profitable every year since beginning its operations, something that is very desirable now in these times of uncertainty. Furthermore, after the pandemic, consumers look at convenience or cost-saving factors of a company and the safety factors as well. Thus, payment services with minimal contact have become much more important, moving into the ‘new normal’ way of life.
In short, Beacon does not look to invest in companies that are going to experience hypergrowth. Instead, Beacon focuses primarily on the company's business fundamentals, for example, what their consumers think of them, and how likely they will remain loyal to the company. All in all, Beacon likes to focus more on revenue and business continuity rather than the speed at which the company is growing.
Mr. Vitavin believes that the Covid pandemic has accelerated the adoption of technology on both the consumer and business sides, leading to a faster-growing market for technology products and services than they could have anticipated. An example of this is a software as a service (SAAS) company. Before the pandemic, a lot of business owners in Thailand were reluctant to subscribe to a monthly fee for the use of software. Still, as the pandemic hit and safety and social distancing became increasingly important, businesses are now much more willing to pay the monthly fee for the use of software that will allow for consumers to access their products and services through digital means.
To summarize, both firms are being much more cautious and selective in their investments and have been predominantly looking to invest in areas that they believe will thrive and grow during the crises and going forward after the crisis is over once consumers have changed their lifestyles.
Mr. Vitavin states that ‘one of the things I have learned since joining the Beacon VC is that the market is much bigger than you think’. He believes that due to the size of the market, there will not be one winner who takes the majority market share emerging out from all the tech giants, emerging startups, corporations, traditional banks, and insurers that are in the space and therefore, the market will remain a fragmented one for the foreseeable future.
A fragmented market means that there is room for all the aforementioned players to have a role in the market. In Mr. Vitavin’s eyes, the way to win in this large market is not to gain market share; “the key is to know your space, understand yourself, respect others, and foster a more sustainable working relationship with other players in the market” he says.
Additionally, Mr. Vitavin adds that “I strongly believe that partnership will be the key in the Financial Services space...Banks are being trusted (in Thailand) and also have excellent penetration. Therefore they can be a good platform and partner to help startups roll out new products and features. This is probably why in Thailand, if you look at FinTech, we don’t really have bank killers like in some (other) countries, mostly they will become the bank’s partners”.
Mr. Ganesh’s views on Co-Optition are similar to that of Mr.Vitavin’s. He states that: “we believe fundamentally in the collaboration between FinTechs and large institutions, whether is large digital platforms, large financial institutions, large banks, or large brick and mortar conglomerates”.
Mr. Ganesh goes on to say that “if you look across our portfolio companies, most of them actually co-op very, very strongly with banks, financial institutions, and with independent large digital platforms”. Mr.Ganesh believes that by cooperating with established institutions, the mutual benefit can be created for both the FinTech and the institution for example; fintech may provide new solutions or take successful products to a new customer base.
This is just a sampling of the great content you’ll find at the Techsauce Global Summit 2020. Check out all the sessions here http://summit.techsauce.co