Southeast Asia is home to over 650 million people and is a region that, despite strong economic growth pre-COVID-19, still has a significant amount of the population with unmet essential needs. More than 70 percent of people in Southeast Asia do not have access to bank accounts, insurance penetration rates range between one and three percent, and nearly two-thirds of small businesses don’t have access to formal financing options. While already an issue before COVID-19, there is even greater need to address the problem now given the loss of livelihoods and income and the disproportionately negative effect of the pandemic on the lower-to-middle income segment.
This is where we believe that fintechs can play a significant role and why we are eager to expand our work in Southeast Asia. There is a clear opportunity and opening to break through and support those that live outside the formal financial system. Through over 50 investments globally, we have seen how fintechs play a pivotal role in driving inclusion and we believe that this can be the case as well here in Southeast Asia. Here are some ways fintechs can play a key role in pushing forward the recovery of the region:
Target consumers and businesses that now have digital profiles
Two trends have influenced a growing digital base. First, the rise in internet users – over 40 million people went online for the first time last year. Second, pandemic-related lockdowns, by necessity, have led to an increased usage of online and digital channels for both individuals and enterprises. The outcome is the creation of millions of new digital profiles and data points. Those that were previously invisible to the formal financial system now have an expanding digital record that can be confirmed. With the digital push, consumers and small businesses are now more than just their (lack of) credit history. Highly relevant data is now available, and fintechs can use that information to serve this untapped market.
Explore platforms and partnerships for data and acquisition
Fintechs have always utilized business models that push the boundaries of data and acquisition. One recent trend that has been gaining momentum is embedded finance, where financial services are added on top of core offerings of tech platforms. By going through a platform approach or by partnering with other stakeholders, fintechs can minimize acquisition costs, gain access to transaction data, and efficiently deliver financial products. A good example is our most recent investment in Indonesia, a startup called Fairbanc. Fairbanc partners with FMCGs to provide their merchants, normally small mom-and-pop stores, with a buy-now, pay-later solution. Integration and partnerships can greatly improve the economics of financial services. As more consumers and businesses use various types of tech platforms such as e-commerce sites and procurement and inventory platforms, fintech startups can find a way to efficiently reach new customers and provide high-quality financial solutions.
Meet the financing needs of adjacent, underserved sectors
Financial services have always been cross-functional, able to operate across all sectors. But we see this becoming more relevant now as more agri-fintech, health-fintech, ed-fintech, and even property-fintech startups have sprung up. Pintek in Indonesia is a great example within education. They focus on supporting the education industry by financing key stakeholders such as schools and students. With this approach, fintechs provide tailored solutions through deep sector and customer knowledge to an underserved segment. While most models cast a wide net initially and look to serve the widest customer bases, we are now seeing increasing focus on key verticals. And fintechs can benefit from this focus, as it gives them domain expertise that leads to strong product-market fit and quick adoption. In addition, the understanding of and relationship with the customer can lead to quick and effective responses to challenging situations such as the pandemic.
Provide highly relevant financial products that increase inclusion and resilience
Finally, fintechs must now take a more holistic perspective. While credit has always been the low-hanging fruit, it is key now for fintechs to be able to offer a suite of solutions that address key pain points and build inclusivity. Advance, our Philippine portfolio company that provides employees a way to bridge paychecks, has financial wellness as a key part of their roadmap and overall mission. We believe that this is a necessary approach for fintechs to ensure that the product they develop increases the overall wellbeing and long-term resilience of their customers.
As we continue to face the unprecedented challenges from COVID-19, it is clear that fintechs can and must play a role in the recovery. There is a need to help those that have been hit hardest by this pandemic by connecting them to the resources needed to lift themselves out of it and build a safety net for future difficulties. Inclusive fintech can cross barriers and meet that need for many people and businesses.
At Accion Venture Lab, we look forward to investing in and supporting innovative and highly impactful founders and fintech for inclusion ventures and building the broader ecosystem here in Southeast Asia. We are now on the ground thanks to the generous support of our partners, especially the Credit Suisse APAC Foundation who are providing core funding as part of their commitment to supporting financial inclusion in the region. We believe now is the right time to push the boundaries of innovation, technology, and financial services. While the region is not out of the woods yet, and recovery from the pandemic will take some time, we remain hopeful that by working closely with fintechs, we can play our part in supporting families and small businesses as they recover from the COVID-19 shock and find a way to thrive.