Amid global geopolitical uncertainty, trade tensions and cautious investor sentiments, the Asia-Pacific region has surprisingly demonstrated resilience in attracting venture capital investment in fintech.
Alex Axelrod, founder and CEO of an international payment platform Uluky, explores the factors contributing to the continued appeal of Asian fintech startups for investors. He also explains why Asia-Pacific is poised to become a leading global fintech hub.
Conditions for venture capital investment in fintech have been challenging throughout 2023, but Asia-Pacific funding statistics have shown surprising resilience. Having raised $1.9billion in Q3 2023, Asia is the only region that demonstrated a funding value that almost completely matched the figures from the same period last year instead of showing major declines.
While the total number of deals has somewhat gone down, we can see that the interest from venture capital investors is still going strong, particularly for fintech startups that aim to reduce friction in cross-border transactions. The sectors of banking technology and payments have both raised over $1billion in Q3 2023.
The question now is: what are the main factors that have contributed to the continued attraction of Asian fintech startups for investors? Here are my thoughts on the matter.
Investors decided to seek a more stable scene
Global geopolitical uncertainty and trade tensions have made investors cautious and hesitant to commit funds to risky ventures. At the same time, the rising inflation rates eroded the purchasing power of capital, making them even more conservative about investments.
Furthermore, the overheating of the venture capital market in previous years, characterised by excessive startup valuations and unsustainable growth expectations, has led to a corrective phase where investors now exercise greater scrutiny before putting money into any businesses.
Combined, these factors have contributed to driving the investor crowd towards Asia-Pacific. This region is relatively removed from the major centres of political and economic tension, and it has a more conservative approach to company valuations. The main focus is placed on current results and sustainability rather than expectations of major leaps in the future.
Government support plays its part in sustaining investor interest
The authorities in the Asia-Pacific region are highly supportive of business development. By looking at Singapore and Hong Kong, we can see that there are many government agencies (ACRA, EDB, InvestHK, etc.) that are responsible for supporting overseas businesses and helping them set up shop.
This is a major point of value for startup founders because, at the early stages of establishing a business, any mistake can be very costly, and every bit of help counts. By cooperating with government organizations specifically created to ease their entry into new regions, businesses can receive crucial advice and contacts that help in solving important operating issues.
The authorities are also highly supportive of fintech innovation, which promotes a sense of interest and encourages foreign investment. A good example of this would be the way the Hong Kong Monetary Authority has encouraged local banks to provide their services to virtual asset service providers that are licensed to operate in the region.
Not only does such a stance contribute to the development of new financial solutions, but it also provides an additional sense of security. Investors can look to Asia-based fintech companies and be confident that they are reliable, having been approved by the regulators.
Payment solutions are of great importance to Asia
As I previously noted, statistics show that VC investors have a lot of interest in projects that focus on boosting cross-border transactions. This is one more reason for them to shift attention to Asia, as this region is an untapped gold mine for companies seeking to offer such services.
There are over 71 million SMEs in Southeast Asia, accounting for 97 per cent of all businesses in the region. So, it’s not hard to see how all of these companies could stand to have better payment tools to work with. Fintech companies can help solve this issue by providing transformative solutions that would greatly boost the efficiency of business operations. There are predictions that cross-border e-commerce revenue in this region is going to reach $148billion by 2027.
A figure like that holds the promise of a lucrative market that will only be growing in the coming years. This can be a very attractive factor for investors to consider when looking at the potential of fintech startups in Asia.
Bottom line: investor confidence high, reasons understandable
VC investors will always strive to secure their investments over a period of three to 10 years. The earlier they invest, the longer they have to wait for it to pay off. I would say that the current investment mood and interest in Asia reflects their confidence that this market won’t be producing greater risks compared to other regions, which would negate their profit margins in the long-term future.
And from everything we covered above, you can see why that is the case. With so many factors working in its favour, Asia-Pacific really is set to take up leading positions as a global fintech hub in the coming years. Investors can perceive this potential and are looking to be a part of it.