SINGAPORE -- Vietnamese financial technology startups are quickly catching up to Singapore in attracting Southeast Asian venture capital funding, with Indonesia rounding out the region's top three investment destinations.
Vietnam's slice of regional venture capital funding devoted to fintechs soared from just 0.4% in 2018, to 36% in the nine months to the end of September. Singapore attracted a 51% share, down from 53% in 2018, with Indonesia receiving 12%, compared to 37% last year.
"In Vietnam, what's actually leading is the payments landscape," said Wong Wanyi, FinTech Leader at PwC Singapore, co-author of a report on Southeast Asian fintech companies produced in conjunction with United Overseas Bank and the Singapore FinTech Association. "For now I think what is taking up a lot of traction in the developing economies will be very consumer-based."
Driven by double-digit annual growth, digital payments are expected to become the payment method of choice for nearly half of all transactions by 2025, surging past the $1 trillion mark as fintech companies tap the 300 million adults across Southeast Asia who either don't have a bank account or lack proper access to credit, investment and insurance facilities.
After attracting just $35 million in venture capital funding in 2014, total investment in Southeast Asian fintechs has boomed over the past five years, reaching $679 million in 2018, with fintech funding in the region already reaching $1.14 billion this year.
Singapore remains the region's dominant base for fintech, the report found, currently home to 45% of Southeast Asia's companies. Fintech companies based in Singapore were also more evenly distributed across a broad range of sectors, led by insurance technology, payments and personal finance.
Ranked in terms of ability to draw capital, Vietnam's e-payment solutions provider VNPay came out on top in the FinTech in ASEAN report, with $300 million in disclosed funding deals this year. Insurance provider Singapore Life came in second with $110.3 million in deals, with Vietnam's MOMO Pay in third place with $100 million.
Multinational e-payments platform Akulaku was Indonesia's top performer, tied in fifth spot with Singapore finance and accounting company Deskera with $40 million in funding deals. All top 10 funded fintechs were located in either Singapore, Vietnam of Indonesia.
Thailand, Malaysia and the Philippines together accounted for less than 2% of the region's fintech funding, down sharply from around 10% in 2018, found the report, which attributed the bigger appetite for companies based in Vietnam and Indonesia to their large unbanked populations.
In Indonesia, electronic money is growing rapidly as even those without bank accounts can sign up for e-money services using smartphones and companies compete for discounts.
Indonesians used 69 trillion rupiah ($4.9bn) worth of e-money in the first seven months of this year, up 180% from a year earlier, according to the country's central bank, with the e-money market led by ride-hailer Go-Jek's Go-Pay and local conglomerate Lippo Group's Ovo.
Dana, which is supported by Ant Financial, Chinese e-commerce giant Alibaba Group Holding's payment unit, is also increasing its presence as a No. 3 player.
Kelvin Teo, co-founder of Singapore business financing platform Funding Societies, said that while less developed countries will eventually be able to match Singapore in terms of fintech development, the city-state will continue to dominate financial services across the region for the foreseeable future.
"Singapore has a very unique position as a financial hub in Southeast Asia and will continuously play a critical role in terms of thought leadership as well as serving as a hub for all the other regional fintech players," Teo said.
A key challenge faced by fintech firms in expanding across the region, the report said, was first finding talented employees and then being able to hold onto them. Of the 139 fintech companies surveyed, 58% highlighted this as a concern, with a majority saying that hiring the right people took a long time.
"Fintech firms need to consider if there is suitable and abundant expertise at the location they have chosen to scale their business," said Chia Hock Lai, President of the Singapore FinTech Association.
Additional reporting by Jun Suzuki in Jakarta