Tuesday, 2024 February 27

Fintech startups ride the pandemic wave: ‘e-Conomy SEA report 2020’

As the region continues to face difficulties amid the COVID-19 pandemic, Google, Temasek, and Bain & Company released their fifth annual e-Conomy SEA Report, which sheds light on the Southeast Asian internet economy. The report found that despite the economic slowdown, investment in Southeast Asia’s fintech startups almost doubled compared to last year.

The report stated that deal value in the fintech industry surged to USD 835 million in the first half of 2020, from USD 475 million in H1 2019. One promising sector is digital payments. Consumers, along with small and medium-sized enterprises have become more open to online transactions, especially during the COVID-19 pandemic, where people are urged to reduce direct contact with others.

Based on research from insights firm Kantar, the average number of cash transactions saw a decline, while the frequency of e-wallet transactions rose 25% post-COVID-19, indicating a shift in payment methods.

The joint report also found a growth in digital payment transaction value (GTV) from USD 600 billion in 2019 to USD 620 billion in 2020. By 2025, the GTV is projected to reach USD 1.2 trillion. Another vertical that registered massive inflows is investment startups, dominated by robo-advisor platforms, with a 116% growth in assets under management (AuM), valued at USD 21 billion. In five years, the number is projected to grow 32%, reaching USD 84 billion.

Funding remains strong despite more cautious investors

The economic recession in most Southeast Asian countries apparently didn’t affect funding significantly. The report found that the number of transactions increased by 17% year-on-year between H1 2019 and H1 2020. However, the value declined due to lack of big-ticket unicorn investments.

This year early-stage funding makes up more than 95% of yearly deal transactions, indicating that investors were preferring investments in smaller companies. As for unicorns, the report said that securing funding will likely get increasingly difficult in the future, as investors might avoid heavy cash-consuming businesses.

However, most unicorns have started to set their eyes on profitability. In 2019, Indonesian e-commerce unicorn Bukalapak told KrASIA about increasing its gross profit rather than transaction growth or gross merchandise value. Indonesian decacorn Gojek also started focusing on digital payments, transport, and food delivery, which will give them a boost in reaching profitability.

The joint report comes at a time when countries in the region have been forced to accelerate their digitization as the pandemic made most activities remote, like shopping, schooling, and work. Major countries in the region, such as Singapore and Indonesia, reported economic decline of at least 3% in the gross domestic product (GDP), however many digital companies saw their userbase and transactions increasing. Indonesian e-wallet unicorn Ovo, for example, told KrASIA its new users are up 267%.

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