Fintech funding in Southeast Asian nations sees signs of recovery after falling in recent years, as the industry is likely to benefit from interest rate cuts and the emergence of new technologies such as generative artificial intelligence (GenAI), according to a new report.
Fintech funding in the six biggest ASEAN economies — Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam — fell less than 1% year over year to US$1.41 billion in the nine months ended Sept. 30, versus a 71% plunge in 2023, according to a report launched by United Overseas Bank Ltd., PwC Singapore and the Singapore FinTech Association (SFA) on Nov. 6. The ASEAN funding constituted 4% of global fintech funding, a 1 percentage point jump year over year.
From a global standpoint, fintech funding in ASEAN showed resilience as global fintech funding fell 28% year over year to about US$39.6 billion in the first nine months of 2024. Funding in North America and Europe fell 35% and 34%, respectively.
"ASEAN's FinTech sector is progressively making waves in global waters, demonstrating resilience and adaptability amidst macroeconomic uncertainties. Despite being in the game with larger economies, ASEAN's FinTechs have steadily gained long-term investor confidence over the last decade," said Wong Wanyi, FinTech leader at PwC Singapore.
The report takes a look at how ASEAN became a hub of innovation after seeing a tenfold surge in fintech funding since 2015. Total fintech funding from 2015 to the first nine months of 2024 stood at US$20 billion, excluding undisclosed deals. Seed and early-stage investments make up over 60% of funding, indicating investors' willingness to bet on innovation at the foundational level, the report said.
US rate cut, new technologies
The US Fed's rate cut in September may prove to be a shot in the arm for the fintech industry, according to the report.
Lower rates typically lead to cheaper funding, greater investor appetite in venture capital, higher valuations and improved exit opportunities. For instance, ASEAN's fintech funding spiked to US$6.36 billion in 2021 when the US slashed rates in the third quarter of 2019 before further cuts to a historical low during 2020 to 2021.
In addition, fintech firms are set to enter an era catalyzed by emerging technologies like GenAI, quantum computing and blockchain, the report said. Together, these technologies can help to address key challenges in financial services while unlocking new possibilities, including enhanced security and fraud detection and highly optimized financial operations.
Even as tech funding declined globally, the AI industry received US$72 billion in funding in the first nine months of the year, making up 35% of total tech investments, according to the report. GenAI, a subset of AI, has experienced substantial global funding growth, with a 38% year-over-year increase during the nine-month period to US$22.2 billion.
Leading the group
Singapore and Thailand led fintech investments in the region in the first nine months of 2024, with the city-state securing more than half of the total.
Singapore bagged US$745 million in fintech investments and led with 62 deals across nine fintech categories. Thailand rose to second place with US$341 million in funding, while Indonesia dropped to third place as it saw a reduction in its shares of the funding pie. The Philippines ranked fourth, with 5% of total funding.
Payments continued to lead funding numbers in the nine-month period, attracting 23% of total funding in the six economies. Blockchain in financial services received 21% of funding totals, while banking tech took up third place. Alternative lending fintechs saw a drop in funding share to 10% as high interest rates weighed down on the lending business.