The Southeast Asian fintech market is booming, and ASX-listed Fatfish is ready to capitalise

With a young and digital savvy population, Southeast Asia will be one of the fastest growing regions for fintech companies and investors like Fatfish.

Southeast Asia’s fintech industry is growing very rapidly, due to the high percentage of the population being connected online.

According to a report from ratings company Fitch, 70% of the Southeast Asian population now have access to the internet, compared to just 46% in 2016.

Digital financial services are benefiting from this trend, with electronic wallets in particular now accounting for 15%-20% of in-store and e-commerce transactions within the top-six Southeast Asian economies.

But the regional fintech sector is still in its infancy, with substantial room for growth post the pandemic.

One ASX-listed company that’s vying for a slice of action in this growing market is Fatfish (ASX:FFG).

The tech venture builder and investor has cemented its footprints in the region by actively investing in and acquiring fintech firms.

Its portfolio includes gaming and fintech, with the latter making the bulk of its investments.

Stockhead caught up with Fatfish founder and CEO Kin Lau, to understand more about his playbook in this burgeoning and fast-growing part of the world.

Lau likens Fatfish to a private equity firm rather than a venture capital company (VC), and says that he draws inspiration from Softbank.

“We’re very different from a VC. If anything, we are operationally hands-on, almost like a private equity firm,” Lau told Stockhead.

“It’s all about getting to a critical mass for our businesses. So whether we acquire fully, or whether we deploy capital to grow it, we’re really indifferent. It’s whatever the fastest way is to get to where we want to be.”

Lau explains that he typically wants a majority stake in a business so he could be in the driving seat, as he’s confident in Fatfish’s ability to grow those businesses.

The ultimate goal of course, is a profitable exit down the track.

“We’re looking at Softbank as an aspiration, it’s got a similar model. The exit can either come in the form of a sale to bigger entities, or an IPO,” Lau said.

Opportunities in Southeast Asia

Lau sees Southeast Asia as a blue ocean opportunity for fintech plays, but acknowledges there are challenges in doing business in the lesser developed countries of the region.

“There is obviously a distinct domestic culture and practice in each country,” he says.

“There are also challenges in terms of regulation and laws. For example, the Thai market is very complex and makes it very difficult for people to operate a business there, as you have to rely on a local partner.”

But there are countries in the region which were not particularly attractive as a business destination two or three years ago, but have become good propositions today.

“If you asked me two years or three years ago, Cambodia and the Philippines were perhaps countries that we weren’t all that interested in. But now they’re definitely of interest to us.”

Southeast Asia has a 655 million strong population, 20 percent of whom are underbanked.

But interestingly, Lau doesn’t see this underbanked population as a major target market.

“A lot of the things we do are more geared towards the middle-class population; those who are banked and where banking services are readily available,” Lau explained.

Rather than targeting the large underbanked population, Lau says he’s more focusing on those that are digitally savvy.

“We’re interested in targeting the digital savvy population who prefer to do things online with a couple of clicks, versus walking into a bank branch filling up 30 pages of forms.”

Circular economy strategy

Fatfish’s business is highly scalable, and a platform used in one country could in theory be rolled out to various other countries in the region, Lau said.

The company’s Singapore-based lending platform Smartfunding is a good example.

“Singapore is a global financial hub, which means if you’re regulated there you give confidence to people, even within or outside of Singapore.”

“So with Smartfunding, that trust meant that we’re bringing financing deals from outside Singapore onto the Singapore platform,” Lau added.

Lau also said that he has drawn out what he calls a ‘circular economy strategy’.

“If you’re a buy-now-pay-later customer of ours and you buy an iPhone, we would know a few things about you.”

“We would know about your bank, your credit card use, or even your marriage status and so forth,” he explained.

From that information, Fatfish could leverage cross-sell opportunities where customers from one lending platform are offered services from another.

“And with just two clicks, money could be in your bank account,” says Lau.

Path to profitability

Fatfish’s latest half year results showed that the company was still in the red, with $7.9m of loss in the six months to 30 June.

So what’s required from here to achieve breakeven?

“We need to get to a critical mass. And that means scaling up the businesses,” Lau said.

He pointed to the example of Facebook, where they were still not profitable at IPO.

“But once they reached a certain stage, that profitability engine could just be turned on in a snap. And that’s how I see the Fatfish business.”

He also believes the region is undergoing an important geopolitical inflection point where we could see an influx of money coming into the Southeast Asian fintech scene.

“With the recent tech meltdown in China as a result of government crackdown, a lot of US investors in particular are going to be Chinese-investment shy,” Lau said.

“So I expect a lot US investors to move money towards Southeast Asia, because it’s a very attractive alternative right at the doorstep of China “

This article was developed in collaboration with Fatfish Group, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.