Asia Blockchain Review had the opportunity to talk to Celeste Goh, Fintech Analyst at S&P Global Market Intelligence. This is third and final part of the interview with her. The recent news of a 58.5 percent dip in Asia Pacific (APAC) Fintech funding certainly sent shock-waves through the ecosystem. So we decided to probe further in this regards.
The SoftBank Group and its Vision Fund always dominates the headlines in APAC. What’s your take on things as the world re-calibrates itself and companies pivot to this new reality? Where do you think companies like SoftBank would look in terms of diversification and managing their risks across their portfolios and manage expectations?
SoftBank’s Vision fund has seen an investment loss of ¥1.8 trillion for fiscal year 2019 and founder Masayoshi Son has also shared in an earnings call that 15 of its 88 portfolio companies could go bankrupt. Their poor portfolio performance has resulted in a lackluster interest in its second vision fund.
Drawing from this experience, investors in the Asia Pacific region will likely exercise greater caution and discipline to future investments and we may see funding shifting towards companies with well-established business models.
Firms that have yet to achieve profitability or unable to show clear path to profitability may struggle to raise new capital or may do so under less favorable terms. Monzo, a UK-based challenger bank for instance has seen its valuation discounted by 40% in its most recent fundraising round.
With all that is going on now with the new normal, social distancing, remote working, etc…Covid-19 has certainly accelerated the shift towards digital payments. The report highlights investments across the globe, from India to Korea, Japan and Australia. What’s the big picture/macro outlook on this ecosystem at the moment?
Lockdown measures and economic contraction have weighed down on consumption spending with global card networks like Visa, Mastercard, Paypal and American Express issuing warnings of a slower revenue growth.
While the overall Asia Pacific outlook on consumption levels seem bleak, there has been an uptake in the adoption of electronic payments. Large e-wallets in the region like Philippines-based GCash for instance have noted an increase in user registrations.
Payment gateways that facilitate online transactions have been less impacted by the pandemic and will continue to remain attractive to investors. As lockdown measures eases, the accelerated secular shift towards cashless payments, which would likely be a permanent trend, should also benefit payment companies that support offline merchants with digital payment acceptance, even though payment revenue may remain under pressure in the near term.
Although the APAC digital lending sector drew in the second largest amount of funding in the first quarter, subsequent rounds of capital injection may be scarce. Digital lenders that rely on external partners to fund loans have seen credit lines being cut.
China-based lender Qudian for instance saw a 68% quarter-over-quarter decline in loan facilitation volume on its open platform business in Q1 as institutional funding partners apply more stringent credit risk assessment. In April, UK-based loan aggregator ClearScore chose to shut down its operations in India as lending partners pull the plug on loan offerings.
APAC Fintech lenders have not undergone a full credit cycle and the pandemic will put their loan underwriting model to test. But declining economic activity and rising unemployment rates increase the likelihood of loan defaults and investors may be less willing to commit to financing digital lenders given the macro headwinds.
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Anil started his career in journalism all the way back in 2003. After traversing the sphere of editorial, corporate communications and advertising, he has now come full circle and is back in the world of journalism. He believes in the power of the written word, and its ability to enthrall, delight and inform the reader.
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