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FinTechs target SME working capital market

FinTechs target SME working capital market

(9 October 2018 - Asia) Evolution in fintech is challenging the way corporates manage their cashflow with Amazon, Alibaba and Tencent at the pointy end. 

Developments in South East Asia's fintech space have turned into a race: names such as Amazon, Alibaba and Tencent have moved into areas that were once the preserve of bricks and mortar banks and changed the way that corporates deal with working capital. Just a look at the scoreboard of acquisitions this year alone is enough to give any corporate treasurer pause for thought. According to Paul Schulte of Schulte Research, India is perhaps the most telling litmus of the shape of things to come. Amazon, he said, had made three key acquisitions this year: digital finance company Capital Float and insurance disruptor Acko both in April and online payment fintech Tonetag in May. “All these new types of funding vehicles in fintech will challenge both the methods of short-term funding and who provides it,” he told CT. “People in this space will need to be very nimble – there’s an opening up to new funding structures that have never existed before.”

For Chinese tech titans Alibaba and Tencent the battle for India’s fintech territory is no less intense. Since early 2015, Alibaba has aggressively invested in India spending roughly US$2bn US$2bn to date with plans to invest an additional US$8 billion over the next four years. Even now, Alibaba has a strong position within the Indian digital marketplace. Alibaba’s market share by industry in India includes 40% of mobile payments through Paytm, 15% of e-commerce through PayTM Mall and 38% of mobile browser through UC Web. Tencent’s forays into the subcontinent have been no less aggressive with large investments in e-commerce disruptor Flipkart and ride sharing outfit Ola. “Alibaba and Tencent are moving in on traditional types of funding vehicles,” Schulte said, with acquisitions now stretching from Singapore to Thailand and into Indonesia. For corporate treasurers, however, Amazon is likely to provide the largest shake-up. “The Amazon moment for funding has arrived,” Schulte said. “Amazon India is where Amazon has rolled out ways to completely revolutionize inventory funding and receivables funding. “These are whole new ways to think about warehousing and receivables – it’s really remarkable because you’re looking at different options that banks were never in a position to offer before. “Amazon has remarkable levels of info and data that allows it to gain deeper knowledge of your company and your funding needs. And this has a virtuous circle.”

Banks, he said, have only just begun to act on this shifting landscape, creating new entities to compete in the fintech space. “The only solution for banks is a peer online digital subsidiary: trying to move the whole damn paper analogue past is too hard,” he said. For the larger banks, evolving separate entities has clear advantages: it is cheaper than replacing outdated legacy systems in multiple jurisdictions; it avoids resistance inside the existing organization; building new brands is easier than rescuing old brands; dual branding strategies serve different target customers; it does less harm to the parent company if the pilot fails. "Eight of the region’s largest have pure digital entities and this has only happened in the past six to 12 months,” Schulte said. “We’re at the bottom of the first innings – and the banks aren’t anywhere near this. “What they’re up against is quicker, smarter and unregulated and they’re all digital.”. To learn more about the disruption in Asia’s fintech space, Paul Schulte will be a keynote speaker at CTHK on November 21 at The Ritz-Carlton, Hong Kong.

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