The fintech sector faced difficult circumstances for venture capital investment throughout this year, but the recently published funding data demonstrates the unexpected strength of the Asia-Pacific region. With a Q3 2023 fundraising total standing at $1.9 billion, Asia stood out as the sole region that defied a significant drop in VC investments compared to 2022.
In fact, if anything, we can say that the interest from investors has only been getting stronger, especially when it comes to startups that deal with cross-border payments. This is signified by how this sector alone raised over $1 billion in funding.
So why is it that Asian fintechs are looked upon with such promise by investors? Let’s take a look.
Eastern businesses practice more sustainable expectations
Over the past several years, the VC market witnessed a significant increase in valuations and overly optimistic growth projections, leading to an overheated environment. This trend has prompted a notable shift in investor mentality. Recognizing the risks associated with inflated valuations and unrealistic expectations, people have become more cautious about their investment decisions. This change in approach has resulted in a growing interest in Asia as a promising investment destination.
Compared to the Western markets, the Asian business scene adopts a more conservative approach to valuing companies. Rather than solely focusing on potential future leaps and speculative growth, there is greater emphasis placed on assessing current performance and long-term sustainability.
By prioritizing these factors, investors can identify companies that demonstrate a solid foundation and are likely to withstand market volatility over time. This shift of focus towards stability has made Asia an attractive destination for investors seeking more grounded opportunities.
Local governments provide reliable foundation for business operations
A notable thing for companies that seek to expand operations to the Asia-Pacific is that foreign business development receives significant support from authorities here. Singapore and Hong Kong exemplify this with numerous government agencies such as ACRA, EDB, and InvestHK, among others. These organizations are dedicated to assisting foreign businesses in establishing solid foundations and navigating the local regulatory environment.
From the point of view of a startup founder, this kind of assistance is invaluable. In the initial stages of business setup, there is very limited room for error, and bad decisions can be very costly. Collaborating with specialized government agencies can streamline entry into new markets by providing vital guidance and networking opportunities to address crucial operational challenges.
This kind of active support system for foreign businesses is a vital element in attracting VC investments to Asia. By encouraging and facilitating the entry of foreign companies into the local markets, governments create a competitive business environment that appeals to investors. The presence of foreign businesses brings new ideas, technologies, and expertise, fostering innovation and economic growth. Such a dynamic ecosystem is conducive to entrepreneurship and international collaboration, and it serves to attract investors who recognize the potential for substantial returns.
Payment-focused fintech will play a big role in transforming the Asian business landscape
Venture capital investors are showing particular interest in fintech startups that focus on delivering more efficient cross-border payment solutions. This is one more aspect in which Asia has a great deal of potential.
The Asia-Pacific region has a big trend towards geoeconomic fragmentation and protection of businesses in local markets. This means that supply chains, both local and cross-border, have a greater number of links between individual companies involved in them. Understandably, the more participants there are, the more convoluted and timely transactions between them are going to be.
For this reason, the B2B payments landscape in Asia could stand to benefit from more modernized instruments and infrastructures. This is an untapped goldmine for fintech companies that offer such services, and many entrepreneurs are wisening up to this fact, seeking to expand their businesses or establish new ones in this region. According to some predictions, the revenue from cross-border e-commerce in Asia is expected to reach $148 billion within the next 4-5 years.
And where there is an allure for new companies, there is a promise of active market development that will result in lucrative ROI for investors. This is yet another factor for investors to consider favourably when looking at Asia’s prospects on the global fintech stage.
Investors expect the Asian market to be less risky In the long run
Venture capital investors aim to protect their investments for a duration ranging from 3 to 10 years. The sooner they invest, the longer they have to wait for a return on their investment. The current investment sentiment in Asia seems to suggest that investors believe this market carries fewer long-term risks compared to other regions. As such, investing there is safer and offers greater prospects of future profits.
Alex Axelrod is a serial tech entrepreneur and a Founder and CEO of an international payment platform Uluky. He has over 12 years of experience in IT and FinTech as well as extensive expertise in engineering, cybersecurity and software development. Alex applied his knowledge launching his own startups which he successfully led to exits. As the founder and CEO of Uluky, Alex is responsible for defining business development strategies and managing relationships with clients and key partners in different regions of the globe.
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