Asia fintech: Micro is big

Financial technology is one sector where the transactions are destined to get smaller as the rest of the industry gets bigger. That’s because, in this case, going mainstream means everyone – including the unbanked man on the street – gets involved. 

The idea that the lowest common denominator is getting lower in fintech-enabled transactions offers valuable guidance on the direction of business model evolution. Staying ahead of the game will remain a challenge due to the inherent difficulties of personalizing technologies as they become more inclusive. But this dilemma could in fact be the key to charting the next key areas of innovation. 

As the digitization of the financial world becomes increasingly pervasive, situation-specific offerings around micro-insurance, micro-lending, and micropayments will proliferate, requiring future industry activity to involve a greater focus on contextual customer experiences. Personal lines of credit, for example, may be offered instantly upon the purchase of a big-ticket item.

Additional tailwinds for the adoption of micro-transactions include a growing focus on consumers’ personal data concerns. As more online business funded by subscription and advertising face security and privacy issues, users are likely to demand more anonymous and non-committal payment options. 

For investors, blockchain currently represents the most direct way to access the upside of these themes. Companies using utility tokens to facilitate micropayments include Taiwan’s Dexon Foundation, which received a $20 million round led by IDG Capital, and Korea’s Fantom Foundation, which raised $40 million from a raft of specialist VCs across the US and Asia. 

Both companies are focusing on speed. Blockchain has encountered difficulties breaking into this space since the technology’s current protocols can only process a few secure transactions per second. This means it cannot compete with traditional channels, which process some 65,000 transactions per second.

Investors in these businesses leverage blockchain’s myriad advantages around free-use, dis-intermediated computational resources and emphasis on cryptography. But one of the less-ballyhooed strengths – seamless cross-currency scaling – could prove especially relevant in fragmented developing regions, where international expansion is challenging and micropayments are aplenty.  

There is significantly less institutional investment around this particular concept, but that could change as the infrastructure required for blockchain businesses builds up in developing regions. South Africa-based micropayments company Wala has offered a case in point by creating a utility token economy that has allowed it to expand across Uganda and Zimbabwe with minimal investor support. The company’s ICO netted only 4% of its $30 million target. 

ASEAN is the natural Asian parallel for African cross-border complexity, and there are some stirrings of similar self-funded businesses in the region. Hong Kong-based Alax, for example, has established a mobile game distribution service that is similar to Google Play but accessible to unbanked people in Malaysia and Indonesia, where local currency is used to buy credits on a blockchain platform that in turn pays global game developers in US dollars. 

“This is a very new, blue ocean market at the intersection of mobile-first generations and blockchain,” Matej Michalko, Alax’s CEO told AVCJ earlier this year, adding that the company was seeking to enter Vietnam and India. “Blockchain brings more value to users in emerging markets than in developed markets.”

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• Topics
• Financials
• Technology
• Early-stage
• Asia
• Financial Services
• Venture