SOUTHEAST Asia’s fintech companies are likely to sharpen their focus on profitability as the industry gains scale.
This follows a rapid rise in fintech adoption amid broadening internet connectivity, spurred by the social-distancing measures to contain the COVID-19 pandemic, according to Fitch Ratings.
“The region’s large unbanked population underpins its market potential. Southeast Asia’s top-six economies comprised a population of over 580 million at end-2020, of which more than half were unbanked,” the global rating agency pointed out in a non-rating action commentary.
Fitch Ratings noted that local regulators are generally supportive of the fintech industry, drawn by the potential to broaden financial inclusion and drive product innovation.
“Nonetheless, aggressive business practices are likely to attract a strong regulatory response, and we expect stiffer sector regulation as the industry expands,” observed the rating agency.
As it is, many fintech business models remain developmental with unproven paths to profitability despite the growth opportunity.
“Large financial-sector incumbents will remain formidable competitors with the resources to outspend new entrants in technology investment,” reckoned Fitch Ratings.
“Sector competition is likely to remain intense and we expect economies of scale and tighter regulation to drive industry consolidation in the medium term.”
The rating agency further expects the success of fintech aspirants to rest on their ability to navigate the sector’s evolving competitive and regulatory landscape.
“Fitch’s applicable rating criteria for a fintech company will depend on its business model, regulatory framework, funding structure and degree of balance-sheet risk,” it added. – Aug 24, 2021
