Once viewed as a competitive threat by banks, financial technology (fintech) companies are now seen as valuable partners that help drive innovation and broaden access to financial services. Recognising the potential of such partnerships to meet market demands, Standard Chartered (SC) established its venture capital arm in 2018 to make strategic investments in digital offerings that could enhance its banking services.
Gautam Jain, who oversees investments at Singapore-headquartered SC Ventures, says this came out of a need to reinvent how banks worked with companies. “Financial institutions need to relook at how they serve their clients. We need to look at how SMEs (small and medium enterprises) can access new client segments, how they can optimise their business using digital tools, how they can participate more efficiently in the supply chain they are part of.”
On why start-ups and fintech firms can learn a lot from working with financial institutions, including getting funding from banks, he says: “A lot of fintech players are very small and they may not have the manpower to understand the different regulatory requirements in different markets. Once upon a time, banks saw fintech players as competition and the fintech players saw banks as not innovating fast enough. What we see now is a more collaborative relationship between fintech players and banks.”
To create this ecosystem, SC Ventures seeks to build or invest in businesses adjacent to or occupying a wide space in financial services, because once these businesses are created, they have to get market validation on their own, such as establishing their own client and investor base.
So far, SC Ventures has yet to invest in any fintech company based in Malaysia but it is always on the lookout for potential start-ups. Gautam says this is because its investment policy only allows it to invest in or partner with third-party fintech firms.
“A partner [is a company that is] working with SC Ventures, either at a platform level or one of its portfolio companies, or with the main bank in some shape or form,” he explains.
The Asean opportunity
SC Ventures is interested in forming a fintech ecosystem in Malaysia due to the country’s large economy and potential in the region. Gautam notes that Asean has a lot of initiatives going on outside of the fintech and banking spaces, such as the various central banks talking to each other to create common trade corridors, common infrastructures or interoperable infrastructures between countries to facilitate the movement of not only physical goods but also information.
“Banks and fintech players have to work together with the regulators in terms of creating this infrastructure and I think the trajectory is absolutely in the right direction,” he says.
Gautam notes several initiatives taking place currently between Singapore, Indonesia, Malaysia and other countries in the region. All of these are made possible by new technologies as the economies continue to go through digitalisation. This is why he sees it as important to transform how banks interact with SMEs, to ensure the smaller companies are not left behind.
To facilitate this, SC Ventures has the Fintech Bridge programme, where registered fintech players put up their offers and solutions on a platform and companies are able to match with compatible fintech firms to utilise their solutions.
SC Ventures also established its own business-to-business e-commerce platform Solv, primarily focusing on SMEs. This business model is incorporated in India, Vietnam, Kenya and Ghana, with the firm looking to scale it in Malaysia to better serve SMEs.
“I think the opportunity for fintech players to establish themselves in Malaysia and serve clients differently is immense. And that is why we set up our SME platform [to bring] our banking platform into the country,” says Gautam.
Fintech players’ ability to close the trust gap
One of the biggest issues between SMEs and fintech firms is the “trust gap”, although Gautam says this problem can be addressed with the use of right data.
“In transactions between SMEs, there is a trust gap in terms of ‘Will I get paid in time?’ For example, look at the trust gap between SMEs and financial institutions. There is a trust gap with financial institutions not lending to [SMEs] because they don’t have the right data,” he points out.
“All of these trust gaps can be filled by using digitalisation, the right use of data and platforms … that goes a long way in addressing the problem,” he says. As more and more commerce happens between two parties using automated, digitalised tools to facilitate payment, which then enables full visibility of the supply chain and transaction, the better the data, he adds.
This data can then be used by SMEs to establish creditworthiness for financial institutions to start lending to them. Eventually, adopting fintech solutions and digitalising processes will by itself close the trust gap, Gautam believes.
As for getting SMEs to adopt it in the first place, he says it is a matter of getting them to see the product as a need, not a nice-to-have. “In my experience, if you can convince SMEs that this particular [product] will help their business grow, make their life easier or optimise their supply chain or sales processes, then the SMEs would be quite keen to adopt it.
“Ultimately, the capital is going to be provided by the banks, either via fintech firms or directly. It’s not just in Malaysia that we see this, but across the emerging markets. The collaboration between banks and fintech players could be very, very powerful in addressing some of the challenges because fintech firms can bring speed, agility and new ideas.”
Source: https://theedgemalaysia.com/node/714617