Peer-to-peer in Southeast Asia: Must disruptors turn to collaborators?

• The peer-to-peer sector, has risen from the need to democratise finance, in which emerging platforms are taking out banks as middle-men
• Platforms in Southeast Asia has a chance to learn from what has happened in bigger markets
• New players and incumbent banks need to collaborate to determine the future direction of the P2P sector

A sector that has boomed in the past couple of years is peer-to-peer (P2P) in which emerging platforms are taking out banks as middle-men to democratise financing. By socialising financial services, these platforms are not only creating new access to funds for individuals and small and medium-sized enterprises, but also catering to a new class of investors.

During the Peer-to-Peer Conference at the Future of Finance Summit in Singapore, various technologically savvy and digitally oriented personalities came together to discuss the disruption in traditional finance.

The peer-to-peer sector rose from the need to democratise finance

Sandeep Bhatia, founder & CEO of Trak-Invest Group shared: “We are going from a world with too little information to too much information but are uncurated. Now, everybody has a smartphone with internet connection. Before an average retail investor would buy a stock and generally lose money because of information asymmetry. The average person simply did not have access to good data that is why he always lost. I asked myself, ‘how do I make a platform that I can help the average retail investor?”

Although P2P has grown exponentially in key markets such as China, the US and the UK, Southeast Asia is still very much at the stage of exploration and learning. Lawrence Yong, founder and CEO, MoolahSense, placed things in perspective:

“The framing is important. The nature and evolution of the businesses in the US and China are very much different in our region. Marketplace lending has been around in these countries for about a decade. And for years they have been focused on building this sector. The progress of marketplace lending as a whole in Southeast Asia has somewhat mirrored the developed markets – of course there is still a lot to do but there is a large potential going forth.”

Platforms in Southeast Asia has a chance to learn from what has happened in bigger markets

Being at the infancy stage, the Southeast Asian market is faced with various challenges, one of which is the fragmented regulatory landscape. Nalinee Chinowuthichai, COO & co-founder of Invoice Interchange, explained, “I have learned recently that China takes up 98% of the loan origination volume of Asia. They have a huge market and one regulator. For Southeast Asia, we have a number of markets with various regulators.

For a platform to have that same scale and volume as China, you have to go through ten different regulators just to breakthrough.”

Furthermore, not all markets are at the same stage of regulatory development. Each and every country in the region has their own rules and market conditions. “There are some countries who see this as a good opportunity for the whole economy, but unfortunately they are at still the early stages of regulation wherein even lending or credit in itself has not been regulated yet. Although, they want to do something but since they are just running so much behind, they do not know how to set-up the system,” Tobias Fischer, director of corporate development of Capital Match, shared during his panel.

More than rules and regulation, the success of the sector will really rely on building the economy. Thus, players – although seen as disruptors – must learn to educate each stakeholder and work together to ensure a sound and sustainable P2P sector.

John Wright, regional head for Beehive Group’s Asian business, shared his insight on the regulatory development in the region. He advises that patience is key in every market to ensure that the sector is orderly and everyone is protected. “Although, we can say that the adoption of regulation of different bodies from the region has been slow, if you overlay this historically, this has actually been one of the most rapid regulatory transformations in finance”.

He reminded the audience of the nature of regulators, “they are by default very conservative because their primary concern is to protect the consumers and industry. They do want this sector to flourish, but they also have the duty to protect the participants on these exchanges. Thus, they are being very progressive and speaking and consulting each other.”

New players and incumbent banks need to work together

In addition to setting up the regulatory framework in the region, another challenge players see is the quality of data available for them to operate their platforms sustainably. Unlike, the US and the UK that have reliable data sources and have automated credit decision processes, Southeast Asian markets are still finding ways to address this problem. Chinowuthichai suggested, “You have to be more innovative – in terms of what information is available for operators to increase the level of quality of data that we can assess. We have to move away from traditional to innovative credit assessment models.”

Yong added that sometimes you just have to look outside of the financial services silo: “The data does exist but not in the institutions we expect. It could exist in the telco companies and corporate partners.

It is important to enrol other participants to the economy to redesign credit rules which will enable and facilitate lending decisions.” However, Wright placed some caution in this as there might be possible danger in these data which has not been tested through whole credit cycle. He advises to always put balance in these layers of credit assessment.

Lastly, in moving forward and building the ecosystem for this sector to successfully grow, collaboration is fundamental. Robin Lee, chief experience officer and co-founder of Inzsure, compares start-ups and banks to the Davids and Goliaths of finance. “Everybody loves the underdog or being the underdog. However, what if David teamed up with Goliath? Could they help each other and become frenemies in a way?” Most likely collaboration will determine the future direction of the P2P sector and will help separate the winners from the losers.