Venture Capital: Opportunities in underserved Southeast Asian markets
This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on June 25, 2018 - July 01, 2018.
Underserved consumer markets in Southeast Asia have prompted the rapid innovation of financial technology (fintech). This has created a myriad of opportunities for investors.
Singapore-based Caber Partners Pte Ltd is one of the newer venture capital firms leveraging the advantages of financial inclusivity. Ray Ferguson, the firm’s founder and chairman, who has spent more than three decades in the global financial sector, says automation is becoming a way of life for consumers.
Driven by the proliferation of mobile phones, the rise of technologies — such as blockchain and platform economies — are changing the nature of work and the structure of the economy, says Ferguson. “This is mainly about unmet needs getting met. In other words, some of [the evolution] is about taking away business from existing banks and insurance companies and other incumbents,” he adds. “We have seen this happen in China over the last five years. The state banks were just not servicing the needs of consumers and that gap was filled by companies like Ant Financial Services Group and Tencent Holdings Ltd. I think the same theme applies in the less developed emerging markets such as Indonesia and those in Africa.”
Ferguson stresses that the financial innovation he is looking at goes beyond basic services such as giving bank accounts to the unbanked population in many parts of Asia. “The technology wave is not limited to those with bank accounts. But the things banks are doing for those with accounts are really limiting. For example, [the services rendered] in terms of wealth management and the access to credit is suboptimal. These unmet needs create potentially big markets of opportunities,” he says.
Ferguson sees growth potential in health and micro-life insurance, robo-advisory services and immediate disbursement of pre-payroll loans, among others.
Motivated by these opportunities, Ferguson set up Caber Partners last year. Caber is an amalgam of his children’s names — Calum, Alisdair, Blair and Ewan — and his own, Ray.
“I was in executive banking for 10 years — seven with Standard Chartered and three with Arab Banking Corp (Bank ABC) in the Middle East. In general, it was very obvious to me that the way traditional banking was set up — the legacy system and the cost of capital — was cumbersome and bureaucratic. Over time, it kind of grew on me that venture capital may be a more interesting and exciting opportunity to build something different, as opposed to just an investment opportunity,” he says.
One of Ferguson’s early investments was life insurance start-up Singapore Life. The company received its licence from the Monetary Authority of Singapore (MAS) in July last year. The regulator had not issued a life insurance licence to a home-grown insurer since 1974.
Caber Partners advised the investor consortium, which consists of investors with deep technology and financial sector credentials from the UK and Hong Kong. Ferguson, who also invested in the business, is chairman of the board at Singapore Life.
Since setting up, Singapore Life has acquired Zurich Life Singapore’s business portfolio and achieved more than S$6.6 billion (RM19.5 billion) in life insurance coverage to date.
According to Ferguson, Singapore Life CEO Walter de Oude, during his tenure as CEO of HSBC Insurance (Singapore), had found that consumers in the city state as well as the rest of Southeast Asia were not being well served by the incumbents. It was this pitch that drew Ferguson to invest in the company.
“He [de Oude] developed the plan and I worked with him for several months to finalise the licensing from MAS. For the regulator to give a licence to a new insurance company is quite a big deal, particularly a start-up,” he says.
“What attracted me to Singapore Life was the fact that it was not a plan to change the way insurance is underwritten or managed. Rather, it was an opportunity to create a platform using technology to provide a faster, sleeker and better experience for potential customers and the adviser community that supports the insurance industry.”
Ferguson says the lower cost from leveraging technology means that the business can be competitive with its premiums. “It is a bit early to invest in just a good idea on paper. But in the case of Singapore Life, it is a licensed insurance company and there is a requirement to raise US$50 million in capital to start the business. So, it is not a typical start-up. It is an institutional play. It is a significant investment.
“We were fortunate as well that we were able to secure the Singapore Life name and brand and to trademark that. So, putting together the right shareholder capital, the right brand and the right strategy to be competitive, given the cost structure, was really exciting.”
Ferguson is currently helping Singapore Life expand its digital insurance platform to three other countries in Southeast Asia.
Youtap Ltd, a merchant services aggregator and mobile payment processing company, is another of Ferguson’s investments. He says Youtap is an emerging-market leader in e-money merchant and supply chain payments for banks, telecommunications companies, digital lenders and governments. “Its primary markets are three Southeast Asian countries and 17 African countries,” he adds.
Ferguson is currently leading the company through a US$50 million Series C round of funding.
Credit decisioning firm LenddoEFL and natural rubber supply chain manager Halcyon Agri Corp are also part of Caber Partner’s portfolio of investee companies. LenddoEFL provides credit scores, verification and consumer insights to banks across emerging markets, enabling them to make data-driven decisions.
Ferguson says LenddoEFL has a vision of providing financial inclusion for more than one billion new and underserved individuals across the globe by providing a suite of alternative credit scoring and identity verification products to more than 20 emerging markets.
“This is what I have set out to do. That is why I am the chairman of Singapore Life, chairman of YouTap and director of LenddoEFL. These firms are in the new economy, but they are equally related to the big and regulated financial world. This is an opportunity for me to tap into the future of fintech and merge that with all I know from my past [banking experience] and do something more interesting, exciting and entrepreneurial,” he says.
Ferguson points out that there are ample opportunities in the fintech sector as there are many areas that are not served by traditional financial institutions in the region. “There are a lot of underserved areas and entities out there. Technology that powers the access to financial services — whether it is wealth management, lending or payments — have a multiplier effect on the overall health and wealth of nations,” he adds.
“With all the gloom and doom around different aspects of the economy, I think if you have more people with better financial health, the global economy will be in much better shape and more sustainable in the long term.”