Cross-border payments have long been a contentious issue across Asia, with the transfer of funds across borders expensive, slow and sometimes completely impossible.

After being flagged as a priority area by the regulators in several countries in recent years, an agreement was reached between the central banks of Indonesia, Malaysia, the Philippines, Thailand and Singapore to strengthen and enhance cooperation on payment connectivity in November last year, with the aim to enable more inclusive cross-border payments.

Despite the dire economic climate globally, fintech companies across Asia have seized on the opportunity presented by this increased international cooperation on cross-border payments, experiencing rapid growth in this space to the detriment of incumbent banks.

With agility and flexibility embedded in their DNA, fintechs are purpose-built to enable speed-to-market, respond rapidly to change, and foster innovation at all levels of business, and can often beat banks on pricing, speed, convenience, and product range.

So, how can incumbent banks compete with fintechs in the crucial battleground of cross-border payments?

Adopt a digital-first strategy

To compete with fintechs, banks must adopt a digital-first strategy and embrace next-generation technologies like cloud, AI, biometric authentication, blockchain and machine learning. These technologies are what make fintechs such a threat in the cross-border payments space, as it enables these nimble startups to survive on a super-lean budget and operate with agility.

Also Read: Alternative lending, payments dominated Asian fintech landscape in 2022: Report

Banks, which have the significant benefit of deeper pockets than most fintech startups, need to invest wisely in next-gen technology to streamline their operations, reduce costs and, most importantly, improve the overall customer experience.

Focus on customers

Fintechs use technology like data analytics and machine learning to truly deliver what their customers want and need, taking a genuinely customer-centric approach. Banks need to adopt this approach and focus on delivering a superior customer experience across all digital touchpoints, including providing hyper-personalised services, simple and user-friendly interfaces, and fast and efficient transaction processing.

Enhancing cyber-security and leveraging data analytics to gain insight into consumer behaviour can also help banks to meet the changing demands of consumers.

Capitalise on the SME market

Small and medium-sized enterprises (SMEs) – often referred to as micro, small and medium-sized enterprises (MSMEs) in Asia due to the proliferation of one- and two-person operations – are the backbone of the economy yet have not been seen as an important customer segment by many established banks for decades, often deemed too high-risk or not valuable enough to focus on.

However, banks ignore this customer segment at their peril, with the overall SME sector experiencing phenomenal growth in recent years, particularly as the digital economy has strengthened and consumer confidence in online transactions has risen. Fintechs have pounced on this segment, making enormous headway in the SME banking and lending space, with non-bank shares expected to rise to 17 per cent by 2024 from just five per cent in 2014 (McKinsey, 2023).

Also Read: How to recession-proof your business with payments

As more and more SMEs in Asia look to expand internationally, and cross-border payments become an even more crucial business need, banks should capitalise on the opportunity to offer innovative, all-in-one business banking solutions that encompass not only cross-border payments but also foreign exchange, lending, and other high-quality solutions. Banks, with the benefit of size, reputation and a large existing customer base, are ideally positioned to capitalise on the SME market by leveraging next-generation technology.

Think and operate more like fintechs

Many incumbent banks across Asia are coming to the realisation that they can’t continue doing what they’ve always done – they need to drastically alter the way they think and operate to compete against fintechs in this new era of digital financial services. Today’s consumers demand speed, agility and convenience from their banks and payment services, and maintaining the status quo is simply not an option if banks are to remain relevant.

Banks need to truly focus on the customer experience – with price and speed central considerations – if they want to retain market share and actively embrace new technologies and new ideas. Put simply, they need to think and act more like fintechs, leaving old ideas and – crucially – old technology behind.

It is those banks that embrace next-gen technologies and allow evolution in the way they operate that will be able to win the cross-border payments battle against fintechs.

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Next week, Web3 enthusiasts in Asia will participate in an event called DAO Tokyo which dubs itself the first DAO event on the continent. Held on April 13 at Kanda Myojin Hall in Tokyo, the event aims to foster the growth of the DAO community in Asia by creating awareness, encouraging the creation, and facilitating development.

The event was held with the background of Japan’s digital ministry effort to further understand the Web3 industry by issuing its intent to convert its Web3 study group initiative into a DAOs (in Japanese). The goal was to do a deeper survey on Web3 and its potential–to convince the government to invest further in Web3 technologies and systems.

This is the opportunity that Fracton Ventures aims to seize.

Founded in 2021, Fracton Ventures is dedicated to creating a thriving global Web3 ecosystem. Its mission is to provide support, guidance, and resources to entrepreneurs and projects while forging strong partnerships to establish Japan as a leading contributor to the Web3 and DAO communities. They also help to support the Web3 ecosystem through the content on its YouTube channel.

Since their launch, the company has run two successful incubation programmes, supporting a total of 18 projects. The incubator aims to continue developing and creating during the incubation phase.

Also Read: Strategies for success: Building a thriving Web3 startup

In an interview with e27, Fracton Ventures co-founders Naoki Akazawa, Yudai Suzuki, and Toshihiko Kamei explain why Japan is an ideal place for the programme despite challenges such as the language barrier and the lack of a crypto investor ecosystem.

“Japan has a high level of technological innovation, and its regulatory environment is favourable to the development of blockchain technology. Additionally, Japan has a large population of tech-savvy individuals who are interested in blockchain technology and its potential applications,” says Suzuki.

Fracton Ventures is looking for companies developing innovative solutions in the finance and cryptocurrency industries. The company is interested in projects that have the potential to create public goods protocols and expand the ecosystem. It is also looking for entrepreneurs who are passionate about their projects and willing to work hard to achieve their goals.

To join the programme, companies must have a strong team and a clear vision for their project. They must also be willing to work hard and be open to feedback and guidance from the incubator. Additionally, companies must be willing to contribute to the public goods ecosystem and create protocols that will benefit the entire industry.

In the interview, Fracton Ventures also discuss the up-and-downs of the crypto industry and how they prepare their companies to deal with it.

Also Read: DEFED and DeFi: Making it easier to migrate from Web2 to Web3

“The crypto industry is known for its volatility, and companies in the industry must be prepared to deal with the ups and downs. Fracton Ventures prepares companies for the volatile nature of the industry and helps them develop strategies to mitigate risk. The incubator also helps companies navigate the regulatory environment and comply with local laws and regulations,” explains Kamei.

In addition to the major event, Fracton Ventures plan to focus on incubating and creating public goods innovation on a global level this year, with the help of global partners. The programme aims to create a community around the Asia region and bridge the gap between DAO East and DAO West.

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Echelon Asia Summit 2023 is bringing together APAC’s leading startups, corporates, policymakers, industry leaders, and investors to Singapore this June 14-15. Learn more and get tickets here.

Echelon also features the TOP100 stage, where startups get the chance to pitch to 5000+ delegates, among other benefits like a chance to connect with investors, visibility through e27 platform, and other prizes. Join TOP100 here.

Image Credit: Fracton Ventures

 

 

 

 

 

 

 

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The collapse of cryptocurrency exchange FTX and Singapore-based fashion startup Zilingo involving financial fraud and corporate misconduct are just two examples demonstrating how lax corporate governance is a recipe for disaster.

As investors and regulators ramp up scrutiny and shift to a zero-tolerance stance on fraud and corruption, startups will need to get the balance right between growth and governance.

Founders should understand that corporate governance is a strategic tool that delivers value rather than being an inconvenient process that will stagnate growth. Communication is a vital component of good corporate governance and will help boost overall investor confidence. This will, in turn, facilitate fundraising, particularly when corporate goals are aligned with the interests of the board, management, shareholders and other stakeholders.

Implementing governance best practice means protecting the interests not only of the company’s shareholders but also of other stakeholders, including employees, customers, vendors and communities.

A good approach is to incorporate five core principles:

• Transparency
• Accountability
• Impartiality
• Awareness
• Responsibility

Since a “one-size-fits-all” approach cannot be applied to companies at different growth stages, we have outlined below the key actionable steps for startups to kickstart their corporate governance journey.

 Early venture – Establishing core values from day one

 A strong culture and set of company values should be the cornerstone for any business at the start of its venture journey. Typically, this is the point where the firm lacks adequate capital and must build its customer base and focus on revenue and business growth.

In this instance, key stakeholders are limited to the management team and founding team – the early employees of the company. The initial board of directors is formed when the company is incorporated, usually represented by the founder or co-founders.

It is vital that everyone is aligned in terms of expectations, values, and measurements of success. It would be useful to create a Code of Conduct Handbook, thus providing practical guidance to everyone in the company on how to ensure compliance with corporate governance principles.

Ensuring fairness across all aspects of the business with clearly defined roles and responsibilities for each team member is key, as is their duty of care to make decisions that are financially, ethically, and legally sound.

Also Read: Velocity Ventures to back distressed hospitality & travel startups with the new US$20M fund

At Velocity Ventures, we incorporate ESG metrics when evaluating startups, considering risk management factors, as well as assessing the founders’ willingness and commitment to adopt strong ESG practices.  Additionally, to encourage our portfolio companies to be forces of change, we have a quarterly ESG scorecard that is mapped to the UN’s 17 SDGs (Sustainable Development Goals).

We work alongside founding and management teams to implement and develop an ESG strategy and ensure that there is robust and effective decision-making through processes, practices and policies.

Transition stage – Seek guidance from an advisory board

 Usually, after the first year of operations, founders should consider enlisting external help from industry experts. At this stage, it is important to ensure that founders are not bogged down with business processes that will impede the firm’s growth trajectory towards pre-seed/ Series A but, at the same time, build the foundations for a strong governance framework.

Forming an advisory board and inviting industry experts who are accomplished in their respective fields is a good start. Advisors need to be able to see the big picture and provide third-party perspectives.  Look for individuals that can challenge and test their thinking, have a strong network, industry knowledge and plenty of experience to help solve business problems.

Typically, advisory board members do not have the authority to vote on corporate matters or get involved in day-to-day operations, but they can act as an extension of the company’s leadership team. By overseeing organisational performance, risk management, and profitability, they can help ensure startups stay on track with good corporate governance.

Remuneration for board members can be based on a fee for each meeting attended, or an annual retainer can be agreed upon, depending on the level of engagement. Sometimes, equity may also be offered if the individual advisor provides access to their expanded professional networks of potential customers and investors.

Scaling up – Form a board of directors before raising seed capital

As the company grows and needs to fundraise, founders should set up a formal board of directors and appoint at least one independent director. A corporate governance roadmap and board terms of reference should be implemented.

Key areas of focus of the board will include:

• A critical review of past and forecast performance
• Strategy and risk
• Corporate Culture
• Social responsibility for ESG matters
• Human capital and workforce engagement
• Fundraising
• Crisis management

While it may be useful to have a board that can support fundraising initiatives as a high-profile industry veteran to help drive business growth, it is equally important to have experienced individuals of a specialised industry who can provide organisational stewardship in doing the right thing.

Boards of Directors have oversight responsibility to mitigate the risks of fraud or misconduct. They do so by monitoring the company’s business operations and ensuring management prioritises the startup’s social, environmental, economic and financial impacts.

Boards of Directors are subject to a wide scope of fiduciary duties, which means they are bound legally and ethically to always act in the best interests of the company. This would include a no-conflict rule, and directors are legally liable if they intentionally or negligently cause the company to incur financial losses or become bankrupt.

Members of the board of directors have voting rights and even have the power to remove the CEO or replace the management team. To avoid a conflict of interest, the Chairperson of the Board should be an Independent Director and not be an executive of the company.

At Velocity Ventures, we value the balance of representation on the board and like companies that have at least one independent director and one investor representative director.

The duties of the Chairperson include running meetings efficiently, deciding on the agenda of the meeting, and mediating between investors and founders in the boardroom.

Also Read: Velocity Ventures invests in CarbonClick that makes carbon offset simple for businesses

We highly recommend that startups formalise the scope of responsibility of the board of directors with a Terms of Reference (TOR) document where key roles, functions and processes of management and the board are listed clearly. This will ensure business continuity implementation and helps the company to be more adaptable and effective when responding to both crises and opportunities.

It is important to set up a schedule for board meetings where the management team will update board members on the company’s financial and operational performance and make full disclosures regarding potential conflicts of interest or risks to shareholders and other stakeholders.

Usually, board meetings are held once every quarter, and the information provided needs to be timely, accurate and clear. If there is a circumstance where business decisions need to be made urgently, an ad-hoc meeting may be convened. We emphasize the need for good reporting with our portfolio companies because transparency is of utmost importance for good governance, and full disclosure of all relevant information can help shareholders and management make informed decisions.

Velocity Ventures takes an active role in supporting our portfolio companies and will usually request to be one of the board members, participating in strategic company decisions that will impact performance, growth, and profits. However, we don’t sit on every board of all our portfolio companies. Where we do not hold a board seat, we work with other majority investors to nominate one investor director to represent the interests of investors.

Incorporating corporate governance is not always a smooth process for startups, as administrative policies may get in the way of your firm’s hyper-growth path. However, by prioritising corporate governance, founders build a platform for future growth, and it will allow the company to attract better valuations and a larger pool of investors.

The investment team at Velocity Ventures has created a Corporate Governance Playbook (Infographic) that provides a quick overview of activities that should take place in tandem during different growth stages.

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We are slowly transitioning into a world where most countries will see female participation in their economies. This monumental paradigm shift can not, and should not, be ignored. The United Nations had projected that by 2022, 59 per cent of all exporting countries would employ women, eclipsing the current 40 per cent.

Furthermore, the female entrepreneurial ecosystem has only diversified and expanded due to the acceleration of e-commerce and digitalisation. The World Bank reports that female-owned enterprises in the United States are growing at more than double the rate of all other companies. The Bank says women entrepreneurship is also increasing in developing countries, with eight million to 10 million formal SMEs with at least one female owner.

In theory, one can argue that there has always been a better time for women entrepreneurs to thrive – but in practice, it is significant to note that women still need to contend with many challenges compared to their male counterparts.

“While the number of women operating their own business is increasing globally, women continue to face huge obstacles that stunt the growth of their businesses, such as lack of capital, strict social constraints, and limited time and skill,” the World Bank explained in the Female Entrepreneurship Resource Point.

This causes a number disparity for women leaders, entrepreneurs and business owners. For instance, closer to home, the Mastercard Index of Women Entrepreneurs finds that although women in Singapore make up 44 per cent of the nation’s workforce, only a mere quarter of business owners are women.

Hence, it is vital to underscore and bring awareness to how embedded finance services, such as MatchMove’s, are an increasingly crucial cornerstone for the success of women’s entrepreneurship and breaking down barriers which obstruct it.

Challenges of women entrepreneurs

The most glaring obstacle that women face globally is the lack of access to funding and capital, and oftentimes – this is not because of a lack of trying. According to the Gallup World Poll, significant differences exist in access to financial services between women- and men-owned businesses in developing countries.

Also Read: Not much is being done to address the gender gap in the VC space: Carman Chan of Click Ventures

According to the World Economic Forum, women comprise 55 per cent of the world’s unbanked population. As women have less access to basic banking services such as checking and saving accounts, many rely on their savings, borrowings from family and friends, or micro-loans to finance their businesses.

Credit Suisse reported that the underlying issue is that more than one billion women are excluded from the formal financial system today, with 70 per cent of women-owned small-​ and medium-sized enterprises lacking access to banking and credit services.

Startup founders or those familiar with the gruelling process of getting your business off the ground would understand that the first step, usually the pitching process, is the hardest. Women entrepreneurs have found it even harder to raise capital and funding.

According to Crunchbase data, only approximately 2.3 per cent of venture capital goes to women entrepreneurs. As a result, only two per cent of women-owned startups generate US$1 million, while men are 3.5 times more likely to achieve this feat.

Thus, the lack of access to financing also hinders women entrepreneurs from scaling their businesses. By relying mainly on microloans, women entrepreneurs lack the capital to make long-term business investments.

It is no wonder that women-owned businesses tend to be informal, home-based and small-scale, especially in traditional sectors like retail and services. The World Bank states that globally, at least 30 per cent of women not working in the agricultural sector are self-employed in the informal sector.

How embedded finance is breaking barriers

Clearly, if we want women to break this glass ceiling, we need to relook at their access to adequate and long-term financing. Traditional financial institutions and organisations have not been able to address the rising needs of women entrepreneurs, mainly because they are structured differently with specific and more conservative lending criteria.

Also Read: Entrepreneur Trung Le wants to close Vietnam’s gender gap in tech

This paves the way for embedded finance, which integrates banking and payments services dispensed by non-banking entities. In short, it allows entrepreneurs to offer l financial services to their customers through their platforms, breaking down long-established barriers of financial exclusion.

Conversely, consumers get access to financial services through non-banking companies and, conveniently, at a one-stop day-to-day platform they use, such as ride-hailing apps and e-commerce sites. This not only improves their financial access but also allows them to generate better credit trustworthiness through the user data they help generate. This data goes into the decision-making of neobanks and other embedded finance providers to disburse loans, credit or instalment schemes, and to offer insurance products.

Ground-breaking in its own right, the role of embedded finance thus becomes significant in paving the way for the unbanked and underbanked, especially those who operate small businesses. It could also help women entrepreneurs close financing gaps in their processes as embedded finance streamlines intra-organisational, consumer-to-business and business-to-business processes, allowing them to spend, lend and send money effortlessly. Embedded finance will also enable female entrepreneurs to accrue cost-reduction and risk-reduction benefits, which will help them scale up more confidently.

Fintech-focused firms have also catalysed the growth of women entrepreneurs by incorporating newfangled technological solutions into non-financial services, building their confidence and business acumen.

For instance, some embedded finance enablers offer solutions in functional areas such as loyalty programmes, customer database management and scaling into e-commerce, allowing smaller entrepreneurs to focus on growing their business with these layers enabling that expansion.

By taking away the need to undergo and meet the conventional financial processes and requirements when running a business while providing them with the business tools to expand and professionalise, embedded finance effectively acknowledges and removes the barriers, women entrepreneurs face in scaling up and succeeding.

Bain & Company estimates that embedded finance will exceed US$7 trillion transactional value by 2026 in the US alone. In the Asia Pacific region, the embedded finance industry is expected to increase 39.7 per cent annually to reach US$108 billion by the end of this year. This is slated to accelerate to US$140.8 billion by 2025.

This pacy growth could help catalyse other social benefits. Women entrepreneurship, for one, can benefit from the surge of embedded finance. For that, governments, non-governmental organisations and other corporations must have a clear plan to bring embedded finance to the ground.

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Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic

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