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Does OneConnect’s Expansion into Southeast Asia Make Sense?

Should OneConnect Financial Technology Co Ltd (NYSE: OCFT) expand into Southeast Asia? – OneConnect Financial Technology

OneConnect Financial Technology Co Ltd (NYSE: OCFT), the Chinese financial technology company that is backed by Ping An Insurance Group Co of China Ltd (SEHK: 2318) and Softbank.

OneConnect raised additional capital of around US$360 million in August to expand into Southeast Asia.

The region has long been attracting capital and investments from Chinese companies, especially the tech giants.

In this article, I’ll take a look at whether OneConnect’s move to expand into Southeast Asia actually makes sense.

Competitive landscape

With a large unbanked population, that’s young (with a median age of 30) and can adopt to technology easily, Southeast Asia has been one of the hubs of fintech innovation in the world.

The fintech scene in the region is dominated by homegrown players and incumbents that are controlled by, or related to, the Chinese tech companies.

Grab, which is a Singapore-based unicorn, started as a ride-hailing company in the region. It has looked to develop and expand its ecosystem with a view of becoming a super-app, like WeChat in China.

It launched GrabPay, which is a point of sale (PoS) for merchants and a digital wallet for payments and fund transfers.

Meanwhile, Gojek is an Indonesia-based unicorn which offers services, such as transportation, food delivery, and payments on its platform to its users.

It has GoPay, which is a digital wallet for money transactions, phone credit top-up, and splitting bills. It also has GoBills, which allows its users to pay utilities, as well as entertainment and lifestyle bills, easily.

Besides the fintech platforms from these homegrown players, there are also the Chinese tech companies, spearheaded by Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) and Tencent Holdings Ltd (SEHK: 700).

As Southeast Asia is becoming a top destination for many Chinese tourists, Alipay has long been expanding into the region, and already has quite a bit of presence in many Southeast Asian markets.

While WeChat Pay is not as popular as Alipay in the region, Tencent has backed Sea Ltd (NYSE: SE), which is one of the major players in the tech scene in Southeast Asia.

Sea Ltd launched its own fintech business, SeaMoney, and is gaining traction, especially among its gaming users.

OneConnect’s advantage

As one can see, although there is no single dominant player in the fintech sector in Southeast Asia, the market is definitely crowded with all the local and foreign contestants.

Does it still make sense for OneConect to expand into Southeast Asia now?

In fact, all the aforementioned fintech players are part of the tech companies and many of them are front-end platforms that primarily target the end-users. And that is OneConnect’s advantage.

OneConnect doesn’t just provide front-end solutions, but also focuses on the back end. Most of its clients are actually financial institutions, such as banks and insurance companies.

With tech companies dominating the fintech scene in Southeast Asia, the existing financial institutions would very much like to fight back and regain the traditional lead in financial innovation.

Previously, they would have had to partner with the competing tech companies, but now they can do it with OneConnect – which doesn’t compete with them directly.

Foolish conclusion

As innovation in financial technology continues to heat up in the region, mostly powered by tech companies, OneConnect can be the partner for many existing financial institutions in Southeast Asia to play catch-up in this financial innovation race.

From this perspective, Southeast Asia is actually a “blue ocean” market for OneConnect.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Alec Tseung owns shares of Tencent Holdings Ltd.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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