Integrating FinTech Solutions for Southeast Asia’s Underserved SMEs
With technology permeating all aspects of today’s economy, Southeast Asian businesses are being challenged to intensify their digitalisation in order to survive. But the costly and complex process means that not all can join the digital revolution.
Driven by its mission to provide low-cost FinTech solutions to the small business that need them, Soft Space is working with the Malaysian Digital Economy Corporation (MDEC) to help onboard SMEs to the region’s FinTech drive.
SMEs – the backbone of ASEAN enterprises
When considering Southeast Asia’s meteoric economic rise over the past few decades, no other sector has played a more vital role than small and medium enterprises (SMEs). Apart from contributing up to 99.9 percent of all enterprises, SMEs also account for up to 97.2 percent of total employment.
However, the region’s SMEs (especially those in less urbanised spots) have long faced difficulties in integrating into today’s digital economy, as many of those in the region specialise in low-technology and labour-intensive tasks; making it difficult for them to apply innovations that can improve their operations.
Malaysia-based mobile point-of-sales (mPOS) specialist Soft Space is seeking to counter this conundrum by disrupting traditional payment processes across ASEAN via value-added solutions that are customised to each market. With the Malaysian Digital Economy Corporation’s (MDEC) help, Soft Space wants to help prepare underserved SMES across the region for the increasingly competitive digital economy.
Modernising traditionally inefficient payment channels
Based in Kuala Lumpur, Soft Space has grown to become a leading mPOS provider in ASEAN and has been working with financial institutions and merchants across Malaysia, Indonesia, Thailand, Singapore, Vietnam, the Philippines, Australia and New Zealand.
Through its centralised mPOS platform, Soft Space aims to revolutionise the payment industry by enabling anyone – from large retailers to rural merchants – to accept card-based payments. It has an EMV Level 2 certification (the first in Asia to achieve this) and is also certified by MasterCard and Visa; a testament to its security, credibility and global recognition.
The idea behind Soft Space came to founder Chang Chew Soon after becoming all too familiar with the inefficient methods used by small businesses to collect cash payments. Specifically, he saw his father’s motorcycle spare parts distribution business as being too reliant its sales force of seven people to collect orders and cash payment on daily bases.
This was not for a lack of wanting to innovate; his father had repeatedly tried convincing banks to provide him with electronic data capture (EDC) devices but was constantly declined due to costs and that his business model did not meet the banks’ regulations.
The problem peaked when one of his father’s salesmen fled the business with a lot of cash on hand. Chang was then emboldened to establish Soft Space in 2012 to provide SMEs low-cost FinTech solutions that would streamline payments and improve financial security.
Today, Chang has ceded much of Soft Space’s day-to-day operations to CEO Joel Tay, a FinTech veteran who previously founded payment services provider Fasspay (now incorporated under the Soft Space umbrella). He also possesses over a decade’s experience in finance consulting – which includes helping to develop the overall transformation strategy for Malaysia’s flag carrier, Malaysia Airlines Berhad.
“When we first started to look at how traditional payments – like card present payments – were being done back in 2012, we saw that it’s something that’s already been around for 20 years”, said Tay. “We therefore hatched an idea on how to disrupt this space by improving it, bettering the experience and to make it more accessible for everyone.”
Digitalising Southeast Asia’s underserved merchants
According to Tay, Soft Space made Asia a priority due to the region’s lacking security infrastructure for payments (a prime reason for the region’s high instances of fraud).
“Back in the 80s and 90s, Asia – especially Malaysia – was the ‘centre of excellence’ for card fraud. We therefore see the region as being the right place to look into card payments as well as security and experience, as you can learn from a diverse set of scenarios and fraud cases.”
While Soft Space is eyeing Asia, it is choosing to concentrate on Southeast Asia alone – particularly Indonesia, Thailand and Vietnam markets – as the countries, collectively, are already home to more than 400 million people.
“Culturally, we’re not that different from each other as we’re in the same region and economic bloc. Since they’re closer to home and because Malaysia already has bilateral trade relations with them, we can drive better payments standards to them more easily.”
One of the main challenges faced by Soft Space was engaging merchants based outside of Southeast Asia’s urbanised spots. Soft Space sought to overcome this by tapping into the region’s high smartphone penetration and applying central cloud processing using mobile payments – becoming the first company in Asia to do so.
By displaying the ease of which the technology can help streamline payments via the use of accessible mobile technology, the company then found it much easier to onboard merchants in less-developed areas.
Adapting customisable solutions region-wide
Rather than establishing offices around Southeast Asia, Soft Space’s regional business model is to instead provide its partners in the countries it operates the core technology which they can then adapt to the local market.
Tay believes that this is the right model as Soft Space’s core technology remains the same across the region, although the way it is adapted depends on current market conditions.
“The payment habits of people in Thailand are different than those in Malaysia. Also, the acquiring regulations and risk appetites differ between banks in the region. Although our core centralised payment technology remains the same, the way we adapt it or apply its controls and processes are different for each market.”
Although he admitted that Soft Space’s customisation of payment solutions has impacted scalability, Tay explained that having a one-size-fit-all approach would reduce the company’s ability to serve their diverse customer-base capably and efficiently.
“In everything that we do, we add an element of customisation; as people tend to do things differently from one another, even when they’re in the same market. This includes regulators as well. We need to look at the situation first before recommending a particular solution.”
Exploring new FinTech frontiers with MDEC
Since starting out in Malaysia with a team of 10, Soft Space’s staff now consists of 90 people and has expanded its payment solutions to 13 leading banks in Southeast Asia, Australia and New Zealand.
The company has also bagged a host of accolades over the years. In 2017, it was named as one of the Top 10 Fast-Growing Fintech Companies in Malaysia by the International Data Corporation (IDC) Financial Insights.
Another significant milestone is the securing of Series B funding from Japan’s Sumitomo Mitsui Card Company (SMCC) in April 2018, becoming the first company the company has invested in outside of Japan and the US.
The new venture means that Soft Space will have the opportunity to access the Japanese market to deliver of its customised payment solutions and cost-effective EMV (Europay, MasterCard and Visa) smart card readers for SMCC’s parent firm, Sumitomo Mitsui Financial Group (SMFG).
Soft Space is also looking build on the momentum of its recent investment round to seek new funding opportunities that can help the firm diversify its solutions and expand to new markets.
On boosting its global profile, Tay noted that MDEC has been especially helpful in mentoring Soft Space and raising the company’s brand visibility in Asia. Apart from elevating the company’s visibility through interviews with local and regional mainstream media, MDEC went a step further by name-dropping Soft Space in the agency’s seminars and conferences around the region.
“There’s only so much you can push via mainstream media channels. We’ve greatly benefited from the subtle things that MDEC has done, such as mentioning us during their talks and presentations. That way, I feel that it’s easier for people really take note of us as we’re not hard-selling ourselves.”
Looking ahead, Tay is hopeful that more advancements can be applied to the payments industry to improve transactional efficiency and security. For him, it is only a matter of time before innovations such as the blockchain and smart contracts are implemented for payment-related applications.
“Blockchain technology for the financial sector is starting to mature, but its application can only really be seen once the right regulations come into play and by learning more about how we can apply the innovation safely in our society.”