Ex-Temasek banker emerging as active fintech investor

Francis Rozario's Asia Capital and Advisors has put about US$40m into four fintech transactions


AN OLD hand in the banking industry has moved quietly into the fintech space, seeing vast opportunities in the consumer finance and SME lending space in this part of the world.

Ex-Temasek banker Francis Rozario's private outfit, Asia Capital and Advisors, has put about US$40 million into four early-stage fintech transactions, the Singapore-based investor told The Business Times in an interview. Most of these deals were completed in the last couple of years, reflecting the growth of the fintech industry in Singapore.

"We stumbled into it, because people started approaching us," he said, referring to fintech. He has at least one meeting each week with an emerging start-up in this area.

Mr Rozario, a 28-year veteran at Citi who was tapped to run Fullerton Financial in 2003, observed that banks cut their risk appetite in the post-crisis period, which gives fintechs significant elbow room to meet financing needs. "As fintechs evolve, banks can satisfy the higher risk appetite of borrowers and investors with a collaborative approach, rather than change their risk profile to enter a new space."

While he declined to say which other fintechs have attracted his attention, he said one area where fintech can tackle gaps is in peer-to-peer lending.

Smaller businesses in Asia still find it tough to secure financing, and with algorithms used to create new forms of credit underwriting, peer-to-peer lenders have a fighting chance in meeting financing demand, he observed.

But the crux is for peer-to-peer lenders to stay disciplined, and to hold strong "know-your-customer" standards, noted Mr Rozario, whose last assignment with Citibank was a roll-out of a risk model for SME banking across 15 emerging markets.

He pointed to the recent fraud case hit by one of the peer-to-peer lenders that has taken some shine from the industry. BT had reported in April that peer-to-peer lender Capital Springboard found last year that it had sold nearly S$7 million in fake invoices to investors - with all 60 sham invoices from a single SME.

To take on the consumer finance space, Mr Rozario has rounded up investors for StashAway, a licensed robo-advisor that aims to help Singapore retail investors build their retirement nest egg.

It is estimated that Singaporeans on average keep more than 30 per cent of their money in bank accounts, compared to less than 20 per cent for Americans. This means Singaporeans are having a significant part of their purchasing power eroded by inflation at a time when they are due to live longer.

StashAway, which offers 19 exchange-traded funds to retail investors and invests according to risk profiles of clients, follows a model developed in parts of US and Europe.

The aim is to offer a low-cost option to investors planning for the long term. Mr Rozario said: "It's been very refreshing to see a platform so focused on figuring out how to provide for customers for the long term, while using technical efficiency to reduce the costs of running such a platform."

Asia Capital has also pumped money into CCRManager, a fintech that focuses on the sale of trade loans on the secondary market, playing to Singapore's strength as a trade hub. "Today, banks sell these assets among each other in a very outdated manner, in a way which I would think keeps compliance managers on the edge of their seats," he said. More than 40 banks have signed up with the digital platform to distribute trade assets.

Where Mr Rozario would be more cautious is in the area of payments, which has attracted some 60 per cent of venture capital funds. In his view, payments make sense only when the service goes hand-in-hand with wealth management services, with Ant Financial leading the way in this regard. "I'm not sure that that in itself will be profitable, but it's complementing something else."

He noted that in time, banks would have to collaborate with fintechs to get a lift in income, with return on equity for most banks at mere low double-digit levels.

Mr Rozario, the ex-CEO of Bank Danamon in Indonesia - which is due to be controlled by Japan's MUFG in an acquisition announced late last year - also observed that there has been regulatory interference in certain areas, such as in micro-financing in parts of Asean, which has damaged business models.

He did not list examples, but it has been reported that the Indonesian government has capped lending rates at under 10 per cent.

"Billions of users are using Big Tech products on a daily basis to run their lives. To begin to use financial products from Big Tech is not such a big jump," he said.

"Banks need to make an honest assessment of their core competencies, risk appetite, culture and ability to change and innovate fast. They should defend what is most valuable to them and serve as an aggregator for other areas that will benefit their customers," he said.

Mr Rozario acknowledged that there may be some froth in the venture capital market, but said Asia Capital has avoided aggressive bidding, and would not spread itself too thin by taking punts. Instead, he would play the role of rainmaker, bringing in strategic investors for the funding round, and taking a seat on the board. "Investing is not about putting chips on a table. We like to think about opportunities that make economic sense."

He also sees the growth of the venture capital space as a consequence of a growing wealth centre here. In good time, Singapore can attract venture capital funds for investments into the region as well.

"We are not threatened by more supply," he said. "People who have excess wealth to put some percentage of wealth into high-risk ventures should do it. (Others) put money in art, and some put it in wine."