No profit, no problem: Why VCs poured US$47 million into loss-making Qoala

In The Top Up this week, we look at the Indonesian insurtech firm’s recent series C round and the wave of credit coming into Asia. [Read from your browser]( The Top Up 💵 Welcome to The Top Up! Delivered every fortnight via email and through the Tech in Asia website, this free newsletter breaks down the biggest stories and trends in fintech. If you’re not a subscriber, get access by [registering here]( IN FOCUS In today's newsletter, we look at: - [Why unprofitable insurtech firm Qoala still managed to secure a large series C investment]( - What the strong inflows of credit into Asia mean for borrowers in the region - [How the humble QR code is shaking Vietnam’s payments scene]( --------------------------------------------------------------- Hello {NAME} I once interviewed the founder of an insurtech firm who said that he wanted to bring “insurance and love closer together.” I didn’t love insurance then, and I still don’t love it now. Maybe that’s a sign of how fortunate I’ve been. After all, the fact that I haven’t had to claim a payout from an insurance policy means that nothing bad has happened to me so far. Whatever the case, the insurtech industry continues to see tremendous growth. In this week’s featured story, my colleague Budi notes that Indonesia’s Qoala has generated US$280 million in gross written premiums since 2020, with 52% of that recorded in 2023. Investors appear to like what they see, even though Qoala has yet to turn a profit. The company has just raised US$47 million in a series C round led by PayPal Ventures and MassMutual Ventures, bringing the total capital raised to over US$130 million. Budi’s article explores why, even amid today’s high interest rates, investors are willing to look beyond the bottom line to bet on Qoala. On the topic of high interest rates, I take a closer look at how this hasn’t stopped a wave of credit from coming into Asia, with nearly half a billion dollars worth of funding for lending to MSMEs and startups being announced over the past week. -- Simon  --------------------------------------------------------------- THE BIG STORY [Why is Paypal’s VC arm betting on Qoala despite the insurtech firm being in the red?]( Despite generating US$280 million in gross written premiums since 2020, the Indonesia-based startup has yet to turn a profit.  --------------------------------------------------------------- THE HOT TAKE Lending booms in Asia despite high interest rates Here’s what happened: - The past week has seen lots of activity in the lending space, with nearly half a billion in funds committed to lending to SMEs and startups in the region. - This includes traditional banks like [DBS]( and [HSBC]( along with tech players such as [Ant Group]( and [Crowd Credit]( - Major tech platforms like Sea Group, Grab, and GoTo Group have also talked up their lending capabilities. Here’s our take: Central bankers aim to lower inflation by raising interest rates. The theory is that higher rates lead to lower borrowing, which constrains economic activity, and hopefully brings down excessive price increases. However, despite the fact that interest rates in many countries are at generationally high levels, lending activity does not seem to be slowing, at least in the tech sector. DBS’ Indian arm has pledged to lend US$250 million to the country’s startups, while HSBC Singapore has committed US$100 million to Indonesian lending platform Akulaku. Meanwhile, Ant Group has topped up the capital of its Singapore-based digital bank Anext - which focuses on regional and local MSMEs - by US$148 million. The most recent funding news involves Japanese lending platform Crowd Credit, which has partnered with Singapore fintech firm Helicap to channel US$50 million to Southeast Asian firms. This increased lending activity speaks to the extent to which individuals and businesses in the region lack access to capital. Clearly, there’s also good money to be made because these lenders aren’t giving out funds out of charity. For example, a [tool]( available on Anext’s website shows that if a business were to borrow S$100,000 (US$74,352), with a repayment period of over 6 months, the estimated total repayment would be S$105,000 (US$78,070). This works out to an interest rate of 5% for the period, or around 10% annualized. That’s far higher than the [2.74%]( interest the holder of a Singapore government bond can expect over a one-year period. Of course, the Singapore government is one of the safest borrowers in the world, whereas lending to MSMEs in the region entails taking on much larger risks. However, it seems that many are relishing the opportunity. Southeast Asia’s tech platforms are in on the action too. Indonesia’s GoTo Group saw its consumer lending book grow by 32% quarter on quarter to [US$123 million]( in the fourth quarter of 2023 - its most recent quarter. As for arch-rival Grab, total outstanding loans rose by 18.5% from the previous quarter to [US$326 million]( in Q4 2023. Crucially, credit quality seems to be holding up. GoTo’s non-performing loans (NPL) amounted to 1.3% of its total loan book in December, while Grab said its NPL ratios were at a [“low single digit.”]( So far, so good. However, the question is whether these numbers are sustainable when credit continues to flow into the system, especially when the economic outlook for 2024 is mixed. 2024 is expected to be a ["transitional year"]( paving the way for a more sustained recovery in 2025. Meanwhile, Southeast Asia may suffer from [weak external demand](. Also, borrowing money to expand a business is very different from doing so to fund consumption. A recent survey commissioned by Shopee on the habits of Gen Z consumers in six Southeast Asian countries reflects this concern. It [found that]( over 30% of users decided not to buy 70% of goods in their shopping cart on the ecommerce platform. A majority of these users (52%) said the items were above their budget. Shopee intends to expand Shopee PayLater - its buy now, pay later service - to all users. But will encouraging users to spend more, on items they would not otherwise be able to afford, really benefit them? Of course, consumers should be free to decide for themselves how best to manage their finances. But the huge sums of credit finding its way into the region may not be an unalloyed good. -- Simon  --------------------------------------------------------------- NEWS YOU SHOULD KNOW Also check out Tech in Asia’s coverage of the fintech scene [here](. 1️⃣ [Soft Space enters capital partnership with Japanese payment firm ahead of series C raise]( The partnership follows Soft Space’s US$31.5 million series B1 round in April last year. 2️⃣ [GoTo Group in ‘execution mode’ for TikTok’s ecommerce, fintech integrations]( The Indonesian tech giant had finished a “transformative” 2023 with its first-ever positive adjusted EBITDA. Its share price remains down, however. 3️⃣ [Japan looks to integrate QR payments with SEA countries by 2025]( The potential linkages will let Southeast Asian travelers use their homegrown payment apps for transactions in Japan – and vice versa. 4️⃣ [FWD lays off employees in Singapore: sources]( The job cuts, which an industry source said affected a “small number of roles,” come after the insurer delayed its IPO plans again. 5️⃣ [Paytm gets nod to be third-party UPI provider, shares jump 5%]( Yes Bank will act as the merchant acquiring bank for new UPI merchants linked to the Indian fintech giant.  --------------------------------------------------------------- FYI [Vietnam’s QR code revolution puts pressure on digital wallets]( Fueled by the simplicity of a QR code, Vietnamese consumers are embracing cashless payments at an unexpectedly rapid pace.  --------------------------------------------------------------- That’s it for this edition - we hope you liked it! Do also check out previous issues of the newsletter [here](. Not your cup of tea? You can unsubscribe from this newsletter by going to your “edit profile” page and choosing that option in our preferences center. In the meantime, if you have any feedback or ideas, feel free to get in touch with Terence, our editor-in-chief, at terence@techinasia.com. See you soon! P.S. Don't miss out on the biggest tech news and analysis. Add newsletter@techinasia.com to your address book, contacts, or safe sender list. Or simply move us into your inbox. Too many emails? Switch to a different frequency or get new content through our [preference center]( or [unsubscribe](. You can also break our hearts and remove yourself from all Tech in Asia emails over [here](  Copyright © 2024 Tech in Asia, All rights reserved. 63 Robinson Road, Singapore 068894