Zipmex, the Singapore-based cryptocurrency exchange, recently raised USD 41 million in a Series B fundraising round led by Krungsri Finovate, the venture capital (VC) arm of Bank of Ayudhya PCL. Other investors include SET-listed multimedia companies Plan B Media PCL and Master PCL, Hong Kong-based VC MindWorks and returning VC investor US-based Jump Capital.
Speaking to Bread News, Marcus Lim discussed Zipmex’s expansion plans in APAC, his thoughts on centralised vs decentralised finance, CBDCs (central bank digital currencies) and how regulation and financial education are key to widespread adoption of digital assets.
Can you share details of how Zipmex intends to use the funds raised to “fuel aggressive expansion” in Singapore, Thailand, Indonesia, and Australia?
How we’re going to use the money is to further develop the core products that we have and also explore the other products that we are looking to launch. There’s a whole ecosystem around ZMT – Z World and Z Launch. Z World is the ability to redeem lifestyle benefits that are exclusive in each of these countries. So that will be developed for each of these countries whether it’s in Thailand, Indonesia, Singapore, or Australia.
And then Z Launch is the ability to participate in new projects coming on or getting listed on Zipmex itself. It requires people to hold a number of tokens in order to be eligible for that. So there are six of these products that I’ve just mentioned. But the key is how do we continue to develop each of these products to make sure that it reaches a point where customers are continuously coming back to our platform and using it; making sure that’s super sticky.
Also, how does Zipmex intend to cater to the needs of these markets and where do you see the company in the medium term?
What we’re going to do is continue to develop our product. Our product when we start off is an exchange where you can buy and sell. So you have the more sophisticated part where you go to the web, or you can do it by the mobile app. Buying and selling of digital assets is quite commoditised now with a number of players in each of these countries.
So the key for us is how do we develop other value adding products as part of a suite. The first one that we launched outside of the exchange is the interest bearing product so you can actually earn yield.
The other two products that we’re exploring are payments and lending. We’ve partnered with Visa for payments in Southeast Asia. We haven’t launched lending yet because we have to work with government regulators in each country to essentially lend and that might require licensing to provide that product as well.
How important is regulation in the crypto space?
The whole regulatory landscape in Southeast Asia is still developing. Each country is very different, each country cares about regulations differently. So for example in Indonesia, they care about having different entities doing different things. There’s the exchange entity and there’s the custodian entity. And then there’s the clearing and settlement entity, whereas in Thailand, it’s all in one. Singapore cares about AML and KYC, they want to know that money that is coming in and going out is being accounted for. Australia is still quite ambivalent about how they want to regulate crypto.
So risk and compliance is something that we need to invest in as well, because we’re still pretty young, and there’s still a lot of gaps within our business that we need to improve on to make sure that we’re fully compliant.
Do you think it’s important to educate the masses especially given that crypto is still a very exclusive and complex idea?
Education is really important. I think Singaporeans generally are quite educated in terms of financial education. But Southeast Asia is not, especially in Indonesia. There is almost none. So our job is to help them to understand how to not just invest but to save and also to spend. And I think there’s a broader kind of topic here of education to the masses. I mean we come from a digital asset perspective but there are other content players as well in the market trying to educate the people in terms of how to save, invest, and spend.
So we’ll be heavily investing in education. Education is important because it builds trust with the ultimate end consumer or customer. And I think education is important so that people understand how to invest their money as opposed to losing their money when they’re getting into a very volatile and high risk asset class.
Do you think that centralised finance is the bridge between fiat-based finance and decentralised finance?
I wouldn’t say it’s a bridge. We can act as gatekeepers to DeFi, meaning that customers don’t necessarily need to go into the DeFi ecosystem in order to get access to it. They can get access to the benefits of DeFi through a CeFi platform like us. I think centralised finance acts in a very different way compared to DeFi. Some of the concepts are similar like interest, but in terms of who governs it, there is no central body that governs DeFi, hence the word DeFi.
I think the unbanked population can get access to DeFi but the reality is they will not know how to do it. And so I think they will require gatekeepers like us who can be the bridge between fiat money and money coming into crypto.
The inherent issue with DeFi is that there’s no accountability. And that’s why there’s so many bad actors out there misusing the ecosystem.
So I think customers who are not educated that want to get exposure to DeFi can come to an exchange that’s accountable to the government or regulators to act honestly, and to help consumers in each of these countries invest into DeFi. That’s how we see it.
So you’re trying to make centralised finance as accessible to the unbanked population as decentralised finance?
I think for the unbanked population, the first issue that they need to solve is how do they bank people without actual bank accounts. That’s the issue. This whole topic of financial inclusion in Indonesia has been around since 2016 when I was there for the first time. And the problem is that it’s not profitable for banks to provide infrastructure into these rural areas, simply because these guys don’t make a lot of money.
There are other players in the market that are trying to do something that’s less capital-intensive to get to the unbanked population. But I think some of the interesting things that can be done here is, you know, a lot of the central banks have come out with their CBDCs which Thailand also said they’re trying to work on and we’re working together with them to roll that out. Indonesia also said they’re working on it.
If there’s a way for CBDCS to be rolled out, where people can actually accept and make payments with. And really the only tool that you need is your mobile phone. I think mobile penetration is definitely peaking in Indonesia. It was fast-growing in 2016. So getting mobile devices into the unbanked population is critical because there is no other way to get access.
And then if they are able to roll out a way for CBDCs to be used so that peer-to-peer transfers and everything can all go through the blockchain, it will not require settlements from a central bank perspective. Because the problem with Indonesia as well is that it’s very fragmented in terms of banking.
So there’s around 90-odd banks in a country with 4 different tiers. You’ve also got smaller banks in rural areas. And in terms of money transfer because different people have different bank accounts, when you send money, it has to be settled, and then settlement actually takes a while, if it’s not within the same network.
Now if you implement CBDCs, that whole concept, depending on the protocol that they use, then it’s effectively sending crypto across one address to another. If it’s going to be on a private blockchain there’s no transaction fees, and then it’s just a matter of just sending it from one address to another. It’s just a mobile phone where you can just send money like how we do with PayNow using blockchain as the rails. Then settlement will just be instant without the need for banks.
But again, it depends on the government in terms of how they’re going to roll this out.
Lastly, what would you say are some key differentiating factors that makes Zipmex stand out from its competitors?
The first one is being regulated. We’re the only ones in Southeast Asia/Asia Pacific that have this presence. All the other exchanges in each of these countries are very much siloed to that country.
I think the good thing about being in multiple countries is that we can actually develop a best-in-breed compliance system that fits the bill for all of these countries that we’re in. This puts us on a front foot with the regulator. We can say that we’re implementing these things that we know are going to come out and have already been implemented in other countries.
And the regulatory part is really important because we’ve seen other exchanges getting cracked down by regulators. A lot of people put their money into unregulated exchanges and they take a massive risk there. Because there’s no recourse. If they decide to take your money and run away with it you cannot do anything about that.
Whereas for us, you know you can go to the regulator to make a complaint and we’re accountable as directors of the company.
The second part is about differentiating products in the countries that we are in. For example, launching an interest bearing product which none of the other competitors in Indonesia, Thailand or Australia have offered. And I think going to lending and also payments, like I mentioned, differentiates us as well.
I think collateralised lending of crypto will be really really interesting. A lot of people have bought crypto over the last few years. Being able to kind of use crypto as collateral, and then be able take out a loan from that. There’s definitely demand. We have a lot of customers asking us but we just don’t have the product yet. So I think product differentiation is really key.
And then the third one is how do we make it hyper-local. How do we make it very relevant to each of these countries that we’re in? For example Thailand or Indonesia, how do we make the product hyper local, and that’s something that we’re trying to work on, because there is no one size fits all.