e-Commerce is a growing industry in Southeast Asia, although there is still a big gap to be addressed, especially among the so-called “unbanked” users in the region. These are individuals who, for some reason, are unable to sign up for credit cards or don’t have savings or checking accounts with regular banks. At Echelon 2013, Movenbank’s Chief Mobile Officer, Scott Bales, made an interesting presentation on how banks are having a hard time catching up to the increased digitalization of our world.

“Are you ready for Isaac?” Scott asked, referring to the new generation of digital natives. It seems some startups are already paving the way for financial institutions to provide purely digital services, while banks are not as fast to adjust and adapt.

In the Philippines, Ayannah is a startup that offers non-bank online payment methods, and also offers an e-commerce gateway that can be used by overseas workers in sending goods to their relatives back home. The three-year old startup recently closed a US$1 million funding round led by Siemer Ventures, Golden Gate Ventures, plus the backing of a few angel investors and investment arms of prominent family businesses in the Philippines.

Marked improvement in the startup ecosystem

Ayannah founder and CEO Mikko Perez told e27 that this funding round has actually been one year in the making, with the company starting negotiations in January of 2012. According to Mikko, the startup scene in the Philippines has seen a marked improvement since the company launched in 2010, when it won at the ON3 pitching competition. “Venture capitalists, investors and startups are starting to become more active,” says Mikko. It’s “amazing” he says, how the technology, new media and telecommunications industries have bloomed.

He says the rise of incubators and accelerators in the country — like Kickstart Ventures, Ideaspace, Launch Garage and MVP’s Incubator — is encouraging. What’s great is that “there is still room to grow,” notes Mikko.

More than just capital

It can be noted that Ayannah’s seed funding is relatively bigger than other local startups. Mikko said that, of course, funding amounts will differ depending on the industry that you are in. “We are a software-driven business, and don’t really require big capital. Case in point: the advent of cloud computing makes it easy to deploy applications online,” Mikko said. Therefore, it’s “easy to launch something.” However, once a business reaches a certain point, it will need to raise capital to continue growing.

But going beyond capital, Mikko has highlighted that the value of getting institutional investors is bigger. “The value is in the added network of investors who can help get us connected to the right people, and get started in the right industries.” This can sometimes make or break a startup business.

Send, ah? Ayan na!

On the Ayannah website, the startup gives a few explanations as to their name. Ayannah means “innocent” in Sanskrit. It also phonetically translates to “love” and “peace” in Chinese. In Filipino, “ayan na!” means “there it is,” which can probably best describe the startup’s business models.

Mikko explains two of Ayannah’s core businesses so far: Sendah and Sendah Direct. Sendah is an e-commerce gateway that enables overseas Filipinos to buy and send goods to their loved ones locally. “We currently target overseas Filipino workers (OFWs) initially, but we also plan to expand to other migrant communities,” he explains.

Meanwhile, Sendah Direct is a peer-to-peer money exchange platform that has partnered with small retail establishments — pharmacies, pawnshops, stores — for receiving and sending credits. “We started out with retailing,” Mikko pointed out. “We want to create a network of agents to collect cash and receive payments for things. Eventually, Sendah will become a person-to-person network for digital transactions.”

But what’s the advantage of Sendah, given that banks and remittance services abound? According to Mikko, it helps reduce friction in transactions. A migrant worker can only go to the remittance center during weekends or after hours, usually once per month or so. With Sendah, they are making purchases for their families themselves. “If I just send money, I’m not sure how it will be used.”

Also, this will help save on remittance fees and other transactional costs like transportation. “These guys are very busy and don’t have the time to go to the remittance center all the time. With Sendah, just load up your account and you can make transactions online.”

Cash is still king, but …

I asked Mikko about potential competitors in the same space. For one, GCash (run by Globe Telecom) and Smart Money (run by Smart Communications) have been around for almost a decade. But these did not seem to gain traction. Mikko said the carriers are not in the best position to market a cashless transaction system. He highlighted that telcos launched these products to help ensure customer loyalty. These systems are not inter-operable after all.

“It will require a neutral party to really make a difference,” Mikko notes. In this regard, then, I asked about Bitcoin, which is making the waves in both engineering and financial communities worldwide.

It depends on mindset

Mikko notes that online services like PayPal and virtual currencies like Bitcoin are now on the rise, but it’s a matter of consumer mindset and behavior. “Cash is still something hard to compete with — it’s universally accepted, and it is tough to get people accustomed to not using cash. It’s an even tougher consideration than the technology used for monetary transactions.”

The founder agrees that for any new technology, it’s usually the younger and more affluent set that will be early adopters. However, Ayannah’s target market is really the mass market segment. “In the Philippines, the regulatory framework makes it difficult for banks to reach the mass market segment, given capital requirements, space requirements and physical requirements for banks in opening a branch,” he said. Mikko cited the case of Kenya, where thousands of individual persons are acting as intermediaries, accepting “deposits” and making “payments” on behalf of banks. This is not currently possible in the Philippine setting.

Some banks are trying to change the mindset of “branch-based” banking, though. Bank of the Philippine Islands (an Ayala-owned institution) has its BPI Direct and also Globe “BanKo”, in which users can open an account through intermediaries like pawnshops and stores.

At this time, though regulatory frameworks are quite conservative. “New technologies are emerging, and the often outpace changes in the regulatory framework,” Mikko noted.

The future

With the funding, Mikko and team will focus on executing its business plan and growing the business. “We want to build up our customer base, add derivative products and expand to at least one overseas market that also has a big emigrant community.” The company is also seeking to improve access from mobile devices, noting that this is the primary means of Internet access in emerging economies. However, given that feature phones still outnumber smartphones, Ayannah will have to work on the best ways of providing services, without necessarily requiring a persistent data connection and a smartphone.

At this point, Ayannah is looking to expand its capabilities through partnerships and collaboration. “We’re very open to partnerships. The startup communities in the Philippines and Southeast Asia are still very new. I think there is more benefit to working with one another than competing. We are trying to create an ecosystem of partners. There are so many problems to solve, and it will help if we can each help with solving the ones that we can focus on. But if there are other people solving similar problems, we would prefer working with them rather than compete head on.”

Image Credits: Hand pressing virtual symbol of dollar/ Shutterstock