Our most recent study reveals that Asia’s financial consumers are quickly converting to online banking, creating both challenges and opportunities for businesses. But in comparison to the European market, fintech businesses in Asia are lagging.
Modern and digital banking has had a revival in South-East Asia, partly due to shifting consumer tastes and governmental intervention.
This is best exemplified by the Monetary Authority of Singapore (MAS). It announced the availability of two digital full bank licences and three digital wholesale bank licences at the end of August 2019. As a result, MAS saw a broad variety of uses. This includes submissions from fintechs, IT and telecoms corporations, and e-commerce companies.
The region has several regulators besides Singapore’s. The Malaysian central bank made intentions to grant up to five new online banks licences public in December 2019. In September 2020, the Philippine central bank released its framework for digital banking.
South-East Asia is becoming a more significant worldwide market, particularly when you take into account the region’s population increase. By 2030, the region will have 542 million inhabitants, making it the fourth most populous region in the world behind China, India, and the EU.
The Southeast Asian banking system’s inaccessibility is currently being disrupted by digital financial services. post-COVID-19
Despite having a population approaching 600 million and a GDP of close to US$3 trillion, the region is frequently overshadowed by its superpower neighbours China and India and is one of the least understood.
Since the turn of the millennium, income growth has been significantly accelerating due to a combination of developed and emerging economies, urbanisation, and digitisation, which have been driving economic growth at a level consistently exceeding historical global averages. Six megacities, which together account for nearly a third (30%) of the region’s GDP, are home to about 15% of the region’s population. 7
Before the pandemic, urbanisation and robust economic growth were bringing about a growing middle class, a consumption-driven boom, and a reduction in poverty (the percentage fell below 10% for the first time in the past decade8).
However, half of the population still lacks access to financial products and another fifth (18%) is underbanked, having only access to a bank account.
9 Many people’s inability to access the established banking system has created the perfect environment for providers of digital financial services to enter and bolster it.
Digital consumer finance
“A sizable, rapidly urbanising, technologically savvy, but underbanked population can be found in Southeast Asia. Cash has always played a significant role in daily life and still does in many ways, but digital finance companies are steadily bringing the underbanked and unbanked out of the cold.”
The opportunity for FinTechs doesn’t end with e-wallets and online payments, though, unlike in other markets with more widespread banking access. Major payment platforms with captive user bases are increasingly making money by making a wide variety of financial services available to a sizeable portion of the population that has never had access to them before.
“This presents a chance for businesses and investors alike while also increasing financial inclusion and access to economic opportunity in the region. As investors, we are increasingly focusing downstream past platforms on startups that are using technology to deliver financial products, from credit to insurance to alternative credit options like buy now pay later, and everything in between.”
Democratising commerce
Unsurprisingly, digital financial service providers are essential to their ability to make the transition. Players like GoTo and Grab are becoming more important for small businesses because they not only help with online payments but also with fulfilment and logistics. One simple initiative is the introduction of QR codes to accept digital infrastructure with low payments and give access to new customers who may be hundreds of miles away.
Accordingly, as digital wallets encroach more and more on the realm of cash transactions, it is predicted that the amount of money flowing through them in Southeast Asia will more than triple from its current $US39 billion to $US138 billion in 2025.
Financial inclusion
The chart below shows the annual GDP growth rates for nations with low (25th percentile), median, and high (75th percentile) levels of financial inclusion in the digital world while maintaining other growth-explanatory variables at their median levels.
At the national level, financial inclusion boosts GDP growth, creates jobs, expands commercial opportunities, raises living standards, and can significantly lower poverty rates21 and income inequality in developing nations.
In fact, the World Bank lists the availability of mobile and digital payment options as a prerequisite for financial inclusion, which the IMF defines as the link between economic opportunity and results.
