FINTECH GROWTH STORY IN SOUTHEAST ASIA
Fintech, has been one of Southeast Asia’s fastest-growing digital sectors. Southeast Asia’s massive unbanked population and increasing Internet penetration make it a hotspot for fintech innovation and a promising market for innovative financial goods and services. Covid-19 is accelerating the Digital Shift: owing to the increased internet connectivity and physical distance constraints caused by the Covid-19 Pandemic, digital services have spurred. The e-Conomy SEA 2021 report by Google, Temasek, and Bain & Company, internet users in the region’s top-six economies climbed by over 40 million in 2020, with close to 70% of the population being online, up from roughly 46% in 2016.
“The enormous underbanked population in Southeast Asia gives substantial possibility for fintech industry expansion; as the sector expands, we expect businesses to strengthen their focus on profitability”: Fitch Ratings.
Few Success Stories
KoinWorks is one of the leading digital lenders in the growing P2P lending space in Indonesia. The FinTech firm has enabled thousands of SMEs to access credit and grow their business through a simple app-based lending platform.
Initially starting off as a taxi- hailing service in Malaysia, Grab Holdings that has expanded into providing numerous consumer services, including ride- sharing, food and package delivery, and online payments, among many others. Grab has grown exponentially since being launched in 2012 and has become Southeast Asia’s most valuable start-up Commanding a valuation of $16billion.
APIX was launched in 2018, at the SFF, under the ASEAN Financial Innovation Network (AFIN), a social impact initiative backed by MAS, IFC and the ASEAN Bankers Association. APIX facilitates financial institutions’ adoption of APIs and enables them to rapidly deploy new digital solutions to underserved markets in ASEAN and other parts of the world.
Key Drivers in SEA Fintech Large Unbanked Population
According to the The e-Conomy SEA 2021 report study, over half of Southeast Asia’s approximately 400 million individuals do not have a bank account. More than 90 million people are “underbanked,” meaning they have a bank account but no access to financial goods, insurance, or credit. According to the study, millions of small and medium-sized businesses have major financial shortfalls. Today, more than 70% of SMEs solely take cash payments.
The situation is particularly extreme in Indonesia, where more than 70% of adults — around 140 million people — are “unbanked” or “underbanked,” owing to the high cost of providing traditional services. It has been practically difficult to build physical banking networks, like as branches and ATMs, to cover an archipelago of 17,000 islands and service largely low- income people.
According to the World Bank, more than half of the ASEAN-6 population was unbanked in 2017, with the majority of these people living in Indonesia, the Philippines, and Vietnam. Lower salaries are a barrier to broader financial inclusion, with a lack of finances being the most often mentioned reason for absence of a bank account. The archipelagic structure of Indonesia and the Philippines adds to the complexity, as distribution and maintenance expenses in those markets are higher.
SEA Population and Internet Penetration (Source: Statista)
However, the country’s and the region’s growing use of smartphones is transforming the scene.
Southeast Asian nations have about 500 million internet users, with more than half of them under the age of 35. Every year, more than 22 million individuals join the mobile phone revolution. As earnings climb over the next decade, this creates a big pool of customers who will drive demand for financial services. The favourable demographics and low financial penetration of Southeast Asia make it an appealing target for fintech entrepreneurs.
The focus is shifting away from the United States and toward Asia and Europe. Because of its large market, skill, finance, and political stability, the United States has long been the preferred location for startups. Those elements are now equally, if not more, readily available in Europe and Asia. Southeast Asia is one of the world’s fastest expanding areas. The new innovations are being pioneered by a highly engaged mobile audience with a strong proclivity to accept new technology. to the top of the region’s fintech hotspots. Due to favourable conditions such as the presence of a robust financial sector and investor ecosystem, fair government laws, and better physical and digital infrastructure, Singapore has solidified its leadership in this field, with over 490 fintechs.
A young generation in Indonesia, the region’s largest economy, is driving the development of alternative loans and e-money. Dealco predicted that e-money transactions increased 173 percent from January 2019 to January 2020. Vietnam has experienced fast growth in this area as well, thanks to government assistance and a thriving e-commerce sector. Despite the COVID-19 outbreak, Southeast Asian fintechs have continued to garner capital. Asia-Pacific fintech businesses raised $3.1 billion in 113 agreements in the fourth quarter of 2020, according to financial analysis company S&P Global, the biggest quarterly fundraising activity of the year. In 2020, the region’s total fintech investments will be $6.8 billion. Southeast Asian fintechs accounted for 28% of Asia- Pacific transaction activity and 17% of the region’s fundraising value in 2019, up 2% and 3%, respectively, from the previous year. This amount excludes cash raised by the two regional e-commerce and delivery behemoths, Grab Holdings of Singapore and GoTo Group of Indonesia, as well as the recent merger of Tokopedia and Aplikasi Karya Anak Bangsa, or Gojek.
Southeast Asia’s burgeoning Internet and Fintech industries
The internet economy in Southeast Asia is primarily driven by a rapidly rising, engaged, young, and mobile-first population. Internet usage is increasing by the hour every day, and the Internet economy’s gross merchandise value (GMV) is rapidly expanding.
Covid-19 will accelerate the digital revolution of financial services in Southeast Asia
Covid-19 will accelerate the digital revolution of financial services in Southeast Asia As a result of the present Pandemic, more people are using (and needing) digital financial services. In Southeast Asia,. Cash is still the most common form of payment nowadays. In 2019, 70% of SME retailers only accept cash. The Covid-19 outbreak has hastened Southeast Asia’s transition to a cashless society, with an unprecedented increase in e- payment transactions and a sharp drop in cash withdrawals and deposits. Throughout the lockdown, banking, digital payments, and loan-financing services propelled the economy forward. Because many fintech companies are startups, their ability to adapt their operations to provide specialised services as needed by consumers bolstered the industry. Southeast Asian venture capital groups, led by Singapore, are pouring money into European start- ups at an all-time high. At the same time, European fintech companies are moving into Southeast Asia to take advantage of a large and underserved mobile- first populace. This will not only bring fresh innovation, investment, and experience to the region, but it will also open up new partnership opportunities.
Chinese tech behemoths are aggressively expanding their presence in ASEAN, whether through purchase, cooperation, or growth. In addition, these markets are hoping to benefit from Chinese technological advancements and growth. In the next days, SEA might be on Indian Fintech’s radar. At the very least, they would be able to share their knowledge and invention with one another. UPI, for instance, might be a game changer for both areas.
Rise of fintech is accelerated by venture capital investment
Venture capital funding has aided the growth of fintech. In 2019, $1.6 billion was invested in the region, up from $0.2 billion five years prior. Foreign investments are rising with time. For financial institutions and established players, Southeast Asia is becoming a “fintech battlefield.”
Supporting Regulatory Bodies
Governments are encouraging the growth of digital financial services, and regulations are becoming more open across the area. In fact, the most important deciding factor in the development of digital
financial services throughout the region will be supportive and consistent regulations and government policies. A case in point are the regulatory sandboxes in Singapore and Thailand, which allow businesses to test new ideas in a controlled environment under the supervision of regulators. To improve the efficiency of financial services, Singapore and Thailand adopted standardised QR codes for mobile payment. Singapore has a centralised online identity system that allows citizens to save, examine, and manage personal data submitted to the government. Indonesia launched a National Strategy for Inclusive Finance, which aims to grow the economy by expanding the banking services market. Vietnam has made similar declarations. Digital bank initiative by MAS will build on SEA’s long- standing commitment to supporting the development of the digital economy in its home market, as well as Singapore’s role as a global hub for technology and financial service. The approval of digital banking licenses promises to strengthen Singapore’s banking and finance sector, ensuring it remains resilient, innovative, low cost and competitive. It will make financial services more accessible to underserved segments, such as millennials and SMEs.
Digital Payments are likely to leapfrog with transaction values exceeding $1 trillion by 2025. The other services— lending, investment, and insurance—are still in their infancy, but each is expected to grow at a rate of more than 20% per year through 2025. Innovations in consumer lending and SME working capital finance will inevitably lead to digital lending becoming the major revenue source.
As financial institutions are able to onboard faster technologies for middle and back office, the focus of emerging FinTech companies will shift from B2C to B2B.
For the next generation technology stack of financial services, new infrastructure platforms will be established to consolidate the market in specialised sectors. In addition, products like BNPL will gain popularity in the coming days.
The industry is currently worth $11 billion, but by 2025, it could be worth $60 billion.