The digital financial services in Southeast Asia is expected to jump 3-5 times to reach US$38-60 billion by 2025, a report jointly conducted by Bain & Company, Google and Temasek has revealed.
The report, called Fulfilling its Promise – The Future of Southeast Asia’s Digital Financial Services Industry, includes data from consumer and merchant surveys, corroborated with expert interviews and databases.
It calls Southeast Asia one of the world’s largest and fastest-growing regions, although 75% of consumers in the region are currently underbanked or unbanked, with limited access to financial services in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
Digital financial services offer accessibility to this potential consumer base, given the region’s high smartphone penetration and engagement, facilitating greater customer adoption of embedded financial services, the project mangers said.
Among various services, digital payments is the most advanced and will exceed US$1 trillion in transaction value by 2025.
Both digital payments and digital remittances are at inflection points. The other services – lending, investment and insurance – are still emerging, but each should grow by more than 20% annually through 2025. Among them, digital lending is expected to emerge as the largest revenue contributor led by innovations in consumer and SME lending.
“Southeast Asia’s internet economy is growing at a blistering pace and is set to reach $300 billion by 2025. Alongside e-commerce and ride-hailing, digital payments has reached an inflection point and is now emerging as a gateway to greater digital financial inclusion,” said Stephanie Davis, Google’s Managing Director for Southeast Asia.
This underbanked segment of 98 million across the ASEAN-6 represents the biggest potential and true growth engine of the digital financial services market. In contrast, the survey organizers say digital financial services will not be a panacea for reaching the unbanked population.
Contrary to common perception, fintechs and consumer tech platforms are not yet making a meaningful impact on the unbanked segment. Governments and telecom companies will need to play a key role in accelerating the development of infrastructure needed to efficiently serve this segment, and combining their access with strong product and underwriting capabilities from partners, officials from the project said.
“We anticipate growing consumer acceptance of fintechs and consumer tech platforms in Southeast Asia, with new entrants closing the trust gap to established players, particularly in the fast growing markets like Indonesia and Vietnam. Companies that surface as leaders will be those that make themselves the gatekeepers for consumers and merchants,” said Aadarsh Baijal, partner and leader of Bain & Company’s Digital practice in Southeast Asia.
“For Southeast Asia to realize its full potential, there must be supportive regulations, a strong financial infrastructure and scaled funding in place.”
Despite the march of new players entering the market, it is unlikely that consumers and merchants will move away from banks completely. Banks have capital access and regulated deposits. Funding and balance sheet management remains a potential risk to scaling fintech lending businesses.
Should markets truly open up to data sharing through open banking, Bain expects to see a rapid shift in business models with an even broader array of opportunities for disruption.
Rohit Sipahimalani, Joint Head, Investment Group, Temasek said, “Investments focused on innovative solutions that stimulate adoption will be crucial to the growth of the digital financial services sector in Southeast Asia. Together with businesses, governments and communities, we are committed to helping drive financial accessibility and inclusivity in this region.”
