It is almost certain that when we talk about financial technology (fintech) development in Asia-Pacific, the focus usually shifts on China or even India to some extent. These large economies tends to overshadow Southeast Asia potential. But, it might not be the case for long.
Southeast Asia is emerging as an ideal location for fintech companies looking for an alternative to China or India, due to its growing population and the openness to new form of financial services.
The region top six economies (Singapore, Indonesia, Malaysia, Philippines, Vietnam, and Thailand) combined have a population of around 600 million, of which half are below 35 years old. In countries like Indonesia, Vietnam, and Philippines, most of the population are unbanked.
According to a Fitch Ratings research note, “Lower-incomes are a hurdle for greater financial penetration, with a lack of funds being the most cited reason for not having a bank account. Additionally, geography poses further complications, as the archipelagic nature of Indonesia and Philippines raises distribution and servicing costs.”
Looking to gain a competitive advantage, several fintech focused organizations have started to carve out a market for themselves in the region. For example, digital banks have been launched and there are many more that are launching in the coming few months. CIMB and ING digital banks are looking to grow market share in Philippines while UOB’s TMRW digital bank is focusing its attention to Thailand.
Since the beginning of the pandemic, fintech companies focusing on payment processes in Southeast Asia have flourished as the use of physical cash among consumers dropped under social-distancing measures.
E-wallets services offered by the likes of GrabPay and AirPay are gaining traction in the region. In a Visa’s Consumer Payment Attitudes Study 2021, around 60% of Southeast Asia participants cited their preference for e-wallet usage over credit cards due to the high barrier to entry for obtaining credit cards.
Other areas that are spurring the development of fintech includes alternative financing for small and medium enterprises (SME’s) and wealth and management platform.
One of the key factor in the development of fintech services in Southeast Asia is encouraging financial regulations for consumers and businesses. For an example, peer-to-peer lenders in Indonesia have to register with the country’s Financial Service Authority and meet minimum capital requirements.
And investors are starting to notice Southeast Asia potential. In a KPMG’s recent Pulse of Fintech Report H1 2021, it was revealed that two of the top 10 fintech deals in Asia so far this year involved the Philippines companies Mynt and Voyager Innovations, which raised US$175 million and US$167 million respectively.
It is apparent that Southeast Asia is no longer in the shadows of larger markets in Asia-Pacific and the region offers vast opportunities for fintech companies looking to grow in dynamic markets.