Overshadowed SE Asia represents vast fintech potential
Large, young, unbanked, digitally savvy populations offer opportunity, alternative to China, India
3 Sep 2021 | Darryl Yu

While the focus on technology and fintech development in the Asia-Pacific has been dominated by China and India, Southeast Asia likewise is emerging as an ideal location for fintech companies to thrive due to its growing population open to new forms of financial services.

The region’s top six economies (Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam) combined have a population of around 580 million, of which half are below 35 years old. Moreover, it has a sizable unbanked population, primarily found in Indonesia, the Philippines and Vietnam.

“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,” states a recent Fitch Ratings research note. “Geography poses further complications, as the archipelagic nature of Indonesia, and the Philippines raises distribution and servicing costs in those markets.

“We believe digital services are uniquely placed to meet the income and geographical challenges. Scalable technology can lower the marginal cost-to-serve and broaden geographic coverage, although benefits will take time to crystallize; upfront costs may be significant, network connectivity remains uneven and mis-steps will occur as innovators test uncharted waters.”

Looking to capture the region's opportunity, several fintech-focused organizations have started to carve out a market for themselves. Digital banks, for instance, have been launched or are planning to be launched in the coming few months in the region using higher savings rates and gamification techniques to attract new customers and create account stickiness. UOB’s TMRW digital bank offering has made much headway in Thailand, while digital banks CIMB and ING have looked to grow market share in the Philippines.   

In addition, Southeast Asian fintechs focusing on payments processes have flourished under the current pandemic conditions as the use of physical cash has dropped under social-distancing measures. E-wallets focusing on Southeast Asia, such as GrabPay or AirPay, appear to be gaining traction. Around 60% of Southeast Asian participants in Visa’s Consumer Payment Attitudes Study 2021 cited their preference for e-wallet usage over credit cards due to the high barrier to entry for obtaining credit cards. Other areas of fintech growth include those focused on alternative financing for small and medium-sized enterprises, and wealth management platforms.    

Financial regulations across the region encouragingly have been very supportive and progressive when approaching fintech solutions, with many citing their impact on improving financial inclusion. Peer-to-peer lenders in Indonesia, for example, have to register with the country’s Financial Service Authority and meet minimum capital requirements.

Investors evidentially now are starting to take notice of the fintech opportunity in Southeast Asia, according to KPMG’s recent Pulse of Fintech Report H1 2021, two of the top 10 fintech deals in Asia so far this year involved Filipino companies Mynt and Voyager Innovations, which raised US$175 million and US$167 million, respectively.

Once overshadowed by larger markets in the Asia-Pacific, Southeast Asia is rapidly becoming an area of opportunity for fintechs looking to grow in several dynamic markets.