SINGAPORE (Oct 30): The digital financial services industry in Southeast Asia is poised to triple in annual revenue generation by 2025 to reach an estimated US$38 billion ($52 billion), a new study has revealed.
The “Fulfilling its Promise - The Future of Southeast Asia’s Digital Financial Services” study by Temasek Holdings, Google and Bain & Co also estimates that the upside estimate of potential revenue generation could reach as high as US$60 billion in the next six years.
In addition, the study expects the total transaction value of digital payments within the region to reach US$1 trillion in 2025.
However, the nature of the highly-fragmented and diverse ecosystem means that there are still underlying challenges to be addressed to achieve the full potential of digital financial services in the region, the study finds.
It also highlights that over 70% of the adult population in the region are either “under-banked’ – meaning that they have bank accounts, but do not have access to other financial services such as credit cards or lending – or “unbanked”.
The study notes that the underbanked segment of 98 million people across the six Southeast Asian countries surveyed – Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the Philippines – could be the growth engine of the digital financial services market.
“Technology-enabled business models offer a more effective way to serve this segment, creating new market opportunities. This segment represents the biggest potential and the true growth engine in digital financial services,” the study says. “Consumer tech platforms are well positioned to gain share in the underbanked segment given their large, expanding and engaged customer base. These platforms have the ability to capture broader customer lifetime value via a fuller suite of consumer services.”
However, the unbanked present a far more pressing challenge to the ecosystem, especially if it were to reach its’ true potential for growth, and to advance the cause of financial inclusion.
The study noted that digital financial services will not be a panacea for reaching the unbanked population; and, contrary to common perception, fintech and consumer tech platforms are not yet making a meaningful impact on the unbanked segment.
“We anticipate growing consumer acceptance of fintechs and consumer tech platforms in Southeast Asia, with new entrants meeting established players in the trust gap, 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,” says Aadarsh Baijal, partner and leader of Bain & Co’s Digital Practice in Southeast Asia.
“For Southeast Asia to realise its full potential, there must be supportive regulations, a strong financial infrastructure and scaled funding in place. We need initiatives beyond digital to meet the needs of the unbanked,” he adds.
Furthermore, the small- to medium-sized enterprise (SME) merchants is an opportunity that is still waiting to be tapped. In fact, SME merchants are likely to become the main digital financial services battleground in Southeast Asia in the years ahead, as SME merchants have been inadequately supported by established financial services players.
These established financial services players are now vulnerable to losing this SME merchants segment, the study warns.
New financial services players are now addressing SME needs through the use of non-traditional data sources to create access and supplement underwriting and offer a broader suite of products and new delivery models, it adds.
The study also calls for supportive regulations and government policies, which will be the main driver of growth in the digital financial services ecosystem.
The ingredients needed to reach the US$60 billion potential for the region include a concerted regulatory push for digitisation and financial inclusion, establishing critical infrastructure such as digitized national ID systems, realtime payment systems, standardised QR codes and effective credit bureaus.
This new study comes on the back of an earlier report, the ‘e-Conomy Southeast Asia Report 2019’, which estimated that the total internet economy in the region reach a whopping US$300 billion by 2025.
See: Singapore e-commerce to grow to US$7 billion by 2025
