When the world shifted to a digital-first economy this year in response to the pandemic, it quickly became clear that Southeast Asia is a region further seizing the moment to digitize through fintech innovation. Growing economies, led by governments prioritizing digital innovation, have made Southeast Asia a top market for fintech investors.
Digital financial services in the region could triple and be worth $38 billion in annual revenue by 2025, according to a forecast from Bain & Co., Google, and Temasek Holdings. While venture capital may have hit a pause in the midst of the crisis, Southeast Asia is still an attractive destination for investments. Indonesia achieved $2.5 billion in funding in 1H-2020, the highest amount the country raised in the first six months of the year in the past five years.
At the Global Fintech Fest, Flourish global investments advisor Smita Aggarwal talked with Southeast Asia financial leaders Sopnendu Mohanty, Chief Fintech Officer, Monetary Authority of Singapore, and Surina Shukri, CEO, Malaysia Digital Economy Corporation. They covered the trends that are driving the fintech boom in the region and offered predictions on what is next.
A summary of the discussion is below, and you can watch the session on YouTube.
New Needs in a World That’s “Digital by Default”
As Surina said, “COVID showed us we now live in a world that’s digital by default,” however, “we discovered the hard way there are still many areas that were not as prepared” for that world. As a result, Malaysia is focusing on leveraging technology for business continuity, especially for SMEs. Before the pandemic, “many SMEs had a wait-and-see attitude about going digital,” she said. “Now there’s a hunger for it.”
Sopnendu agreed, adding the need for more inclusive financial products “is not just a problem to solve for. It’s also a significant revenue opportunity for fintechs that get it right. From the start of the crisis, we saw the demand for digital tools go through the roof.” In nearly every ASEAN market, mobile penetration is high and governments are welcoming foreign investment in fintech.
Digital Rails Create Opportunity
The governments in ASEAN markets are continuing to promote innovation and invest in their digital infrastructure. Singapore is exploring wholesale digital currency. Five out of 10 ASEAN markets have a national digital identity system; the other five are working towards it. As India’s Aadhaar experience shows, digital ID can promote account adoption and interoperable payments. Singapore and Malaysia are both promoting e-wallets and issuing their first digital banking licenses.
“When we talk about digital rails and opening up, we’re hoping for more than the digital aspect of the existing bank,” Surina said, “We want to see innovation in payments, experience, customer targeting, and cybersecurity.”
“We have started to shift from entity-based regulation to activity-based regulation, as we did in case of Payments Services Act,” said Sopnendu, who predicted the soon to be licensed digital banks in these countries will consume billions of dollars of new technology – largely from fintechs. That kind of innovation, on top of national rails, and the upgrade to 5G mobile networks, will enable what Sopnendu called “immersive banking,” solving for consumer problems in a far better way.
Exciting Markets for B2B Players
With many SMEs and lower-income adults still underbanked, fintechs are discovering a white space opportunity. South East Asia comprises 650 million people and its dominated by small and micro enterprises which contribute significantly to the GDP but have been largely excluded from the formal financial system. This presents a huge opportunity for digitisation of SMEs.
“In the first months since COVID, we [Singapore] received half a billion dollars in fintech investment. Mostly that went to B2B fintechs: Fintechs that are helping SMEs, fintechs that are helping banks to digitize faster,” Sopnendu said. “SMEs are the backbone of ASEAN economies, and they need digital tools.”
Smita concluded saying, “In the new world order, the importance of Asia as a growth engine is more pronounced than ever before. And this pandemic may perhaps be the trigger to accelerate fintech innovation for better inclusion in ASEAN region.”