ASEAN: The Bubbling Fintech Hub

Photo by Carlos Muza on Unsplash

The Association of Southeast Asian Nations, better known as ASEAN, is a regional group comprising ten countries in the Southeast Asian region: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. First established in 1967, ASEAN was established to accelerate economic growth, social progress, and cultural development in the region and promote regional peace and stability. As a region, ASEAN has seen rapid growth in the past decade, especially within the digital economy, with investments in financial technology (FinTech) firms in ASEAN reaching an all-time high of US$3.5 billion after two sullen years of the pandemic. As more people are entering the virtual landscape, Bain, Google, and Temasek predict that ASEAN’s digital economy would be valued at an estimated US$1 trillion by 2030. 

Historical Growth

The FinTech landscape within the ASEAN region has not always experienced attractive numbers. In fact, the region was deemed a “laggard” by analysts as compared to its more developed peers in Greater Asia (China, Japan, Korea, etc.) and the West. In 2015, foreign investors only invested US$0.2 billion into ASEAN FinTech start-ups. In 2015, ASEAN FinTech was valued at $138 million. 

Fast forward to seven years later, ASEAN Fintech has grown to be a lucrative industry with the pandemic strengthening the use of such services. In a McKinsey report, they found that consumers quickly adopted this digital transformation in only eight weeks. From online classes to medical check-ups to grocery shopping, the rise of seamless and contact-less services was the new trend. Financial services were no exception. 

Benefits to SMEs

Aside from day-to-day cashless digital transactions benefiting customers, FinTech developments have been advantageous to small and medium enterprises (SMEs) by streamlining payment processing, e-commerce, money transfer, funding, accounting, and customer insights & engagement. SMEs make up at least 88% of the total number of businesses in the region, with most being family-owned, thus dealing with considerable financial constraints and risk hazards. Fintech has benefited small companies such that it presents the potential customer with multiple payment options without having to sacrifice economies of scale. Instead of purchasing costly plug-and-play options like tiny credit card readers, SMEs can use FinTech solutions. Additionally, with the rise of e-commerce, SMEs can now easily access and reach customers through online marketplaces like Shopee, Lazada, and Tokopedia. Aside from the Cash on Delivery (COD) option, these marketplaces offer digital payment solutions for both consumers and the business. 

With all these benefits, most ASEAN consumers and businesses have adapted to FinTech. The strong growth of the industry presents investors with an exciting opportunity. FinTech remains a sought-after sector in the region, with the online payments category receiving the most funding at US$1.9 billion, followed by investment tech at US$457 million and cryptocurrency at US$356 million. The latter two grew 6x and 5x from 2020 figures, respectively. Among the ten ASEAN nations, Singapore has remained the frontrunner in the industry, followed by Indonesia, Malaysia, Thailand, and the Philippines. In 2020, during the onset of the pandemic, Indonesia, the Philippines, Thailand, and Vietnam all saw FinTech app demand grow in 2020. 

Government Response

Strong demand for such services strongly motivates local governments to develop FinTech. Fintechs and their solutions differ from country to country. In the Philippines, GCash is the leading e-wallet platform, while GoPay and OVO are dominant e-wallet players in Indonesia. 

Digital payments across all nations play crucial day-to-day roles, but government initiatives and start-up visions vary, depending on a country’s maturity level in embracing digitalization. Singapore, the digital innovation hub, is known to embrace digitalization with open arms across all sectors. The government firmly pushes its “digital agenda” and, as a result, has helped to position Singapore as the leading adopter of digital wallets across all ASEAN. In Indonesia, the government firmly pushes its ‘five-pillar digital banking vision’ to develop and promote digitalization strategies across delivery strategies, banking, regulation, financial technologies, partnerships, and adoption. 

The strong current and projected growth of FinTech solutions in the ASEAN region tap into the untapped potential of large, youthful consumer markets open to exploring digital trends. With the integration of digitalization in day-to-day transactions, FinTech in the ASEAN region still has a long and promising way to go.