A bright future is dawning for the digital banking industry of Southeast Asia this year. Only a few years ago, banks with no physical location seemed untrustworthy, but now consumer perceptions have shifted. What was once viewed as questionable, has now become desirable as we move further into the digital evolution with an increasing online populace. This year Asia’s digital banking market will explode as digital payments are predicted to reach over $1 trillion USD by 2025, a rise of 500% from 2019.
The digital banking market beckons to new generation of millennials and Gen Zs who are active consumers, while ASEAN governments focus on bringing digital access to populations who have never had access to banking. Southeast Asian nation’s high internet penetration rates and rising middle class make ASEAN a ripe market with over 630 million inhabitants, half of whom are without a traditional bank account. This is the year for digital banking firms and fintech startups in Southeast Asia to strike while the iron is hot.
Tech-savvy millennials embrace virtual banking
In the Southeast Asian market, millennials are becoming power players. More than half of the population in the market is less than 30 years old and wired for digital banking as their primary access to banking institutions. They are a digital-first group of consumers, and fintech startups are taking note and transforming their business models to suit. For these younger generations, their lives are closely tied to the digital sphere; from remote work to delivery apps for consumables, and their online personas. They are looking for integrated platforms and conveniences to improve their quality of life, and whatever companies can make their lives better and simpler will reap the rewards.
Southeast Asia is both a receptive and a lucrative market to enter, with ASEAN consumers under thirty at least 50% more likely to use digital banking than consumers in their forties. Businesses who want to get a jump on the market need to move now to get digital banking licenses before they are left behind.
Bringing the revolution to the unbanked
The other market banks and fintech startups in Southeast Asia are paying attention to is the “unbanked”; a large group in Asia, who have never had access to banking. Currently, ASEAN is mainly a cash-based world, and even though they have high mobile connectivity rates, only 27% of the population have a bank account. This can be due to a combination of some areas having patchy connectivity, fewer financial institutions and poverty in rural areas. Cambodia, for example, has one of the higher rates of mobile connectivity in Southeast Asia, but only 13% have bank accounts.
In the Philippines, the numbers are almost as high, with around 70% of the population not using a banking system. The citizens of these emerging economies need convenient access to e-money and banking. As there is often a lack of financial infrastructure and few ATMs available, app-based smartphone digital banking is much more convenient. In Indonesia, the growth of e-money exchanges is one of the fastest in the world. Companies like Ovo, which is used to catch rides, buy food and products, invest and send money; and Kredivo, a company that lets people buy now and pay later through their smartphone app, are jumping into the market and improving the lives of Southeast Asians.
The tortoise and the hare
The countries in the region are taking diverse approaches to the digital banking transformation. Singapore, which has one of the most technologically advanced and innovative infrastructures in the world, has recently received 21 bids for digital licenses. Companies like Grab Holdings Inc., the ride-hailing giant, and Razer Inc., a gaming company, have contacted the Monetary Authority of Singapore (MAS) expressing their desire for a digital banking license. If they receive approval, their business could commence sometime in 2021.
Vietnam and the Philippines already have their first virtual banks operating, Timo and CIMBs all digital venture. Malaysia, meanwhile, is moving slowly but steadily forward to develop a framework for virtual banking. They are in the process of creating their digital banking license requirements, which will require a foundational phase and a detailed exit plan to ensure consumers and Malaysia’s market are in careful hands.
Digital banking can be a wonder treatment for the current issues facing Southeast Asia. Where there might be a lack of financial infrastructure or consumer access, smartphone apps with digital banking can provide an outlet for easy exchange. This evolution in banking can offer ASEAN society a chance to come together with equal access to banking, credit and money exchange in ways that were never possible before. As the digital banking industry advances, we will see the benefits in 2020 and beyond.