Fintech in Southeast Asia is an expanding market. With a growing population that has access to the internet yet remains without access to credit, the region is in a prime position to grow in the financial services environment. Populations that have not yet acquired banking facilities, and the millennials of Southeast Asia—who are increasing in their internet usage—will give investors in the region many lucrative options for economies of scale. Coupling these demographics with an increased demand for data-driven banking and stakeholders in the region will have the environment to stay on top of Southeast Asia’s fintech trends and be successful in the post-COVID world. 

The region at a glance

Southeast Asia is one of the areas of the world with the largest internet penetration rate. However, Fitch Ratings reports that there are around 290 million unbanked people in the region and that only around 120 million people have access to credit. The untapped potential behind the population without access to credit is one of the determining factors that make Southeast Asia so attractive to investors.

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This is compounded by the gap between internet usage and credit card ownership, according to a report. Even though people in Thailand, the Philippines, and Indonesia all spend between 4 and a half to 5 hours online per day, (35% more than the worldwide average of 3:14), credit card ownership in these countries falls well under the worldwide average of 18%. Thailand has 10% credit card ownership, and both Indonesia and the Philippines only have 2%. This is particularly impressive when considering that the combined populations of these “two percenters” is equal to almost 400 million people, or roughly 5% of the world’s population. 

Data-driven banks and artificial intelligence

Data-driven banking and AI practices collect, process and use data to personalise the customer experience. Both are concepts that have been growing even faster due to the changes brought to the world by the pandemic. A September 2020 Mckinsey report indicates that banks which incorporate artificial intelligence into their operations will boost revenues thanks to the personalised service AI gives to customers and employees. 

These financial institutions will also have lower costs, thanks to the automation of services. Moreover, they have better resource utilisation and will discover new and unrealised opportunities after being able to gather insights from vast amounts of data. 

The McKinsey report also states that banks who fail to use AI in their operations will risk being overtaken by the competition for four main reasons. 

  1. Increasing expectations from an online customer base: Online banking is likely to increase from 20% to 50% with branch visits to banks decreasing to between 15% and 45% after the pandemic ends. 
  1. Financial institutes using AI: Increased use of AI by leading financial institutions will ensure a more efficient transactional landscape. 
  1. The disintermediation of traditional financial services by digital ecosystems: This means that different players, such as the WeChat app, and not just banks, are meeting the multiple financial services needs of consumers. 
  1. The addition of financial services to the portfolios of big tech companies: The streamlined and efficient data analytics that they bring to the table will make for a competitive and potentially adaptive financial ecosystem in the region. 

ASEAN as a fintech hub

Southeast Asia has become a fintech hotspot in the past few years, with mobile banking and eWallet usage increasing by an estimated 20% to 50%. Mobile and digital wallets look set to account for a 1/3 of the entire market of payments, says Pauline Wray, Global Lead of Boston Consulting Group Expand’s FinTech Control Tower. In Indonesia alone, of the 41 eWallet operators licensed by its central bank, 14 started operations in the past year.

With the ongoing pandemic, there will be a surge in digital payments from not only young people but by users across the board who respect social distancing policies. In urban areas, 49% of consumers in the region who are commercial bank customers already use eWallets with that proportion likely to reach 84% by 2025. This switch to digital banking provides a well of information for financial service providers, and they should investigate and update their operations around them.

Recent fintech trends and increased internet penetration rates in Southeast Asia make the region a prime candidate for data-driven banking. The high numbers of unbanked people in the region and the increased use of mobile banking and digital wallets make it even more attractive. The millennials of Southeast Asia, social distancing to prevent the spread of COVID, and the rise of AI-based initiatives, are all contributing factors enhancing digital banks and making a lasting impression in financial operations and must be a consideration when planning the schematics of fintech in Southeast Asia.