S&P Global Market Intelligence’s 2021 Southeast Asia E-Money Market Report highlights the growth in online and electronic money payments in at least three large markets in the region. The embracing of fintech trends is due to the popularity of reloadable wallets offered by eCommerce and ride-hailing firms. This growth in tech startups in Southeast Asia is amidst the backdrop of the overall post-COVID-19 economic decrease.  These economies are becoming a global hub for fintech activity, with over 250 nonbanks in the region. Typically these transactions are low in value but increasingly large in volume. 

Indonesia alone saw $10 Billion USD in transactions in 2019. While the five largest economies in the regions are at different stages in the move towards eWallets, there is an overall shift, with eMoney also on the increase for offline transactions as well as internet transactions. 

The accelerated move from banks to nonbanks in a time of COVID-19

Like so many others, quarantines and lockdowns in the region have hastened this trend. According to an S&P Global report, in 2018, the volume of eMoney transactions jumped by over 30% in the five largest Southeast Asian economies, showing that although COVID may be an accelerator in this overall shift, the move was firmly already in place. The same 2018 report states that within Indonesia, Malaysia, the Philippines, Singapore, and Thailand, there has been a concerted move for fintechs to build regional electronic wallet platforms. S&P Global estimates that eWallets in Indonesia held 72%of all eMoney value in 2019.  Card payments will see an inevitable decline in this continuing climate, as eMoney, broadly defined as an electronic store of a specific monetary value on a technical device or guaranteed by a nonbank,  may be used for making payments to entities other than the just the eCurrency issuer. The eWallet acts as a prepaid instrument that does not necessarily involve bank accounts in transactions.

We explore the dynamics between digital banks and fintechs

In Singapore, Malaysia, Thailand, and Indonesia, there were close to 13 billion transactions in 2019 This vast number of transactions is over three times of those  handled by debit and credit cards. The average value of an eMoney transaction is less than that of more traditional payment methods; however, the transactions’ value is sure to increase as consumer confidence and familiarity with the technology grows.  Traditional banks have been aware of this industry transformation and have tried to stay in the game using mobile phone-based apps, but the more streamlined fintech business model suits those who just need a direct substitute for cash. This move to eWallets is a real threat to debit cards in the long term, but it will have less impact on credit cards.

The payment methods’ disruption is a market reflex to the increasingly cashless economies and is solving the issues of making payments for many of the underbanked in the region.  This struggle looks set to continue as banks strive to retain dominance. However, it is a battle that  S&P Global Market Intelligence analyst Sampath Sharma Nariyanuri thinks the banks will lose, in the short term at least, according to the figures in the latest reports. 

Fintech continues to grow 

The region’s economies are increasingly committed to sectors favouring and aligning with the eMoney innovations; ride-hailing, eCommerce, gaming, and fintech companies. All five of the region’s largest economies offer licenses to nonbanks which has helped hugely with the sector’s growth.

As losses in many sectors of these economies continue, there is an increasing trend towards investment activity in, fintech and nonbanks. Due to the growing popularity of mobile banking transactions, banks in Singapore, Malaysia, and Thailand are in relatively strong positions to hold their place in the market, although eMoney Singapore and Thailand did see a downturn in ATM cash withdrawals over the last three years.

If the banking facilities are just for shopping, eating out or are solely transactional, and not for savings, eMoney and eWallets are the simple options for those consumers who do not need to earn interest on the money they put in and just wish to use them as an interface accepted by retailers.

The larger established firms such as Grab, Gojek, Sea Ltd. and Ant Group are desperate to keep the shoppers they have and avoid losing them to the newer startups. They also hope to compete for new shoppers as all retail areas, on and offline, are turning to eMoney.  This competition will see increased investment and the inevitable acquisition of fintech startups in Southeast Asia.

Unicorns Grab and Sea have full digital banking licenses and are becoming super apps, going beyond ride-hailing and food deliveries to a one-stop eMoney portal.

Whatever the outcome or who will prevail, the current fintech trends in the region are disrupting the traditional banking landscape and are giving more options for consumers in Southeast Asia.