A Statista survey last year reported 66% of respondents as saying they were interested in digital finance in Southeast Asia. Over 60% also expressed support for numberless cards, smart checkouts, and smart devices. From an individual country perspective, Thailand led the way in most of the four categories, followed by Vietnam and the Philippines.

One of the biggest shifts in global digital commerce has been the introduction of embedded finance. Juniper Research’s whitepaper defines it as “any use case where financial services tasks, such as banking, insurance or lending, are embedded in non-financial user experiences.” Simply put, it involves a non-financial provider integrating financial technology (fintech) solutions into its services.

To illustrate, when firms like Facebook or Samsung introduce internal payment options, such as Facebook Pay or Samsung Pay, respectively, customers can purchase goods and services using their new eWallets. As another example, Tesla offers insurance when someone buys a car from the company. Also, non-banking tech businesses are offering financial transactions through banking-as-a-service (BaaS) technology.

Here are some promising fintech startups in Southeast Asia

These are some of the fintech trends 2022 will be experiencing, and they may prove crucial to Southeast Asian companies.

Importance of embedded finance in Southeast Asia

Embedded finance is creating new business opportunities, revenue streams, and an interconnected financial services ecosystem that benefits Southeast Asian residents. According to insights from McKinsey & Company, key trends include rising customer demand for convenient and easy-to-use embedded services, fintech startups desiring to collaborate with banks, and the move from legacy systems to the adoption of technological advancements. Moreover, budding tech brands have developed consumer trust to rival incumbent banks as they offer money-related services, establishing alternative revenue sources.

Factors contributing to the growth of embedded services include the COVID-19 crisis, high smartphone penetration, the region’s shift to digital usage, population growth, younger tech-savvy users, and the evolution of fintech. Furthermore, the pandemic boosted online payments, solutions and home delivery offers. People now want faster options unavailable from financial institutions and new payment models like Buy Now Pay Later (BNPL).

Every sector, from eCommerce, travel & logistics, food & beverages, to beauty, is integrating fintech into their offerings. New entrants in healthtech, edtech, and foodtech benefit significantly from embedding digital automation for customer payments and increasing their fintech services.

In addition, the rise in online spending means the public will look to companies offering additional choices. According to the ‘Southeast Asia, the home for digital transformation’ report, 70 million people have become digital consumers since the pandemic began, with over 95% of people accessing the internet from their smartphones. Electronic wallets are dethroning cash as the preferred payment method, and sales in eCommerce will double in five years to $254 billion USD.

The report adds that Southeast Asians are now more open to accessing products online. The final factor boosting embedded finance is investment. Thus far, 80% of venture capital funds have been directed towards internet and technology startups, with the fintech sector receiving the highest funding.

Challenges affecting adoption of embedded finance

Disruption, evolution, and advancement always encounter challenges, and embedded finance is no different. Southeast Asia lacks adequate fintech laws, creating uncertainty in the financial sector, and banks are fighting to remain relevant as new solutions affect their traditional operations and legacy systems. The financial infrastructure also needs investment and upgrading to match the pace of the technological developments happening in the region.

Other challenges include the slow adoption rate of fintech solutions, although that is likely to increase as people’s incomes rise and their financial needs become more sophisticated. As technology evolves and embedded finance grows, security threats arise, making consumers fearful of using the new services.

Nevertheless, embedding financial technology in various sectors will improve users’ experience, increase their lifetime value, and boost customer retention and brand loyalty. Personalised options, accessibility, and ease of use will incentivise users to meet their needs from the comfort of their homes. Furthermore, it will allow the unbanked and underbanked to obtain financial services. 

Digital finance in Southeast Asia will continue to expand, with solutions such as embedded finance evolving to meet the emerging needs of consumers. Governments, fintech startups, and financial sector stakeholders would do well to cooperate in changing the regulatory framework and encouraging innovation and tech adoption.

The fintech trends 2022 will bring should increase interconnectedness. IoT may revolutionize the development of smart homes, and consumers will probably be able to purchase items and services through any device in their house. For that to happen, tech startups must continue pushing boundaries and introduce enhanced financial services to the region.

Each new, disruptive tech offering should integrate seamlessly and incorporate other tech features, such as artificial intelligence and data analytics, into its profile. Finally, startups must overcome security risks, use updated internet security software, and offer data protection guarantees to their customers to make embedded finance a success.