Digitalisation is the main driving force behind the commercial banking market in Southeast Asia is rapidly developing. Online and financial technology (fintech) are creating more inclusivity and solutions for the region. According to a report published by Allied Market Research, the current fintech trends should help the sector increase at a compound annual growth rate (CAGR) of 18.3% from 2022 to 2031. Last year, the segment generated USD $3,063.41 billion, and expectations are that it will garner USD $16,341.98 billion by 2031. 

With a total transaction value of USD $195.80 billion, Statista shows that digital payments will represent the largest segment this year in the region. . More users will likely join the digital payments segment, taking the tally to 490.59 million users by 2027. Neo Banking—using digital banks with no physical branches—is another segment predicted to have revenue growth of 38.2% by 2023. 

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Global trade has aided the commercial banking market, increasing lending to businesses and governments, cash remittances worldwide, and offering checkings and savings accounts to Southeast Asians. Along with offering essential banking services to customers, banks also provide letters of credit to importers,  traveller’s cheques, and create capital and liquidity in the market. Additionally, the sector is boosted by technological developments like mobile eWallets and 5G technology.

Challenges affecting the region’s commercial banking market

Despite the continued growth of the commercial banking market in Southeast Asia, there are still some obstacles to overcome. The resurgence of the COVID-19 virus in the region, which was thought to have been a well-controlled outbreak, has damaged the economy and restricted trade. Limited business activities brought about by pandemic lockdowns have hindered revenue generation, reducing the banks’ number of transactions. 

Other challenges include high-interest rates set by the U.S. Federal Reserve, which lower global demand for goods and services. People are spending less money and are trying to cut down on expenses. The lack of liquidity and investment means stilted business operations, and these economic factors will prevent commercial banking markets from thriving.

Cybersecurity is another issue plaguing the tech and financial sectors. As the region embraces digitalisation, it becomes more vulnerable to cybercriminals. Some crimes involve identity theft, emptying bank accounts, fraud, and stealing passwords. These risks drive away potential customers, preventing them from accessing valuable services and resources.

Finally, government policies have not evolved as quickly as possible in order to meet ASEAN’s demand for innovative fintech solutions and to nurture the ecosystem into an efficient and secure banking option. Many commercial banks have maintained their legacy systems and are yet to switch to modern designs, offering enhanced choices, use, and capability. Moreover, regional governments have not done enough on policies that enable mergers and acquisitions between fintech startups and banks.

The future of the commercial banking market in Southeast Asia

According to a Statista report from last year looking at the top desired digital bank services in Southeast Asia, 70% of the respondents wanted to be able to transfer money to their peers. Other desired services include paying bills and other retail expenses, depositing and withdrawing money, investing, borrowing loans, and transferring money internationally. A shift from legacy to digital systems will help commercial banks continue to meet these customers’ needs.

Southeast Asians have been very receptive to blockchain technology and cryptocurrency, and banks can adapt their models to incorporate these novel innovations into their services. They can contribute to the debate with various stakeholders and the government to create policies that make transacting crypto safer for all users and insulate commercial banks from liabilities. The crypto sector has been vulnerable to cyberattacks, and banks have to ensure ideal laws are in place on what to do to protect customers.

According to Fintech trends from the eConomy SEA Report by Google, Bain & Company, and Temasek, millions of people are adopting digital financial solutions and purchasing online. Fintech infrastructure such as eWallets and digital transfers are becoming a theme, according to the report, and more tech talent must be found to manage the digitalisation in commercial banks.

Convenient solutions are emerging in the form of mobile banking apps. These apps integrate with retailers, eCommerce stores, suppliers, insurance companies, restaurants, and logistics services to give the customers access to their banks accounts from their devices.

The commercial banking market in Southeast Asia is growing and will continue to support government initiatives by offering the public greater liquidity and access to capital. As long as the public is spending money, the financial system will keep running seamlessly, despite the difficulties presented by inflation and high-interest rates. Despite economic fluctuations, Southeast Asians can continue to connect to their banks online and use the savings and investment options available.

To strengthen their economies, regional governments in Southeast Asia must protect their industries, provide regulatory clarity, and encourage digitalisation.