In Southeast Asia, approximately six out of ten people do not have adequate access to a bank account, and only a small portion of transactions are cashless. As a result, there are massive opportunities for the evolving Southeast Asia fintech trends to help solve this issue. eWallet platforms are growing in popularity and use and are the only payment method consistently gaining traction in most ASEAN markets. Their growth is mainly due to the tailwinds from increased eCommerce reliance during the COVID-19 lockdowns.

The Southeast Asia digital payments landscape is witnessing somewhat of a revolution as the traditional banking system moves towards a new era of digitalisation.

The rise of digital payment solutions in Southeast Asia

Like most regions globally, Southeast Asia is undergoing a digital revolution. In the first year of the pandemic, it gained 400 million new Internet users, and 70% of the ASEAN population is now online. The COVID-19 crisis triggered a surge in eCommerce and demand for transfers and contactless payments, even as the pandemic has subsided. According to a new Google-led study, predictions show the Asian digital payment market will reach USD 7.28 trillion in transaction value by 2027 as more fintech options and digital banks emerge. 

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According to research conducted by Bain & Company and Facebook, the region’s digital economy is booming, with eight out of ten Southeast Asian consumers now going digital. The region’s rapidly digitising economy represents a massive opportunity for growth for online merchants.

The Asian Development Bank has identified the strengthening of micro, small, and medium-sized enterprises (MSMEs) as the most critical factor in Southeast Asia’s post-pandemic economic recovery. Three-quarters of the region’s MSMEs want more digital payments, and half want more lending digitisation. This confluence of factors has created ideal conditions for the growth of digital financial services in Southeast Asia. Digital finance is proving incredibly transformative in countries with large, dispersed, and often remote populations, such as Indonesia and the Philippines.

Digital payments systems to boost regional economic growth

Indonesia has emerged as ASEAN’s largest digital payments market in recent years, with financial transactions on digital platforms set to reach USD 72.09 billion at the end of 2022. This increase reflects a fundamental shift in a commercial culture that previously valued cash transactions above all others. This switch is due, in part, to Indonesia’s dispersed archipelago of 6,000 inhabited islands, which left many communities with no other option but to opt for online transactions during pandemic-induced lockdowns. 

Indonesia’s Central Bank (Bank Indonesia) has accelerated the transition by instituting a mandatory national QR code system (the Quick Response Code Indonesia Standard, or QRIS) to encourage interoperable digital payments among the country’s 65 million MSMEs and the many consumers who have difficulty accessing credit cards and other mainstream financial services. This move is seen as especially critical for Indonesia’s future economic growth. 

Meanwhile, in the Philippines, the adoption of digitalisation has also accelerated significantly, despite the many remote, rural areas of the archipelago that remain cut off from the digital economy due to underdeveloped infrastructure and skills shortages. 

Historically, the development of digital financial services has prioritised individual consumers over small businesses. As more people in Southeast Asia adopt virtual wallets, integrating MSMEs into the region’s emerging digital financial landscape will be critical to the region’s economic future, with banks playing a crucial role in achieving this goal. They can address the specific needs of MSMEs and stimulate the micro commerce that dominates much of the region’s economic activity by improving merchant payment capabilities and integrating mobile wallet payment flows across online and offline channels. 

For instance, HSBC’s digital wallet for SMEs shows how banks can help businesses by smoothing the commercial payments system and opening up new channels. The digital, multi-currency, low-fee account allows for quick local transactions and real-time fund management on a single, secure platform. 

Collaboration is key

The bank and the payments industry must work together to increase and enhance access to the payments infrastructure, find and remove obstacles to the broader use of electronic payments, and give people the help they need to switch to digital transactions without any hiccups. As the Southeast Asia digital payments landscape continues to revolutionise the traditional banking system, services like digital wallets will help local businesses expand as they explore new regional opportunities. 

Emerging Southeast Asia fintech trends also indicate that there has not been a contraction in investments in the sector despite the global economic slowdown, which is good news for ASEAN. 

While steps are being taken to increase the availability and acceptance of all electronic payment services, the region’s governments must focus on improving the infrastructure of the banking system to encourage greater use of internet banking services, a more cost-effective payment instrument, and take the lead in the migration to electronic payments.