As the world becomes interconnected, cross-border policies in Southeast Asia will significantly impact the growth and development of financial technology (fintech) startups in the region. The rapid increase in fintech startups in Southeast Asia in recent years is driven by the region’s growing population, expanding middle class, and widespread smartphone adoption. The pandemic also encouraged the use of technology as people restricted their in-person interactions

Emerging trends in cross-border policies in Southeast Asia

The Southeast Asian region, comprising diverse economies and financial markets, has been witnessing significant changes in cross-border policies that impact the movement of financial products and services. The digitalisation of countries in the region and the desire to improve economic integration and facilitate seamless transactions has led to several new cross-border policies developing. Many of these are aimed at harmonising regulations and reducing barriers to entry for financial institutions and fintech startups.

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Key developments in the ASEAN economic integration include a common regulatory framework and cross-border regulatory sandboxes. ASEAN members are working towards establishing a common regulatory framework for financial services, aiming to standardise licensing requirements, consumer protection measures, and anti-money laundering policies across the region. This move will allow fintech startups to simultaneously test their products and services across multiple jurisdictions, fostering innovation and collaboration between countries.

Another emerging trend is the advancement of digital infrastructure and payment systems. Initiatives like digital payment interoperability and central bank digital currencies (CBDCs) are under active pursuit. Several Southeast Asian countries are working towards achieving interoperability between their domestic digital payment systems, while some central banks in the region are exploring the issuance of CBDCs. Adopting CBDCs could revolutionise cross-border transactions, offering enhanced security, lower transaction costs, and faster processing times.

The role of technology on cross-border policies

The leverage of digital platforms and technologies such as blockchain, artificial intelligence (AI), and machine learning (ML) by regulators and financial institutions can facilitate seamless and secure cross-border transactions. Blockchain technology, for instance, provides enhanced transparency and reduces the risk of fraud. Blockchain’s distributed ledger technology enables real-time tracking of transactions, ensuring that all parties have access to the same information. 

This level of transparency helps to prevent discrepancies and maintain the integrity of financial records. As a result, financial institutions and fintech startups can provide more secure and efficient services, bolstering their credibility and competitiveness in the market.

Additionally, AI and ML technologies are transforming how cross-border policies are enforced by automating compliance checks and identifying suspicious transactions. By employing AI and ML, regulators can more effectively monitor and analyse large volumes of data to detect weird patterns or activities, thereby enhancing the enforcement of cross-border policies. For fintech startups, incorporating these technologies can smoothen their compliance and risk management processes, reducing the time and resources required to meet regulatory requirements.

Impacts of cross-border policies on fintech in Southeast Asia

The harmonisation of cross-border policies across Southeast Asia allows fintech startups to expand their market reach, giving them access to a larger audience and fostering economies of scale. This opportunity for growth is particularly important for startups targeting the unbanked and underbanked populations in the region. 

The standardisation of regulations will encourage more collaborations and partnerships between fintech startups and traditional financial institutions. For example, in October 2021, the US government launched the Indo-Pacific Economic Framework (IPEF) with partner nations to define “shared objectives around trade facilitation, standards for the digital economy and technology, supply chain resiliency, decarbonisation and clean energy, infrastructure, worker standards, and other areas of shared interest.”

However, as cross-border policies evolve, fintech startups must invest in compliance and risk management systems to adhere to the changing regulatory environment. Compliance can be resource-intensive, particularly for early-stage companies lacking the necessary capital and expertise. The cost of compliance could pose a significant challenge to many fintech startups, potentially stifling innovation and limiting their ability to compete with larger, more established financial institutions. This complexity could hinder the growth and development of fintech startups, as they may struggle to keep pace with changing regulations and ensure compliance across multiple jurisdictions.

The future of cross-border policies in Southeast Asia will be pivotal in shaping the trajectory of fintech startups operating in the region. As these policies continue to evolve, fintech startups in Southeast Asia will need to adapt to the changing regulatory environment, invest in innovative technologies, and forge strategic partnerships to capitalise on the opportunities and overcome the challenges presented by current and future cross-border policies. With the right approach, the harmonisation of cross-border policies in the region can serve as a catalyst for driving financial inclusion and fostering economic development.