Even though recent months have highlighted the worsening global financial climate, Southeast Asia’s digital economy is set to hit USD 100 billion this year. The eConomy SEA report 2023—Reaching New Heights: Navigating the Path to Profitable Growth notes that the sector grew 1.7X as fast as the region’s gross merchandise value (GMV). 

In 2021, the GMV figure was USD 161 billion, whereas in 2022, it went up to USD 195 billion. That amount will go up to USD 218 billion in 2023, an 11% year-on-year (YoY) increase, showing that digital businesses are making significant strides toward financial sustainability.

Economic growth is visible in several sectors. For example, eCommerce has had a 22% rise YoY to USD 28 billion. If predictions are correct, its GMV will reach USD 186 billion in 2025. Online travel, which suffered extensively due to the COVID-19 pandemic and subsequent movement restrictions, is on a path to recovery by 2024. Its targeted revenue will be USD 14 billion, a 57% YoY increase. Also, the transport industry’s revenue will grow 47% YoY to USD 1.1 billion by early 2024.

Here’s how Southeast Asia digital payments will drive growth in the region in 2023 and beyond

Food delivery has become popular worldwide as people seek convenience, which is also true in Southeast Asia. The industry’s revenue will be USD 0.8 billion, growing 60% YoY despite the lifting of COVID-19 restrictions and people getting back to in-person dining. Finally, online media’s GMV will increase 10% YoY to USD 26 billion, driven by earnings from its advertising and video streaming segments.

Factors driving the digital economy

Predictions expect that the Association of Southeast Asian Nations (ASEAN) will have an economy worth USD 1 trillion by 2030. It is powered by over 70 million new internet users, increasing digital consumption, technological advances, the emergence of eCommerce, and industries adopting online solutions.

ASEAN has favourable demographics, with its citizens being young, tech-savvy, and willing to experiment with novel innovations in various industries. Many of them form the middle class, with good jobs, and see their wealth and spending power growing yearly. Moreover, since jobs are primarily in the cities, it has led to increased urbanisation, with tech startup ecosystems booming and metro areas shifting to digital.

Additionally, digitalisation creates new jobs and businesses and transforms people’s lives and work. Employees are returning to school to undergo tech training and upskilling to operate in the current environment. 

Climate change has become the main focus for many investors and businesses. Startups are emerging to research and innovate sustainable solutions and tools. Financial technology (fintech) services are offering new and improved digital payments for transacting carbon credits and offset individual and collective emissions. 

Furthermore, having sustainable policies is a funding criterion that benefits startups. The SEA Report 2023 highlights the need for founders to secure financial backing by giving investors a clear path to profitability, realistic entry valuations for mergers or acquisitions, and visible exit pathways to recoup their investments.

Challenges to address to sustain Southeast Asia’s digital economy growth

While technological inclusion has increased in Southeast Asia, many residents outside the metro areas and cities are being left behind. The SEA Report 2023 shows that the digital divide is widening, as other regions have many barriers restricting their success. 

For example, rural areas receive limited investment, meaning the infrastructure needs much more development. 5G technology is unlikely to reach most parts of the non-urban locations, which will hamper people’s access to high-speed internet connectivity. Additionally, the Transport and Logistics sectors cannot operate smoothly because the roads and other supply routes are not in good condition.

Tech skill shortages are also undermining Southeast Asia’s economic growth. Regional government regulations do not allow a high influx of tech workers. As such, companies have to operate in a subdued fashion as they rush to upskill their employees.

According to Statista Research, 68% of global online users felt vulnerable to identity theft. ASEAN’s digital transformation has accelerated the spread of technology and the need to log in to devices and systems using personally identifiable information. Residents are signing up for food delivery, online media, fintech, eCommerce, and more.

Consequently, there is always a risk that cybercriminals will hack the databases and steal IDs, which they can use to commit more crimes, such as signing up for a bank loan. Users can protect themselves by having antivirus software, using stronger passwords and two-factor authentication, and implementing data encryption techniques.

Despite these challenges, there will be profitable growth in ASEAN because the digital payments sector is developing. While legacy systems found in banks still remain, the modern-day tech upgrades will bring transactional, investment, insurance, wealth management, and banking accessibility solutions to the public. 

The increase in mobile wallets and the use of new payment models like Buy Now, Pay Later (BNPL) will also enable more Southeast Asians to access, participate, and enjoy the digital economy in the coming years.