The financial technology (fintech) sector in the Association of Southeast Asian Nations (ASEAN) has had to show robust resilience for a while now. The region, like others, suffered an economy-devastating COVID-19 pandemic, with business lockdowns, cyberattacks, and other issues impacting it, but it is still going strong.
Currently, fintech in Southeast Asia has digital assets as its largest market, with Assets Under Management (AUM) reaching USD 2.772 billion in 2024. Additionally, the digital payments market will have a total transaction value of USD 287.20 billion this year. The sector ensures security during internet-based transactions, customer convenience, and inclusion for unbanked and underserved people.
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However, persistent challenges affecting its advancement plague the fintech landscape, including tech startup funding and stock valuation. The digital financial industry has become vital for many other sectors. It is ripe for investments as it is open to innovations that bring solutions to customers faster.
Challenges facing fintech in Southeast Asia
According to the eConomy SEA Report 2023, ASEAN has dealt with global macroeconomic headwinds for over a year, such as high-interest rates. The research shows that inflation came down to 3%, Gross Domestic Product (GDP) remained above 4%, and consumer confidence rebounded in the second half (H2) of 2023.
The Global Risks Report 2024 from the World Economic Forum (WEF) highlights several problems hurting many industries. They include:
Geopolitical tensions
Despite all the time that has passed, the world remains on a knife’s edge, with more conflicts joining the Russia-Ukraine war. We now have fighting in the Middle East and continued arguments between China and the United States. These tensions are hurting investments and causing uncertainties in the stock market, harming valuations, mergers, and acquisitions.
Furthermore, conflicts mean supply chain disruptions will occur, and the goods customers pay for online will not be guaranteed to reach their destination. Costs have gone up as well because Yemen continues to shoot rockets at ships and carriers, with companies forced to spend more on insurance coverage.
Cyberattacks
As ASEAN began shifting towards a digital transformation, the threat of losing money and data online escalated. Emerging cyberattacks include ransomware threats and phishing scams, among others. Since fintech apps require access to detailed information before processing transactions, keeping financial and personal data safe is essential.
Interest rates/recession
The US Federal Reserve increased interest rates to address America’s internal economic struggles. Their decisions drove up prices throughout Southeast Asia. Furthermore, energy and production expenses increased, with the higher pricing exacerbating the cost of living crisis.
As a result, investors became cautious about pumping money into the financial technology sector. Instead, they decided to hold the funds and focus on identifying startups that could do well with the proper funding. These new businesses had to be profitable, have good leaders in charge, and seek to implement environmental, social, and governance (ESG) policies.
Labour shortages
The tech industry still faces a talent crunch, and only some workers can manage systems in the digital financial sector. According to a study, despite recent major layoffs by global IT companies, Southeast Asian startups are having trouble finding tech expertise since established enterprises are less able to give competitive pay.
Key trends shaping the future of Southeast Asian fintech in 2024
While the factors above may be overwhelming, fintech in Southeast Asia has much potential to grow and deliver more impactful and convenient payment applications.
According to the United Nations World Economic Situation and Prospects Report for 2024, global GDP will decrease from last year’s 2.7% to 2.4% this year. ASEAN will experience a moderate slowdown, dropping by 0.3% to 4.6% in 2024. Thus, even though investments will drop across the board, there is hope that investors can redirect funds to sustainability-oriented sectors like green energy.
Artificial intelligence (AI) can help future-proof the workforce by acting as an enabler and a force for streamlining operations. It can reduce carbon emissions by taking over some labour and analysing data to improve customer fintech services. Other benefits include risk management, fraud detection, and identity verification.
Fintech can contribute to combating climate change by creating platforms or apps for offsetting carbon credits. Technologies like blockchain can assist with record-keeping, but it is essential to use it in a way that does not harm the environment. As banks and financial institutions shift from legacy to digital systems, the industry will increase automation and use AI to do more tasks.
Grab and Gojek apps are now super apps, providing all-in-one solutions to their customers. Such apps are contributing to financial inclusion in rural areas. There is room for more growth as the region shifts to using 5G technology. Cross-border policies harmonising regulations and enabling companies to expand to new markets to sell and purchase goods and services are on the rise.
The fintech landscape holds much promise in the long term, and investors can make money as innovations develop. Adaptability will be critical for founders to navigate these challenging periods.