By Mateusz Frączek | 25th January 2020
Online payment services such as PayPal, Amazon Payments or Google Checkout are certainly playing a more integral role in western society. Paying for a taxi or Uber ride via a mobile app can be considered day–to–day business as well, not to mention managing your finances using your smartphone. However, if you were to visit Southeast Asia not so long ago, you would have hardly encountered such services. Due to dominant fin-tech players such as Gojek or Grab, times are changing rapidly.
With its 650 million population and accelerating economy, Southeast Asia is a recent hotspot for investors from all around the globe, especially those interested in tech companies. According to the e-Conomy SEA Report, a study conducted by Google, Temasek and Bain & Co., the Southeast Asian internet economy surpassed its $100 million(m) threshold for market capitalisation last year, growing by 39% in comparison to 2018. Forecasts are optimistic as well with Bloomberg estimating that the digital financial industry revenue for 2025 will surpass $38 billion(bn).
This phenomenon is further encapsulated by the number of companies of such a profile operating in the region. The Asian Venture Capital Journal conveys that of all 800 companies which received external financing, from hedge funds or private equity houses since December 2016, 183 were from Southeast Asia. In particular, Grab, a Singaporean ride-hailing app, food delivery service, and cashless payment solution all in one, after receiving an influx of capital from Softbank and Temasek, has greater market capitalisation than 15 out of the region’s top 25 established banks.
What is driving these changes?
As always, there are a few factors with the most important one being the unbanked and underbanked populations of Indonesia, Thailand, Vietnam, Malaysia or the Philippines.
Referring to Google’s report, there are about 400m adults in six major countries in Southeast Asia, with only 104m having access to modern financial services such as loans, mortgages, bank accounts etc. Ajit Raikar, co-founder and CEO at Validus Capital, a Singapore-based fin-tech start-up, stated that “only 27 percent of the region’s 600 million inhabitants had a bank account in 2016, fin-tech start-ups can come in to fill gaps and accelerate financial inclusion in the region.” Additionally, a rapidly growing population and middle income class, combined with growing internet access and smartphone penetration, further contributes to the emergence of highly valued fin-tech start-ups too.
It is worth noticing that unlike many governments in developed countries, ASEAN economy watchdogs keep up with the pace of change very effectively. To unify its e–payment landscape and centralise the whole online payment system, in 2018 Singapore’s government introduced a national QR code standard and deployed an electronic payment service provider called NETS. In Malaysia and the Philippines regulatory frameworks were established to safeguard reliable, efficient, accountable and safe online financial operations.
Even countries where the fin-tech industry is yet to be implemented to a greater extent announced ambitious plans of adapting to the digital transformation of the financial industry. For instance, Vietnam committed "to becoming a cashless society by 2020 and reducing the number of cash transactions at large-scale retailers to less than 10 percent”. All of these open–minded and innovation driven policies inevitably lead to rapid technological development of the region, potentially becoming a large economic contributor that would rival long established developed regions such as the US or Europe.
However, there is one huge obstacle that this growing Southeast Asian industry must tackle if it wishes to prosper, at least at the same rate as the last couple of years, namely the quality of the available workforce. According to the Financial Times, “94% of Fin-tech companies surveyed by recruitment services firm Michael Page are concerned that Singapore is facing an acute fin-tech talent shortage” with similar situations persisting in other neighbouring countries.
All of the developing countries in the region experience shortages of skills and education necessary for digitalisation of the underperforming financial industry. Even though local authorities have already taken steps to bridge the gap, like in Singapore where private–public partnerships are established to help workers transition into growing sectors such as fin-tech, there is still a long way to go.
Provided that future government policies are appropriately thought out, and its workforce is equipped with the skills required to meet the needs of a digital economy, the fin-tech sector in Southeast Asia has a very bright future in front of it. With a population open for change, the existence of underdeveloped banking and big investors with the necessary capital, companies such as Grab or Gojek may soon be as recognisable as Apple Pay or Venomo in developed countries. Only time will tell.