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Fintech in ASEAN both resilient and booming

The pandemic has accelerated digital finance in Southeast Asia and looks to continue in the coming years

The impacts of COVID-19 have somewhat subsided in Southeast Asia. Economies in the region are slowly inching towards reopening their borders and kickstarting their recovery.

Digital became a recurring theme amid the pandemic. Businesses started looking at ways to go online to cater to growing change in customer shopping behaviour. Additionally, customers are now more comfortable shopping and paying online for their daily necessities such as food and groceries.

A recent report from the United Overseas Bank, PWC Singapore and the Singapore Fintech Association explores how the dynamics around digital financial services has transformed in the ASEAN region. The report states that it is certain that the fintech space in the region will soar in the coming years.

Funding tripled

Fintech funding in ASEAN’s six largest economies (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, which is referred to as ASEAN-6) has touched an all-time high since 2017, both in terms of number of deals and funding amount. Funding in the first nine months of 2021 stood at $3.5 billion – more than triple from its last year figures.

Exhibit 1: Number of deals and funding amounts for ASEAN-6’s fintech industry, YTD 2021

Source: Tracxn, as at 30 September 2021, accessed on 5 October 2021

Singapore accounts for the largest share of the fintech funding among ASEAN-6, again this year. Vietnam saw the largest rebound in fintech funding this year.

Exhibit 2: Funding amount by country (US$), 2020 vs YTD 2021

Source: Tracxn, as at 30 September 2021, accessed on 5 October 2021

The number of funding deals also grew by 32% to 167 deals in the first nine months of 2021. Singapore made up about half of those deals, albeit far lesser than it did in 2020.

Exhibit 3: Number of funding deals by country, 2020 vs YTD 2021

Source: Tracxn, as at 30 September 2021, accessed on 5 October 2021

Digital payments companies received the most amount of fintech funding in the ASEAN-6. In the Philippines, digital payments made up about 96% of the overall fintech funding.

Exhibit 4: Funding breakdown by fintech categories

The top three largest fintech investors in ASEAN as of September 2021 were Y Combinator with 14 deals; 1982 Ventures and East Ventures, both with 9 deals each.

Exhibit 5: The most active fintech investors in ASEAN by number of deals

And when we look at the largest growth in fintech consumer categories, the largest surges have been noticed in investment tech and cryptocurrencies, where funding has risen at a CAGR of 493% and 424% respectively.

Exhibit 6: Funding trends in ASEAN’s consumer-related fintech categories (CAGR), 2019 – YTD 2021

Source: Tracxn, as at 30 September 2021, accessed on 5 October 2021

Consumer sentiments

Cash still reigned as the primary method of payment in the region, but use of e-wallets is quickly picking pace. Six out of ten surveyed respondents agreed to have used e-wallets in the past three months to pay for both retail and online purchases.

Exhibit 7: Most common payment methods for both retail and online purchases

And some of the most used e-wallets in the region is GCash (92%) in the Philippines; TrueMoney (86%) in Thailand; and MoMo (82%) in Vietnam.

Exhibit 8: Top three most used e-wallets in each country

Digital investing via trading and wealth management platforms have also increased amid the pandemic. Three out of ten people still prefer traditional online brokerage platforms. Meanwhile, 27% prefer using cryptocurrency exchanges to invest online.

Exhibit 9: Preferred online investment platforms used by respondents

One in two respondents were also aware of green investment products, of which more than half have already invested in such products.

Exhibit 10: Awareness and perceptions of green investment products

And almost nine in ten respondents across the ASEAN-6 are currently using or are open to using digital currencies such as bitcoin and meme coins in the future.

Exhibit 11: Current and future usage of digital currencies

The buy now, pay later (BNPL) model is quickly becoming mainstream among online customers. Its highest interest is seen in Indonesia (42%) and one in three respondents from the ASEAN-6 have or have plans to use BNPL schemes in the future.

Exhibit 12: Preferred pay later facilities, with BNPL’s net promoter score

Overall, bank loans are still the most preferred lending option, with 64% of the surveyed respondents opting for it. Alternative/P2P online lending platforms are the least preferred (20%). Half the respondents from Singapore (52%) and Malaysia (51%) cite lack of understanding as the key reason for not adopting P2P platforms.

Exhibit 13: While not as established as other lending facilities, alternative/P2P lending has a relatively high net promoter score among users

Buying insurance online is also an observed trend among respondents in ASEAN-6. More than two-fifth of the respondents have purchased insurance online before. Meanwhile, health and life insurance remain the two most popular types of insurance purchased online.

Exhibit 14: Types of insurance purchased by those who bought insurance online

Growth in digital banks and adoption of digital banking services is also on the rise in the region. More than six out of ten respondents in the Philippines (60%) and in Vietnam (68%) agree to consider banking with a digital-only bank.

Exhibit 15: Willingness of respondents to bank with a digital-only bank

The report also points to the fact that consumers from the ASEAN-6 have myriad choices when it comes to online/offline banking services. And their preference is evenly split between using digital-only banking channels vs physical bank branches and ATMs.

What’s next?

Indonesia and Singapore have the potential to emerge as two main markets for fintech in the region. This will lead to Singapore transitioning into a fundraising centre owing to its matured finance and regulatory sectors. Meanwhile, Indonesia will continue to attract fintech companies and investors alike due to its large market potential.

Going forward, we will likely see the development of central bank digital currencies (CBDC) and other forms of cross-border payments. It will result in the development of a regional stablecoin, with CBDC from each ASEAN nation interacting with it, streamlining cross-border payments.

And as things start to normalise, certain financial habits such as digital payment and investments may continue. A shift to digital among established financial institutions and fintech firms have accelerated and will continue to grow. This wide shift to digital will push for increased inclusion of the unbanked and the underbanked population.

“ASEAN’s fintech space has taken flight, and looks set to soar in coming years.”

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