Fintech Adoption Rises in Southeast Asia, Thanks to Digital Payments and Online Loans


The use of digital financial services is experiencing strong growth in Southeast Asia this year, a trend primarily driven by digital payments and the adoption of digital lending, according to the EConomy Southeast Asia Report 2021.

The annual report, produced by Google, Temasek and Bain & Company, examines the state of Southeast Asia’s digital economy, looks at emerging trends and shares key projections for the years to come.

All digital financial services are booming in Southeast Asia, according to the report, but digital payments and digital lending, in particular, have been at the forefront of change, driven by heavy use of digital services such as e-commerce, carpooling and food delivery. , and infrastructure development.

Digital payments are adopted by the general public

Between 2020 and 2021, the share of e-wallet and account-to-account (A2A) transactions increased by 1 and 2 percentage points respectively, to the detriment of card payments, which lost 1 point of market share. .

COVID-19 has accelerated e-wallet adoption, the report says, noting that consumer e-wallet use has increased 45% from pre-COVID-19 levels.

In 2025, it is predicted that e-wallet transactions will account for 7% of all transactions, up 3 percentage points from 2021 levels. The value of the transaction will more than double by then, according to the report.

Growing consumer adoption has prompted merchants to follow suit with now more than 90% of digital merchants accepting payments digitally, according to the study. Over the next two years, 92% of digital merchants plan to continue or increase their use of digital payments, with e-wallets being their first choice.

% of digital merchants likely to increase or maintain the use of digital financial services in the next 1-2 years, Source: eConomy SEA 2021, Google, Temasek, Bain and Company

% of digital merchants likely to increase or maintain the use of digital financial services in the next 1-2 years, Source: eConomy SEA 2021, Google, Temasek, Bain & Company

The use of A2A transactions, meanwhile, has been propelled by the development of infrastructure and real-time payment systems like FAST / PayNow in Singapore and PromptPay in Thailand. These platforms are becoming a popular form of payment among consumers, enabling fast, inexpensive and seamless experiences. In April 2021, PromptPay saw transaction value growth of around 80% year-over-year. In Singapore, instant payments grew up 58% in the past year.

By 2025, the share of A2A transactions will represent 22% of all transactions, up 2 percentage points from 2021.

Digital payments are expected to reach over US $ 1.1 trillion in gross transaction value (GTV) by then, up from a forecast of US $ 707 billion in 2021.

Share of gross transaction value by transaction type, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Share of gross transaction value by transaction type, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Digital credit bounces back

Next to digital payments, digital lending is another area with strong growth potential. After a year of uncertainty, consumer and merchant appetite for digital credit has rebounded this year.

On the consumer side, Google searches saw a 14% year-over-year increase in loan queries, the report said. Meanwhile, digital merchants are showing interest in embracing digital lending, with around 30% saying they would likely increase the use of supply chain finance and buy now, pay later (BNPL) in the near future. .

BNPL arrangements are a type of short-term financing that allows consumers to make purchases and pay for them in installments. These have grown in popularity since the start of the pandemic, allowing consumers to stretch their money while helping online merchants improve conversion rates and increase average ticket sizes.

Competition in the space is now intensifying with pure players, e-commerce platforms and banks all looking to get a piece of the pie. The incumbent banking operator Standard Chartered recently unveiled its intention to venture into the space, in partnership with BNPL players Singapore Financial Atom and Kredivo from Indonesia. ShopBack, the e-commerce loyalty platform supported by Rakuten, is acquiring Hoola to the BNPL startup.

The outstanding digital loans are expected to reach $ 39 billion this year, up 48% from 2020. Between 2021 and 2025, this figure is expected to increase by 31% to reach $ 116 billion.

Digital Loan Outstanding Balance ($ Billions), Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Digital Loan Outstanding Balance ($ Billions), Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Besides digital payments and digital loans, digital insurance and robotics advisory services are other fintech segments that have experienced strong growth in Southeast Asia. Digital insurance premiums reached US $ 3.2 billion in 2021, up 40% from the previous year. It is expected to reach $ 9 billion in 2025. Meanwhile, Southeast Asian robotics consulting platforms have accumulated 12 million users in 2021, up 32% from 2020. It is expected to reach 23 million by 2025.

The Internet Economy of Southeast Asia

Southeast Asia’s internet economy is projected to reach $ 360 billion by 2025, an upward revision from the previous projection of $ 300 billion, propelled by the rapidly growing base of consumers and digital merchants.

Since the start of the pandemic, Southeast Asia has added 60 million new digital consumers. 20 million joined in the first half of 2021 alone. This brings the total number of Internet users in Southeast Asia to over 440 million.

At the same time, investments in the region’s internet economy reached an all-time high with transactions worth US $ 11.5 billion in the first half of 2021.

Investments in Southeast Asian Internet Economy, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Investments in Southeast Asian Internet Economy, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

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