According to a recent study led by Google, the digital payments market in Southeast Asia is poised for impressive growth by 2022. It is estimated that the value of transactions will reach $2 trillion by 2030, a threefold increase from the previous decade. Fintechs and digital banks are the main drivers of this rapid growth.
The annual report from Google, Singaporean investor Temasek Holdings, and management consulting firm Bain & Co analyzes digital economy trends in six exciting regional markets, including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
Southeast Asia is becoming a fierce battleground for digital payments companies. Adyen, based in Amsterdam, and Stripe, based in San Francisco and Dublin, have become key players in the region, bringing innovation and exciting competition.
In the digital banking arena, tech companies are vying to capture mass market share and reach underserved users, hoping to capitalize on a large customer base.
One example is Grab, a transportation and food delivery service provider, which recently launched a virtual bank in September in partnership with Singapore Telecommunications. This virtual bank is specifically designed to reach workers in the gig economy and the younger generation. They also plan to expand their presence into the Malaysian and Indonesian markets this year.
Last year, Ant Group, the fintech subsidiary of Alibaba Group Holding in China, also launched a wholesale digital bank in Singapore. In addition, major banks such as Standard Chartered and Singaporean retailer FairPrice Group have also entered the virtual banking market, attracting 100,000 customers within 10 days.
However, Florian Hoppe, partner and head of digital practice for the Asia-Pacific at Bain, notes that new digital banks will face challenges in competing in the high-income segment as established banks have stronger customer relationships with them.
On the other hand, funding for startups in the region also remained remarkably strong in the first half of the year, with deal value up 13% over the same period last year. Meanwhile, the digital financial services sector experienced significant growth, raising $4 billion in the first half of the year. Investors are very bullish on the payments and consumer lending sectors, seeing great potential.
By 2023, the digital payments market is expected to reach a total transaction value of USD 226.50 billion. The continued growth trend is expected to provide a compound annual growth rate of 14.16% from 2023 to 2027. At this rate, the projected total transaction value is expected to reach US$384.70 billion by 2027. The digital commerce sector is already leading this market with a projected total transaction value of US$193.70 billion by 2023.
Projections for the growth of the region's Internet economy show that its value will reach US$330 billion by 2025, which is slightly lower than the previous estimate of US$363 billion. However, Google's Stephanie Davis noted that this is the first time the report has lowered its forecast, which shows the impact of disruptions to global supply chains during the pandemic.
Meanwhile, in the context of Southeast Asian countries, Indonesia continues to lead as the largest digital economy. Online spending in Indonesia is projected to reach USD 130 billion by 2025, followed by Thailand, Vietnam, the Philippines, Malaysia and Singapore, demonstrating significant growth potential in the region.
Indonesia has become a major force in the ASEAN digital payments market. In 2020, payment volumes increased by nearly 40%, while e-commerce platforms doubled their transactions to around 430 trillion rupiah (approximately US$30.1 billion).
This achievement was fueled by the efforts of Indonesia's central bank. They successfully implemented the Quick Response Code Indonesia Standard (QRIS), a mandatory national QR code system, to encourage the adoption of digital payments accessible to 65 million micro, small and medium enterprises (MSMEs), as well as consumers who have difficulty or limited access to credit cards and other mainstream financial services.
Micro, Small and Medium Enterprises (MSMEs) contribute 61% of Indonesia's economy, but still face challenges in accessing credit. A financing gap of US$50-70 billion in the MSME sector has resulted in lost value creation of up to US$130 billion.
In the Philippines, the story is similar. While there are still remote and rural areas not yet connected to the digital economy due to limited infrastructure and skills, digital adoption continues to grow rapidly. Nearly all digital merchants, 97%, already accept digital payments, and about two-thirds have adopted digital lending. The survey results show that access to digital platforms is critical for 40% of merchants to survive the pandemic.
Reference:
Suruga. Tsubasa. (2022). ASEAN's Digital Payment Market to Reach $2tn in 2030: Study. asia.nikkei.com
Statisa. Digital Payment - ASEAN. statista.com
Bloomberg. Open for Business Southeast Asia’s Digital Payments Revolution. Bloomberg.com
