The Future of FinTech in ASEAN

Introduction

The demand for FinTech solutions in ASEAN is underscored by the rapid adoption of technology, high-levels of mobile usage and rising rates of internet penetration, an increasingly urban, literate and young population, as well as a segment of consumers and micro, small and medium-sized enterprises (MSMEs) underserved by traditional banking solutions. These factors and the economic potential of ASEAN have also attracted large numbers of investors to the region.

To realise the potential benefits FinTech innovation can bring to the region will require commitment and collaboration. Banks, FinTech companies and regulators should continue to collaborate to create an ecosystem to drive greater access to financial services in ASEAN. Building the ASEAN FinTech ecosystem is complicated and it involves various market participants and stakeholders coming together and working towards shared goals of a unified ASEAN Economic Community, increased financial inclusion for the unbanked and the seamless cross-border flow of goods, services and payments.

This dynamic region is ripe for technology transformation across sectors such as e-commerce, travel and hospitality, and, of course, financial services. Technology unicorns Lazada, Go-Jek, SEA (formerly Garena) and Grab are just the beginning of a bigger push of ASEAN tech companies enabling connectivity, consumption and economic growth. Where 2010 saw the rise of Chinese tech giants and 2015 the re-awakening of the Indian subcontinent, the next five years will be marked by the tremendous opportunities in ASEAN. With roughly US$2.2 trillion in annual trade flows and over 50,000 financial institutions providing banking services to consumers and businesses, financial technology is at the core of the ASEAN growth story.

Furthermore, only 27% of the region’s 635 million people have a bank account (as of April 2016) according to KPMG. This implies that 438 million people do not have access to traditional financial services in this region and in poorer countries like Cambodia, only 5% have bank accounts, which is one of the major reasons for sustained poverty in the region. In addition, only 3% are protected by insurance. So, it is not hard to imagine the opportunity for FinTech in ASEAN. According KPMG, reaching the unbanked population in ASEAN could increase the economic contribution of the region from US$17 billion (2016) to US$52 billion by 2030. FinTech startups have the potential to usher in serious change (both sense of the word) in the region.

Notably also, Southeast Asia has a higher than global average mobile phone penetration rate. While Singapore reached a smart phone penetration rate of approximately 80% in recent years, mobile phone connectivity in Myanmar (93%), Cambodia (173%), Vietnam (131%) and Thailand (133%) grew rapidly over the years (2012-2017). Every month the population of Bosnia-Herzegovina (approximately 3.7 million people) is being added to the internet in ASEAN as users. A Thai consumer spends on average 4.4 hours per day on social media, and data connection in the countryside of Myanmar may be better than in certain modern Western cities. Financial services provided by FinTech companies over the mobile phone, such as money transfers at low cost and short-terms loans, could help bring people out of poverty in the region.

In an EY survey conducted in October 2017 of 125+ institutional investors deeply interested and active in the FinTech sector in ASEAN, it was noted that there was greater than US$2 billion in capital commitments available. On the opposite end, a survey of 230+ FinTech companies, conducted in the same timeframe for the same jurisdiction, capital requirements were established at just greater than US$1 billion. Numerically, there is about two dollars of capital for every dollar worth in a FinTech opportunity.

This chapter discusses the multi-faceted nature of the FinTech future for the ASEAN market. These include its technological trends moving into and beyond 2020, and how consumer behavior has shifted with the digital transformation of services along with its regulations (or lack thereof). It also presents the possible models of collaboration between FinTech startups and financial institutions like banks and regulatory authorities. We also highlight challenges that face organisations that want to adopt frontier technologies like AI, blockchain and machine learning including challenges in technical expertise and capacity-building, and in dealing with change resistance within their own organisations.