According to a new study by Bain, Google and Temasek Holdings, digital financial services from lending to asset management are expected to generate at least $38 billion of annual revenue across Southeast Asia by 2025, more than tripling from $11 billion in 2019, reported Bloomberg.
Online lending is expected to contribute half that total for the region, which houses some of the world’s fastest-evolving internet and mobile industries. According to the report, growing smartphone penetration promises to unlock internet-based services such as insurance to more than 70 per cent of an adult population neglected by traditional banks.
The region has seen a rapid adoption of digital finance since Southeast Asian ride-hailing giants Grab Holdings and Gojek funnelled some of the billions they raised into in-app payments and financial services. Aadarsh Baijal, the Leader of Bain’s Digital practise in Southeast Asia, said that other segments like lending and insurance remain in their nascent stages.
“As payments grow like WeChat, we see other services following quite quickly, the adoption of the payment is becoming the gateway to the growth of other financial services,” said Baijal.
Even Uber Technologies is also moving into financial services by launching a new division, Uber Money. The San Francisco-based company is taking its cue from Gojek and Grab, which have successfully developed new revenue streams by branching out.
There are no clear winners yet in Southeast Asia’s fragmented digital financial services market. But traditional banks will play an important role because of their access to capital, said Rohit Sipahimalani, Joint Head of the Investment Group at Temasek.
Lenders like DBS Group Holdings and United Overseas Bank have teamed up with Gojek and Grab, respectively. Thailand’s Kasikornbank has partnered with Shopee, one of the biggest e-commerce platforms, to provide digital loans to sellers.
Indonesia and Vietnam are projected to grow fastest in terms of digital financial services revenue. The two countries’ expansion already underpins a $100 billion Southeast Asian internet economy.
Singapore and Thailand have instituted so-called sandboxes to allow companies to experiment under regulatory supervision. Both countries have also established standardised QR codes for mobile wallets. Digital payments in the region are projected to exceed $1 trillion by 2025, from $600 million in 2019.