The Main Driving Factors of ASEAN’s FinTech Revolution

It’s about time ASEAN experienced a technology revolution in travel, e-commerce, financial services, and hospitality industries. Unicorns such as Sea (formerly Garena), Lazada, Grab, and Go-Jek are but the beginning of a new era of ASEAN tech-based organizations investing in consumption, connectivity and general growth of the economy. In 2010, many big names emerged in the Chinese technology market and in 2015 the Indians experienced a rebirth. From these recent transformations, the next five years hold great prospect for ASEAN.

With an estimated $2.2 trillion trade flows annually and support from over 50,000 financial institutions for business entities and consumers, ASEAN’s growth story is, to a large extent, dependent on financial technology. For instance, an estimated 27% of Small and Medium Scale Enterprises (SMEs) and consumers have bank accounts, while just a slight 3% have insurance coverage. Considering these statistics, these regions still have a fertile ground for financial technology to thrive.

In the light of this, five essential factors encourage the growth of this financial sector. These drivers are best referred to as the Cs of ASEAN Financial Technology, and they are connectivity, consumption, conglomerates, consolidation, and China.

In the last few years, Singapore has recorded proximately 80% increase in smartphone penetration. In the last five years, mobile phone connectivity has snowballed in Thailand with approximately 133%, Vietnam 131%, Cambodia 173%, and 93% in Myanmar. In Berlin, about 3.8 million people join internet users on a monthly basis in ASEAN; an average internet user in Thailand spends over 4 hours on social media platforms, and Myanmar may have a stronger internet connection than lots of cities in the West.

An average adult owns a smartphone and has regular access to Facebook and other social media platforms in ASEAN. Sadly, only a portion of the population has access to banking and other financial services. Interestingly, these new platforms offer data that gives access and great opportunities to explore banking services. Over the years, banks and other financial institutions have not done so well in attracting such potential consumers. However, they are currently making efforts to secure adequate data for a more improved risk underwriting as well as to build and maintain the trust of customers.

A study reveals that by 2025, the number of people within the middle-class classification will be over 440 million – from its current 190 million. This increase will, in turn, affect the general demand for goods and services. By 2025, e-commerce activities are expected to also increase by over 18 times, hospitality services by 5 times, and 4 times increase in travel-related activities. Home-based e-commerce sites like Lazada seem to have arrived at the right time and have caused a remarkable growth in the internet marketing industry. It is, however, no surprise that while Amazon U.S. has recently gained entrance into Singapore’s e-commerce industry, (China) have also launched in Indonesia recently.

With the high rate of Smartphone penetration and mobile connectivity in ASEAN, as well as improved infrastructure and better logistics, online shopping gets better by the day. However, the recurring cases of fraud, cash payment on delivery and complicated payment processes have posed significant challenges to these internet marketers, as their consumers do not enjoy the best customer experience. Although both local and global payment players offer solutions to these challenges, there is a critical need for a more advanced payment system for enhanced customer experience. With the aid of financial technology, both the e-commerce sites and their clients can enjoy comprehensive financial services, while international payment structures are established for a reliable and smooth payment experience for international clients.

In the Asia Pacific, families own over 85% of the companies. These companies are spread across energy, logistics, real estate, natural resources, and financial services. These family-owned enterprises are well positioned for more innovativeness in their field, and they adopt critical approaches for quicker technology implementation. In such family businesses, decision-making takes a different format; one that is usually more result-oriented and less complex – unlike as it is in traditional companies.

Considering the state of most of these conglomerates, the tech companies can quickly reach out to more of their customers. FinTech is just a level of the entire digitalization process that brings noticeable improvement to several aspects of the conglomerate. Having an eagle-eye view of the line of businesses would help to introduce innovation and new technologies – for mobile user experience and adequate data – for the provision of improved products and services.

ASEAN has 50,000 financial institutions – made up of both banks and non-banks institutions – besides the over one million micro-finance organizations. There are also over 1,000 FinTech companies – both old and new – in the region.

Basel II, Basel II, and other global regulations have compelled small financial houses to carry out mergers with other small banks in other to meet up with the growing requirements regarding risk capital. Over the years, these small banks have successfully joined forces with small banks in the industry to meet with the set standard. As it is expected of mergers, the organization’s existing policies and technology are reviewed by the new management in a bid to provide efficient solutions with state-of-the-art technology.

Cutting edge FinTech products are given higher priority than the old less efficient systems that had been used by their entities in the past. This approach will create an opportunity for the institution to introduce B2B and B2C systems that will help transform these small organizations into reasonable competitors. This technique could come as a threat to those offering traditional tech services which are currently contending with modern startup approaches.

The footprints of big Chinese technology companies are increasingly dominating ASEAN. Chinese’s mission to get a reasonable share of the over-650-million-people market is written over some latest moves by Chinese-cased companies; amongst which are the acquisition of Lazada by Alibaba and Tencent’s investment in Mynt. Both Indonesia and Malaysia governments seek internet advises from Jack Ma, this reveals how these countries are looking to tap from China’s technological growth.

Amongst others, the most significant growth will be noticeable in asset management, payment flows, and trade finance. Companies like Alibaba and Tencent are looking to have businesses that have payment licenses as well as their capital and data flows. Recently, Lufax was licensed in Singapore to provide retail customers with Chinese asset management products. The increase in trade flows between ASEAN and China will give birth to new technologies which will help to improve trade finance. Hence, FinTech companies would be better off with a China strategy from the onset. Having such a policy places them in a better position for partnership or complete acquisition by the Chinese firms.

The five primary factors above will transform the state of ASEAN’s FinTech and place the region in a better position – a position that will equip them to favorably compete with other regions of the world in financial technology. New FinTech companies will shift their focus to B2B (from B2C) as financial institutions have better opportunity to implement more efficient technologies. Innovations that are best-fits for the markets will emerge, offering a solution to specific technical issues in the financial services field. This will, eventually, give room for a stricter competition between big Chinese tech company seeking to dominate the region and local companies battling to retain their tech-hungry consumers.