Digital financial services (DFS) in Southeast Asia (SEA) are experiencing a remarkable growth trajectory, with projected revenues soaring by 22% from US$22 billion in 2022 to US$33 billion in 2024, a new report by Google, Temasek and Bain and Company says.
The annual e-Conomy SEA report explores the trends and insights of the five mainstay digital sectors in SEA, namely e-commerce, travel, food and transport, online media, and DFS.
It covers the state and outlook of SEA’s technology landscape across the region’s six major countries: namely Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
This 2024 edition highlights the rapid growth of fintech in these countries, driven by the adoption of cutting-edge technologies, increased competition and changing customer behavior.
This year, digital payments and lending continued to lead the sector’s growth, accounting for over 90% of the total DFS revenue.
Digital lending: the main driver of fintech revenue
In particular, digital lending remained the biggest revenue driver in Southeast Asia’s DFS industry. Between 2022 and 2024, digital lending revenue surged by 35%, reaching US$22 billion and accounting for 65% of all DFS revenue this year.
This growth was driven by digital banks entering the space and expanding lending to underserved customers through the use of advanced technologies, including artificial intelligence (AI).
Peer-to-peer (P2P) lenders are also thriving and maintaining low non-performing loan (NPL) ratios. According to Indonesia’s Otoritas Jasa Keuangan, P2P lenders have managed to maintain NPLs at around 2-3% despite doubling loans outstanding to US$4 billion between 2022 and 2024.
In markets including Singapore and Thailand, competition in lending is intensifying, with digital challengers gaining ground. In Thailand, non-banks are capturing an increasing share of the micro-lending segment. Meanwhile, in Indonesia, foreign fintech companies are aggressively increasing their footprint in the market, reshaping the competitive landscape.
Moving forward, the report expects digital lending to continue on its growth trajectory, fueled by innovations in AI. By 2030, the total loan book balance of the sector is projected to reach US$200-300 billion, up from US$71 billion in 2024.
Digital payments continue to surge
Digital payment is another vertical that’s recorded substantial growth, driven by a surge in transactions via cards, account-to-account (A2A) transfers, and e-wallets.
In 2024, the gross transaction value (GTV) of digital payments increased by 14% year-on-year (YoY) to US$1,138 billion. Digital payment revenue followed a similar trend, growing by 15% YoY to US$8.2 billion.
Growth in A2A and e-wallet transactions are being propelled by partnerships between leading e-wallet providers and major payment card networks, as well as expanding regional cross-border payment connectivity.
At the same time, merchants are increasingly embracing these payment methods due to their lower merchant discount rates (MDRs).
Furthermore, smaller merchants often benefit from subsidized rates incentivizing adoption of e-wallets and A2A transfers.
The MDR is the fee charged to businesses by the company that processes its debit and credit card transactions. These fees are generally higher for credit and debit cards transactions compared to A2A transfers and e-wallet payments, especially in competitive markets like Singapore.
Despite higher fees, credit and debit cards continue to be relevant in Southeast Asia, particularly in Singapore and Malaysia. In these markets, payment cards are appreciated for their reward and benefit schemes, as well as for their security features and flexible payment options. This makes them attractive for high-value transactions and affluent spenders.
The report expects digital payments to continue to grow, with GTV projected to climb to US$2,100-2,400 billion by 2030 and A2A and e-wallet set to account for 63% of the market, up from 58% in 2024.
Changing investor behavior drives wealthtech adoption
Weathtech, the third DFS vertical spotlighted in the report, is another emerging fintech category. The sector is being propelled by a generational shift in investor behavior, with digital brokerage platforms in particular gaining traction among Southeast Asia’s growing middle class and new generation of high-net-worth individuals (HNWIs), the report says.
It also notes increased interest in climate change, pollution and social infrastructure among Southeast Asian investors, a trend that’s driving the development of more sustainable investment products and solutions.
In 2024, assets under management (AUM) for digital wealth platforms grew by an impressive 24% YoY, reaching an estimated US$69 billion and a market share of 14% of total AUM in the region, up from 8% in 2022.
The 2024 edition of the e-Conomy SEA report, titled “Profits on the Rise, Harnessing SEA’s Advantage”, examines the health of Southeast Asia’s digital economy through the lens of profit, highlighting significant strives towards profitability which increased by a staggering 2.5-fold between 2022 and 2024 to US$11 billion.
These strong performances are being driven by sustained growth across core metrics, including gross merchandise value (GMV), which increased 15% YoY to US$263 billion, and revenue, which grew by 14% to US$89 billion.
Featured image credit: edited from freepik
