Fintech Adoption Surges in Southeast Asia, Led by Digital Payments and Online Lending

Fintech Adoption Surges in Southeast Asia, Led by Digital Payments and Online Lending

by November 18, 2021

Usage of digital financial services is witnessing strong growth in Southeast Asia this year, a trend mostly driven by digital payments and digital lending adoption, according to the eConomy Southeast Asia Report 2021.

The annual report, produced by Google, Temasek and Bain & Company, looks at the state of Southeast Asia’s digital economy, delving into emerging trends and sharing key projections for the coming years.

According to the report, all digital financial services are flourishing in Southeast Asia, but digital payments and digital lending, in particular, have been leading the change, driven by strong usage of digital services such as e-commerce, ride-hailing and food delivering, and infrastructure development.

Digital payments reach mainstream adoption

Between 2020 and 2021, the share of e-wallet and account-to-account (A2A) transactions rose by 1 percentage point and 2 percentage points, respectively, at the detriment of card payments, which lost a 1 percentage point in its market share.



COVID-19 has accelerated the adoption of e-wallet, the report says, noting that consumer e-wallet usage has surged 45% compared to pre-COVID-19 levels.

In 2025, it’s projected that e-wallet transactions will make up 7% of all transactions, up 3 percentage points from 2021 levels. Transaction value will more than double by then, the report says.

Rising consumer adoption has pushed merchants to follow suit with now over 90% of digital merchants accepting payments digitally, the research found. Over the next one to two years, 92% of digital merchants expect to continue using or increasing their usage of digital payments, with e-wallets as their top choice.

% of digital merchants likely to increase or maintain usage of digital financial services in the next 1 to 2 years, Source: eConomy SEA 2021, Google, Temasek, Bain and Company

% of digital merchants likely to increase or maintain usage of digital financial services in the next 1 to 2 years, Source: eConomy SEA 2021, Google, Temasek, Bain & Company

Usage of A2A transactions, meanwhile, has been propelled by infrastructure development and real-time payment systems like FAST/PayNow in Singapore and PromptPay in Thailand. These platforms are becoming a popular form of payment amongst consumers, allowing with fast, cheap and seamless experiences. In April 2021, PromptPay recorded about 80% year-over-year (YoY) transaction value growth. In Singapore, instant payments grew 58% over the last year.

By 2025, the share of A2A transactions will make up 22% of all transactions, up by 2 percentage points from 2021.

Digital payments are forecasted to reach over US$1.1 trillion in gross transaction value (GTV) by then, up from a forecast of US$707 billion in 2021.

Share of gross transaction value per transaction type, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Share of gross transaction value per transaction type, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Digital lending rebounds

After digital payments, digital lending is another area poised for strong growth. After a year of uncertainty, the appetite for digital lending from both consumers and merchants rebounded this year.

On the consumer side, Google searches witnessed a 14% YoY increase for lending-related queries, the report says. Meanwhile, digital merchants are showing interest in embracing digital lending with about 30% stating they would likely increase usage of supply chain financing and buy now, pay later (BNPL) offerings in the near future.

BNPL arrangements are a type of short-term financing that allows consumers to make purchases and pay for them in installments. These have surged in popularity since the beginning of the pandemic, allowing consumers to stretch their dollars while helping online merchants improve conversion rates and increase average ticket size.

Competition in the space is now heating up with pure players, e-commerce platforms and banks all looking to get a piece of the pie. Banking incumbent Standard Chartered recently unveiled plans to venture into the space, partnering with BNPL players Atome Financial from Singapore and Kredivo from Indonesia. ShopBack, the Rakuten-backed e-commerce loyalty platform, is acquiring BNPL startup hoolah.

Digital lending outstanding balance is projected to reach US$39 billion this year, up 48% from 2020. Between 2021 and 2025, the figure is expected to grow 31% to reach US$116 billion.

Digital lending outstanding balance ($B), Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Digital lending outstanding balance ($B), Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Besides digital payments and digital lending, digital insurance and robo-advisory services are other fintech segments that have recorded strong growth in Southeast Asia. Digital insurance premiums reached US$3.2 billion in 2021, up 40% from the previous year. It’s forecasted to reach US$9 billion in 2025. Meanwhile, Southeast Asian robo-advisory platforms cumulated 12 million users in 2021, up 32% from 2020. It’s predicted to surge to 23 million by 2025.

Southeast Asia’s Internet economy

Southeast Asia’s Internet economy is set to reach US$360 billion by 2025, an upward revision from the previous US$300 billion projection, propelled by the fast-growing base of digital consumers and merchants.

Since the beginning of the pandemic, Southeast Asia has added 60 million new digital consumers. 20 million joined in H1 2021 alone. The figure brings the total number of Internet users in Southeast Asia to more than 440 million.

In tandem, investments in the region’s Internet economy hit an all-time high with US$11.5 billion worth of deals in H1 2021.

Investments in Southeast Asia's Internet economy, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

Investments in Southeast Asia’s Internet economy, Source: eConomy Southeast Asia Report 2021, Google, Temasek and Bain & Company

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