Southeast Asia’s Underbanked Consumers and Businesses Embrace Alternative Financing Platformsby Fintech News Singapore January 17, 2023
In Southeast Asia, digital financial services are contributing to advancing financial inclusion for both individual and business users, oftentimes arising as the last resort to secure much need financing, according to a new report by the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School and the Asian Development Bank Institute.
The first edition of the ASEAN Access to Digital Finance Study, released in December 2022, shares findings of a survey of 600 individual households and business users of digital finance platforms in five key ASEAN markets, which sought to understand how individuals and companies in major Southeast Asian markets use fintech platforms to access credit and raise capital.
Supporting financial inclusion
Results of the survey show that in ASEAN, consumers often turn to fintech platforms after failing to secure credit from traditional financial providers.
66% of the consumers polled said that before turning to alternative financing platforms, they had unsuccessfully approached friends or family to get financing, a proportion that stands at 63% for those who had reached out to banks.
Peer-to-peer (P2P) lending and marketplace borrowers were also asked whether their relationship with banking products and services had changed since receiving funds from alternative financing platforms, to which 52% said they had begun to use or had increased the frequency with which they used savings or checking accounts. This finding reveals a more organized financial situation, the report notes.
After increased bank account usage, Southeast Asian P2P lending and marketplace borrowers reported an increase in the use of personal loan contracts (33%), overdraft accounts (30%) and personal credit cards (25%).
Results of the survey also reveal high customer satisfaction among P2P and marketplace lending users, a sentiment that’s evidenced by the high frequency with which these people use digital lending platforms.
Of all the P2P lending and marketplace borrowers polled in Southeast Asia, 75% said they had used a digital lending platform more than once. Of those, 37% used the platform to borrow funds more than five times, 16% twice and 13% three times. Additionally, when asked if they had borrowed from other fintech platforms, 57% reported they had.
When asked about the purpose of borrowing funds from P2P and marketplace lending, 49% of the respondents said they used the proceeds to meet daily expenses or short-term needs, such as buying groceries, paying utility bills and top-ups.
Usage of BNPL
The study also sought to gain insight on how ASEAN consumers are utilizing buy now, pay later (BNPL) arrangements, delving into where and how these solutions are being consumed, and why consumers find them so attractive.
Results of the study show that millennials make up most of BNPL users in ASEAN, representing 54% of all BNPL users who took part in the survey.
BNPL users were also asked about how they accessed BNPL facilities, to which 51% responded at the checkout point on the merchant’s website, well ahead of the BNPL platform’s own website or app (38%) and at offline merchants (11%). These results show the relevance of BNPL options as an embedded product within the online shopping experience.
Findings also reveal high customer satisfaction, a feeling that’s showcased by the high frequency of BNPL usage and a clear preference for BNPL arrangements over traditional consumer lending products such as credit cards.
Of BNPL users in Southeast Asia, 48% said they use these arrangements once or more than once a month, while only 23% said they use these facilities once a year or less.
51% of BNPL users said they preferring BNPL over credit cards, with more than half citing ease and convenience as the main reason. 11%, however, said they use BNPL because they do not have a credit card, showcasing the potential of BNPL options to act as an alternative to credit cards.
Results also show that COVID-19 has had an impact on BNPL usage, with 56% of respondents indicating using BNPL facilities more often during the pandemic and spending more money on purchases through BNPL.
Like for retail customers, results of the micro, small and medium-sized enterprise (MSME) survey reveal that digital lending has become a compelling solution for businesses seeking capital, and is oftentimes, a final course of action for smaller outfits.
More than half of the MSMEs polled said they had sought funding from banks (65%), microfinance institutions (55%), or family and friends (51%) prior to accepting an offer from a P2P or marketplace business lending provider.
38% of MSMEs said they borrowed through P2P or marketplace business lending platforms to raise working capital and pay suppliers, rent and bill, and cover unexpected business cash flow needs, such as customer defaults, late payments or unexpected bills. 25% said they needed the proceeds to fund their growth and expansion plans.
Like consumers, MSMEs shared a high level of satisfaction when using P2P and marketplace lending platforms, naming their flexible terms, superior customer service, the ease of getting funds compared to traditional channels and the speed of receiving funds as the top four reasons why they opted for fintech platforms.
Findings from the study also reveal a correlation between securing financing through a fintech platform and business growth. Most MSMEs reported a positive impact on their activity, primarily through increased productivity (65%), an expanded customer base (41%) and the launch of a new product or service (39%).
The majority of respondents also reported improved business performance, with more than half recording increases in profits (59%), revenue (59%) and employment (52%).