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The ASEAN Fintech Ecosystem Benchmarking Study

According to the first ASEAN FinTech Ecosystem Benchmarking Report, increasing demand for financial technology (FinTech) solutions across the ASEAN region has supported a rapidly growing and diverse FinTech landscape. The first of its kind, the ASEAN FinTech Ecosystem Benchmarking Study provides a snapshot of the ASEAN FinTech landscape, and analyses how this ecosystem has evolved within each country and by model. The study was developed by The Cambridge Centre for Alternative Finance, The Asian Development Bank Institute and FinTechSpace.

Evening skyline with digital overlay.

The ASEAN FinTech Ecosystem Benchmarking Study is divided into two chapters. Utilising survey-based data from 327 firms, the first chapter analyses key business models, customer demographics, go-to-market strategies, and principal technological innovations for the six main countries in the ASEAN region: Singapore, Indonesia, Malaysia, Thailand, Philippines and Vietnam. Chapter two provides an overview of regulations governing FinTech activities across the ASEAN region; and includes a regional comparative analysis of the current state of applicable regulations, as well as a regional overview of regulatory innovation initiatives.

The report highlights digital payments and digital lending as the most predominant FinTech business models in the ASEAN region, accounting for nearly 60 per cent of respondents. Within digital payments, peer-to-peer (P2P) transfers/mobile money and international remittances represent the largest sub-segments at over 65 per cent. Interestingly, P2P lending to small and medium enterprises (SMEs) is the largest sub-segment for digital lending with 53 per cent of responses.

In addition, customer centricity plays an important role in the go-to-market business strategy of FinTech firms in the region. The report shows that FinTech firms place the highest priority on ease of customer use (over 80 per cent of responses) and speed of service (80 per cent of responses) as their main strategies across all business models, significantly higher than integration (58 per cent) and cost of product (56 per cent). As the FinTech landscape continues to mature, firms are increasingly shifting towards servicing small businesses and larger corporations, moving away from a consumer/individual focus. This was particularly evident in the digital lending (56 per cent of user base), AI/ML/Big Data (46 per cent) and enterprise technology for financial institutions (80 per cent) business models.

Commenting on the report Dean Naoyuki Yoshino of the Asian Development Bank noted that “Individuals, households and firms cannot fully take advantage of the opportunities for economic and social development available if they do not have adequate and appropriate access to financial products and services. Developments of financial technology show great potential to extend the availability of financial products and services to households and small and medium-sized firms in Asia.”

Investment in ASEAN FinTech startups has increased rapidly over recent years, driven by the region’s high GDP growth, high smartphone penetration rates and increasingly urban and young populations. Nonetheless, financial inclusion remains a key issue in the region as many of the region’s citizens are unbanked or underbanked, particularly in rural areas.

“In 2018 alone, the ASEAN region saw a 58 per cent increase in internet penetration and a 141 per cent growth in mobile connectivity,” said Robert Wardrop, Director of the Cambridge Centre for Alternative Finance, in a foreword to the study. “This indicates a region primed to lead the push in developing FinTech solutions to revolutionise financial services and realise its potential to tackle critically important regional issues such as access to financial services and financial inclusion.” While FinTech solutions can be a key enabler for financial inclusion, the study shows that only 17 per cent of customers served by FinTech firms in the region were categorised as unbanked and 28 per cent were underbanked. More work is needed to help the unbanked, given that more than 50 per cent of the adult population in most ASEAN countries are unbanked.

When reviewing the approach of the regulators themselves, the study found that they are all welcoming towards emerging technologies within financial services. Each of them has responded to developments within FinTech markets with some form of bespoke regulation; as an example, 80 per cent have introduced bespoke regulation for digital payments.

Similar to global trends, ASEAN regulators are increasingly utilising regulatory innovation initiatives, with 60 per cent operating regulatory sandboxes, 50 per cent employing RegTech and 50 per cent establishing innovation offices.

Interestingly, the study found that multinational co-operation is particularly strong across the region; the majority of regulators have signed co-operation agreements to share information on FinTech sectors in their respective markets. Regulatory harmonisation is significant, and efforts are underway to encourage and further facilitate this, specifically involving cross-border initiatives.

“For regulators and policymakers in greater ASEAN, (the report) could be a great reference for their FinTech international strategy plans,” commented FinTechSpace. “For private sectors, both financial institutions and FinTech companies like to explore and enter these markets; thus, our report could be a great start for market research.” The new study, focusing on the ASEAN FinTech ecosystem, complements earlier CCAF studies on the growth of alternative finance in the wider Asia–Pacific Region.