SEA online banking will generate $38 billion in revenue by 2025

A GrabCar driver uses the Grab app on a smartphone in Singapore, Wednesday, October 19, 2016.

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Digital financial services are expected to generate at least $38 billion in revenue in Southeast Asia by 2025, according to a new study revealed on Wednesday.

The report, co-authored by global management consultancy Bain & Company, Google and Singapore state investor Temasek Holdings, said that number could even reach $60 billion over the next 6 years. ‘there is continued investment, better infrastructure and supportive regulation.

If these numbers are achieved by 2025, it would represent a leap of between 245% and 445% from the current $11 billion in digital financial services revenue. Most small businesses and consumers still primarily use cash at the moment.

“The Southeast Asian financial services market itself is relatively underdeveloped when we look at benchmarks from developed markets,” said Aadarsh ​​Baijal, partner and head of digital practice at Bain & Company in the region during a press conference.

The report examined markets in Vietnam, Indonesia, Philippines, Thailand, Malaysia and Singapore.

Underbanked customers

More than 70% of the region’s 400 million consumers are currently either unbanked or underbanked, according to the study. The unbanked are adults who do not use banks or financial institutions.

“Underbanked people are really consumers who have a bank account but aren’t really fully participating in the financial services market,” Baijal said. “They don’t have access to the basics like credit cards or insurance, they’re underprotected, they don’t have the right long-term savings.”

There are some 98 million underbanked people in Southeast Asia’s six largest economies, and they represent “the greatest potential and true engine of growth in digital financial services,” the report said.

According to the study, consumer technology platforms such as Grab or Gojek have an advantage in gaining market share in this segment due to their expanding customer base that uses multiple services from them.

He added that the success of a business in the online financial services industry depends on three things:

  1. mindshare — how often consumers think about its services;
  2. time sharing — frequency of use of these services;
  3. share of trust — whether or not they trust the company.

Grab and Gojek started out as ride-sharing companies and gradually expanded into other areas, including digital payments and lending. They are able to regularly generate large volumes of data from their users, which allows companies to understand consumer expectations, behavior and feelings.

“Even though they have a lot of time to share, they’re still fighting over who gets the trust,” Baijal told CNBC. For “mind sharing, a lot of people are actually looking to new players like Revolut advertising their metal credit card,” he said, referring to the British fintech company that offers banking services. .

“Some other players might actually come out on top,” he added.

Baijal explained that at this stage, most people are still turning to banks to deposit their wages, as they are perceived to be more trustworthy. “There’s a little hurdle in moving from ‘time-sharing’ to others. I think (consumer tech platforms) have an advantage, but it’s not that they’re already ahead and the others can’t catch up,” he said. added.

Digital Payments and Small Business

The study identified five areas in the online financial services market: payments, remittances, loans, insurance and investments. Of these, digital payments are expected to surpass $1 trillion in transaction value by 2025, while online lending will become the biggest revenue contributor over time.

Southeast Asia’s 64 million small and medium-sized enterprises also fall into the underbanked category, where these businesses struggle to access affordable credit, according to the report.

The use of technology and financial data can potentially help create business models that can serve this underbanked segment. According to the report, 46% of businesses surveyed said they would likely accept digital payments within the next 2-3 years, while 30% said they were already accepting online payments.

Wednesday’s report follows a study earlier this month, also by Bain & Company, Google and Temasek, which said Southeast Asia’s internet economy is expected to grow to $300 billion. here 2025.

The region has high smartphone penetration, improving internet connectivity and a growing population, making it a lucrative market for services such as e-commerce, ride-sharing and digital payments.

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