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Digital Payments at Forefront of S-E Asia's Booming Internet Economy


The digital payments market in Southeast Asia has hit an inflexion point, and growth in this segment is likely to propel the region's Internet economy in the region to a US$300 billion market by 2025.

This is according to the annual e-Conomy report by Google, Temasek Holdings and Bain & Company released on October 3, which showed a US$100 billion bump in its US$200 billion projection made in 2016.

As it is, the numbers have shot past earlier estimates due to hearty growth from the e-commerce and ride-hailing players in the region.

In line with the rise of these two sectors, digital payments - defined as cashless transactions that include cards, peer-to-peer transfers and e-wallets - have also enjoyed surging adoption rates in recent years, with growth in the double-digit range, said the report.

Southeast Asia's digital payments market is projected to exceed US$1 trillion by 2025 to become the payment method for almost one in every two dollars spent in the region.

The report noted that while other digital financial services (remittance, lending, investments and insurance) are at a nascent stage, they are expected to increase two to three times over the next five years.

However, there remain untapped opportunities in the digital finance space. While there are 360 million Internet users in the region, half have yet to use digital financial services. Also, some 198 million people remain unbanked.

"If we look at the headroom, we still have a long way to go," said Stephanie Davis, managing director of Google in Southeast Asia, at the media briefing.

This market has attracted substantial interest from a broad range of non-bank players looking to gain ground over the incumbents. These include online marketplace Lazada, robo advisory firm StashAway, Indonesian digital lender Akulaku as well as Grab and Gojek.

In an interview with The Business Times (BT), Rohit Sipahimalani, joint head of the portfolio strategy and risk group at Temasek, said that fintech funding in Southeast Asia has been understated because fintech functions have been embedded in the offerings from unicorns such as Grab, Gojek, and Tokopedia.

The e-commerce sector leaped almost seven times from US$5.5 billion to over US$38 billion in the last four years to eclipse online travel as the largest sector in the region's Internet economy.

The need to embed payments also comes as Southeast Asian mobile consumers tend to spend more time browsing online than their counterparts in US, Europe, and Japan before checking out their purchases.

To deepen user engagement on their platform, the region's e-commerce players have rolled out entertainment offerings such as videos of social media influencers reviewing their favourite products, live auctions and in-app messaging to make the buying process more interactive.

Many of these initiatives are also laced with elements of gamification. For example, consumers are often encouraged to work together to bring down the cost of an item during shopping festivals such as Singles' Day (Nov 11) and 12.12 (Dec 12).

Online marketplace Lazada - one of the first players to introduce shopping festivals in the region - told BT it aims to serve 300 million consumers by 2030.

Consequently, online shoppers in the region are now making smaller and more frequent purchases online, compared with big-ticket items in the past, said the report.

That people in the region engage deeply in apps is "uniquely Southeast Asian", said Florian Hoppe, a Singapore-based partner at Bain & Company, at the launch of the report. "As that happens, you see GMV (gross merchandise value) going up."

This brings the "Super App" model into keen focus, with the goal being to bring as many e-commerce services together as possible in a single app to keep customers engaged.

"Super Apps" have since transformed the ride-hailing industry - now the second-largest sector in the region's Internet economy - with food delivery as the key driver of growth and profitability. Previously, food delivery services were primarily operated by firms such as Foodpanda and Deliveroo.

"The whole idea of Super Apps is to acquire customers and to have them be sticky... and it's becoming important because the real estate on your smartphone is limited," said Mr Sipahimalani, noting that more partnerships between online brands could be expected.

"You will still go to more than one e-commerce site, so I don't think it's going to be one app that's going to take over the region. But clearly, it shows that scale is important."

This article was written by Natalie Choy from The Singapore Business Times and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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