Old players and new challengers battle it out for Southeast Asia's $1 trillion digital payments market
- Digital payments in Southeast Asia will cross $1 trillion by 2025 according to the e-Conomy SEA 2019 report.
- E-wallets will grow at a faster rate to hit $114 billion by 2025.
- Digital remittances, lending, investments and insurance are expected to piggyback on the success of digital payments.
That means almost one in every $2 spent in the region is an online transaction according to Google, Tamasek and Bain & Company's e-Conomy SEA 2019 report.
"These technology-enabled business models are best positioned to give Southeast Asia's underbanked population access to financial services," it said.
The report also estimates that e-wallets, a subset of digital payments, will grow even faster to reach $114 billion by 2025 — a five-fold increase over the current value of e-wallets at $22 billion.
Other digital financial services like remittances, lending, investments and insurance are expected to grow at least two to three times their current value, in the next five years.
"While new entrants and established players are competing and partnering to tackle this opportunity, supportive regulations will play a critical role," said the report.
No monopoly in the fintech space
Not only are digital financial services set to grow along with digital payments, they also involve a diverse set of players with no clear leader.
Banks, remittance companies and insurance companies have the most experience in the area, but are struggling with the new-age digital services. They're also held back by legacy IT systems that have been in place for years, taking away agility.
In comparison to the traditional players, challengers like e-commerce companies, telecos, social media platforms and ride hailing services are comfortable with the technology. But, their customer acquisition costs are higher as they penetrate new markets. Their ability to scale and stay financially sustainable is also yet to be proven.
"Digital payments are rapidly spreading online and offline. But talent remains a pressing constraint despite all efforts by Internet economy companies to 'fill the gap'," noted the report.
Improvement over last year
Until last year, digital payments were a challenge in the Southeast Asian Internet economy. The lack of adoption was hindering the growth of other digital goods like gaming and music subscription services.
Last year's e-Conomy SEA report stated that the digital payments ecosystem was largely fragmented, since the solutions weren't compatible with each other and merchants were reluctant to adopt the solution for both online and offline transactions.
This year, not only are digital payments expected to grow but digital remittances, lending, investments and insurance are expected to piggyback on its success.
India falls 10 places in Global Competitive Index as others race ahead in technology
India is as prepared as US or Australia to welcome 5G era
India is digitising but the pace is leaving many behind