Southeast Asia, or known as SEA, is the geographical south-eastern region of Asia, consisting of eleven sovereign states, ten of which are members of the Association of Southeast Asian Nations (ASEAN), while East Timor is an observer state.
With a combined population of more than 675 million, SEA is home to some of the most rapidly developing marketplaces in the world. The economy of the region is still heavily dependent on agriculture, nevertheless. Over six out of ten people in Southeast Asia are still unbanked, according to statistics.
Over 70% of Southeast Asia’s workforce is made up of informal workers, who are also financially underserved. Due to their frequent cash transactions, debt, and lack of bank accounts, many find it challenging to establish a credit history that would grant them access to conventional financial instruments.
The Rise of Digital Payments in SEA
Due to shifting consumer and retail patterns, Southeast Asia’s online payment ecosystem is undergoing a digital transition. Up until May 2022, all digital commerce payments processed in the Southeast Asian region totaled 171.96 B US Dollars, with Indonesia taking up almost 70% of the share.
In SEA countries including the Philippines, Thailand, and Vietnam, digital payment markets are expanding despite economic setbacks brought on by the COVID-19 pandemic. This is partially attributable to the growth of online merchants, as well as to a rise in internet and mobile phone adoption. In the first year of the worldwide pandemic, the region attracted 400 million new internet users, and 70% of the SEA population is now online.
In the majority of SEA countries, the use of mobile phones has grown faster than the use of credit cards or bank accounts. For instance, only around half of people in Indonesia have a bank account, while about 75% of the population in that country have a mobile phone.
Banks Play Critical Role in SEA Payment Sector and promoting change, banks have a significant role in play.
Banks’ role will only be more essential as funding sources in the e-money sector as market expansion depends on a rise in card and bank account holder numbers. To draw money into their proprietary systems, mobile wallets require connections to infrastructure controlled by banks.
Take the Philippines as an instance, although the remote and rural portions of the archipelago remain closed off from the digital economy due to inadequate infrastructure and a lack of skilled workers, the Philippines is still seeing an explosive growth of the adoption of digital payments.
Two-thirds of digital merchants have embraced digital loan services, and 97% of them accept digital payments. Approximately 40% of business owners claim that they could not have survived the pandemic without access to internet platforms, according to a poll.Mobile wallets have teamed up with banks and other service providers to offer cheaper international transfers as a major feature, as the region is the top beneficiary of overseas remittances.
The Role of Blockchain Technology
More and more firms are creating innovative solutions to support the growing demand for digital payments as they scramble to meet it.
For instance, the fintech company BukuWarung in Indonesia is creating a payments
infrastructure for the market of micro, small, and medium-sized businesses (MSMEs). In the meantime, Temasek Holdings, Tencent, and the International Finance Corporation are supporting the B2B platform GrowSari in the Philippines as it creates financing products for neighborhood shops. On the other hand, SEA unicorn Nium is broadening its cross-border B2B payments focus to support “frictionless commerce” wherever a payment is sent or received.
As the B2B payments business in SEA continues to expand quickly, blockchain technology has come to light as a possible game-changer. The ability of blockchain to enable less expensive, quicker, and more secure business financial transactions is already being tested by the region’s firms.
Singapore-headquartered DBS Bank has become the first bank in the region to join the global Hedera Governing Council, which oversees the Hedera network, a public distributed ledger for decentralised finance In parallel, blockchain companies are looking into ways to enable quick settlement of wholesale banking payments and are partnering with international payment companies to broaden their reach.
In 2021, the Asean Blockchain Consortium (ABC) was also established to foster cooperation between blockchain organizations in Australia and Southeast Asia.