SEA is one of the fastest-growing regions in the world, with a population of over 650 million people and a GDP of US$3.3 trillion in 2021, which corresponds to 3.4 per cent of the global GDP. It is projected that by 2025, digital financial services will generate around US$38 billion. This accounts for 11 per cent of the entire financial services industry.
Waking an economic sleeping giant
But upon closer look, a massive potential in Southeast Asia (SEA) still remains untapped. The forecast shows that SEA, in 2025, has a full revenue potential of US$60 billion, around 58 per cent more than the expected revenue potential of US$38 billion.
The latest figures show that SEA still has ways before it reaches a truly cashless, all-digital, and accessible financial environment. 70 per cent of the adult population in the region remains either “underbanked” or “unbanked”.
To reach this potential, national governments must facilitate in release and implementation of strong and supportive regulatory policies and frameworks for digital financial services players.
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This untapped and massive digitalisation and financial inclusion potential can be further accelerated by bridging the gap between public and accessible retail credit. This is especially applicable to emerging SEA markets such as the Philippines.
Bridging the credit gap
Despite 90 per cent of Filipinos owning a smartphone with mobile internet, the Philippines has generally been a cash-centric society. Based on a study by McKinsey, only two per cent of Filipinos used credit cards. An archipelago with over 7,000 islands, the country had suffered from limited accessibility from conventional, paper-based payment infrastructures.
This all changed during the pandemic, which jumpstarted the digitalisation journey and changed Filipinos’ behaviours forever: they created and transacted using e-wallets, purchased goods and services on e-commerce websites, and started saving their hard-earned money in digital banks.
Based on the 2021 Financial Inclusion Survey conducted by the Philippines’ central bank, formal account owners nearly doubled from 2019 to 2021 with 29 per cent and 56 per cent, respectively.
The pandemic may have paved the way towards digitalisation, yet four out of 10 Filipinos remain sceptical about the safety of online banking. From the same survey, what is interesting to note is that from 19 per cent in 2019, there was only a minor increase to 25 per cent for formal credit. In the country, informal credit has culturally been more popular than formal credit, wherein borrowers would seek credit from family and friends and informal loan providers.
Regarding formal credit, traditional or digital banks only ranked among institutions at a meagre four per cent in 2021. An insight in the same survey showed that informal credit sources were preferred due to their relative convenience, as little to no documents were required. Despite the need for quick credit, borrowers found the process in banks tedious, preferring informal credit sources that can disburse funds attached with higher interest rates.
This thought process is prevalent not just in the Philippines but across SEA. 2021 figures collated from World Bank, Euromonitor, Global Data, Bain, and Temasek reveal that consumer credit in the region, as a percentage of GDP, is at 13 per cent vis-à-vis to the US benchmark of 24 per cent of the US.
Building the road to credit inclusion
With online transactions ramping up exponentially because of the massive popularity of e-commerce and e-wallets, more users will become aware and interested in the plethora of financial services available. It is only a matter of time before accessible and digital credit becomes the preferred way for customers moving forward.
Governments across the region are becoming more supportive, with innovations such as a national and standardised QR code for mobile payment, digital bank licenses now being offered and granted, and national ID systems. Regulators, after seeing the success of digital financial services players in their shared vision of the digitalisation of the banking industry.
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Digital financial service providers must gain the public’s trust and confidence by ensuring all steps in the customer’s journey must be quick without sacrificing security and confidentiality. A company I co-founded, Singapore-based FLOW, was instrumental in redefining credit management by using professional, ethical, and highly efficient practices.
At present, we at Tonik are leading the way in driving financial freedom in the region. We provide Filipino customers a market-competitive, highly secure, and bespoke all-digital credit product range. In doing this, we empower Filipinos to use their available credit for various purposes, whether for their dream purchases and experiences, home improvements, or tuition fees, among others.
The sky is the limit when opportunities that are accessible, quick, and secure are presented.
By harnessing top-line and innovative technology with world-class fintech vendors, digital financial service providers can disrupt and change how people view money. What was once a far-fetched dream is now rapidly turning into reality. No longer are people confined to working for money; now, money works for us in pursuing our plans, goals, and dreams. That is what true financial freedom is all about.
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