An article in the Hindustan Times reported that the Vietnamese FinTech industry is likely to reach $18 billion in 2024. But this is not a new trend, another article in The FinTech Times reported that Southeast Asia has seen the number of FinTech companies rise by a staggering 3,588% since 2000. To get an understanding of this rapidly growing market, GLG’s Alisha Chatterjee hosted a teleconference with a GLG Network Member, Senior Executive in the Fintech Industry. The following is an edited excerpt from their conversation.

Southeast Asia is turning into the next hotspot for the FinTech industry. Can you tell me why?

Fintech’s growth in Southeast Asia (SEA) is largely being driven by the burgeoning middle class in each of the large SEA economies. For example, in Indonesia, the middle-class population is already 54 million, and the next 40 million are the “aspiring class” where improvements in income and daily lifestyle are soon to come.

Meanwhile, a lot of these individuals are still underbanked or unbanked which means the FinTech industry can leapfrog the innovations and introduce digital payments, for example, or lending to help them in their lifestyle and daily economy.

We’re also seeing a deeper penetration of the digital economy in SEA mainly driven by the growth of the super-platform economy driving the eCommerce, ride-hailing, food delivery and other on-demand services that are being fulfilled by digital payments and FinTech

Finally, there are very accommodative governance and regulatory frameworks across SEA nations, especially regarding the new digital innovations related to FinTech. For example, there is a cross-collaboration for payments, a cross-border standardized QR system to enable mobile payments, and streamlining of licenses for types of payments and money movements within the country. This will also become the fuel to increase the growth of FinTech accelerations going forward in Southeast Asia.

Can you draw a pre and post-pandemic comparison of this industry in Southeast Asia?

The pandemic and lockdowns brought about very rapid changes and adoptions of FinTech overall across Southeast Asian nations. This was mainly driven by the lockdowns and subsequent reduction of offline transactions, which moved online through eCommerce.

These transactions are enabled by mobile and digital payments. For example, before the pandemic in 2020, eCommerce penetration in Indonesia was still around 8% of total retail. But after the pandemic in 2022, it hit around $18 billion of total GMV of retail, which amounted to approximately 13% of penetration of retail.

Another thing would be the pandemic-era emergence of retail traders and retail investors, which drove wealth tech and invest tech applications such as Ajaib, Pluang, or Barisa, as well as the rise of cryptocurrency trading platform that enables these retail investors to participate for the first time in the digital economy and digital investment assets. Before the pandemic, there were only around one million retail investors in Indonesia. But now, it’s already jumped to almost 10 million retail traders.

Can you provide me with an overview of this industry in terms of market demand and products and service offerings?

Demand is large and has outstripped the supply. Currently, in SEA, the total demand for consumer lending stands at around $300 billion, while the supply is still half of the demand at around $150 billion of total outstanding consumer loans. The demand from the rising class of middle-class affluent consumers will only increase this gap.

This gap will enable the FinTech players to innovate and provide the supplies of financing and supplies of infrastructures to expand access. Right now, this demand is being concentrated on the tier one cities, big cities in each of the Southeast Asian nations, while the tier two and tier three cities have not been penetrated yet.

This is an opportunity for the FinTech players to expand access as well, using, for example, agent networks to provide financing and penetrations of digital FinTech solutions.

Can you tell me which economies have the potential of turning into lucrative FinTech markets in the coming years?

Vietnam has been growing very fast and there’s a lot of penetration for the digital economy. For example, for eCommerce payments, Vietnam has been the second largest market in SEA after Indonesia. Indonesia has $83 billion in eCommerce payments while Vietnam is at $29 billion, and it’s growing faster at around 40% year-on-year.

In Vietnam, we can see the convergence of digital payments, payment infrastructure, and eCommerce that we have seen previously in China or Indonesia. But Vietnam is just catching up. Recently, we can see that the newest unicorns have come out from Vietnam as well. For example, MoMo Pay and VNPAY, are being under-underwritten and supported by the local conglomerates in Vietnam. This recent infusion of cash from IPOs will then help these Vietnamese unicorns to underwrite the growth of the digital economy.

Labor costs are still relatively cheap in Vietnam, especially compared to Indonesia or Thailand. The quality of their IT and engineers and software developers is also improving very rapidly, and many software developer houses have emerged from Vietnam to serve other markets, including those in markets in China, India and some Western developed markets. From the talent perspective, Vietnam is not lacking the types and the numbers of digitally ready workforce that will underpin their digital economy and power FinTech growth.

 

This technology industry article is adapted from the GLG Teleconference “Fintech Industry in Southeast Asia: What are the Opportunities of SEA’s Massive Unbanked Market?” If you would like access to this event or would like to speak with technology industry experts in our approximately one million industry experts, contact us.

Questions Asked During the Teleconference:

• Southeast Asia is turning into the next hotspot for FinTech Industry. Can you tell me why?
• Where does the FinTech industry of Southeast Asia stand as of 2022, and what is its current market size?
• Can you draw a pre and post-pandemic comparison of this industry in Southeast Asia, as to what factors are there which were there before the advent of the pandemic and that changed after that?
• In what ways has the Association of Southeast Asian Nations (ASEAN), driven innovation across major FinTech areas?
• Who are the major market players in this industry in Southeast Asia and do you foresee the emergence of new players in the coming two years?
• Can you provide me with an overview of this industry in terms of market demand and products and service offerings?
• Where do the biggest opportunities lie in this industry for startups and new entrepreneurs?
• How would you define the regional markets in this industry on the basis of hyper-developed, relatively developed and developing markets?
• Which economies have the potential of turning into lucrative FinTech markets in the coming years?
• Can you share some highlights about developments being made in decentralized finance and robotic process automation in the Southeast Asian markets in FinTech?
• Can you tell me about the latest trends in the mobile payment market in Southeast Asia?
• How do you think the FinTech industry can drive financial inclusion in Southeast Asian countries?
• What are the major challenges and roadblocks that this industry is facing currently?
• What government and regulation policies have come into the picture to boost this industry? What other regulations do you think are required?
• Where do you see the FinTech industry in Southeast Asia heading in the next five years? What market trends do you foresee?