COVID-19: Catalyst or cataclysm for Southeast Asia’s fintech sector?

Contactless payments are on the rise throughout the region. Photo: HLundgaard / CC BY-SA

Companies and consumers will rely heavily on fintech products in the coming months and years as the effects of the coronavirus pandemic play out. Increased innovation and continued investments in the sector will see it go from strength to strength.

By John Pennington

A survey by accounting firm CPA Australia revealed that 73% of companies in Singapore expect to use at least one fintech product next year, up from 67% last year. 

Highlighting how the city-state is the clear financial technology leader among Southeast Asia nations, this also serves to illustrate how the coronavirus pandemic is forcing an attitude shift among companies that might have otherwise been reluctant to make the fintech leap.

The survey suggests fintech will play a growing role in the post-COVID-19 landscape

Drilling down further into the results, 42.7% of those businesses surveyed expected to use mobile payments and digital wallets in the coming 12 months. Robo-advisory/chatbots and open banking APIs were next on the list, mentioned by 23.6 and 19.1% of businesses, respectively.

Many respondents state they will turn to fintech solutions to increase efficiency while others say it will improve their customers’ experience and is essential in the wake of COVID-19.

“With the global pandemic and more challenging business environment, improving efficiency and enhancing the customer experience are essential elements for businesses to sustain themselves and to thrive,” explained Chng Lay Lew, CPA Australia’s Singapore Divisional President.

“More widespread adoption of fintech products and services will help in this respect as consumers become increasingly comfortable with digital financial transactions.”

Governments, banks continue to back fintech development

Singapore’s government has supported fintech development from the start, aiming for the city-state to become a regional hub for such technology. The Monetary Authority of Singapore (MAS) recently committed another US$250 million to accelerate technology adoption and innovation-driven financial growth.

“Government support of technology adoption and a friendly regulatory environment to position Singapore as a top fintech hub will also be key influences in growing fintech usage,” Lew added.

Singapore now has over 40 fintech innovation labs which have produced almost 500 projects and created nearly 200 jobs. Meanwhile, MAS estimates the country’s fintech industry employs nearly 10,000 people, with fintech firms in Singapore attracting S$1 billion (US$730 million) in investments last year.

Singapore is not alone in supporting fintech. Banks in Indonesia, Malaysia, the Philippines and Thailand all committed support for the development of fintech initiatives. Funds are available via initiatives such as Malaysia’s Cradle Fund and The Mekong Business Initiative, developed jointly by the Asian Development Bank and the Australian government. 

Elsewhere, priorities for 2021 depend on the market’s maturity

Another survey carried out by software company FICO reported that 100% of Thai banks would continue to invest in compliance technology—technology that helps them regulate their services and prevent money-laundering—in 2021 and 41% of them will be increasing their investment.

While just two-thirds of banks responding in Singapore said they would be starting new compliance investments, this is because many have already spent significantly in this area in recent years. It is another excellent example of how Singapore is ahead of the rest of Southeast Asia, although the others are working hard to catch up.

“This convergence is a global trend,” said Timothy Choon, FICO’s Financial Crimes Leader in Asia Pacific. “Banks in the US and UK are well on their way to fully integrating their compliance and fraud functions, bringing together teams, leaders and technologies.  

“We believe banks in Asia Pacific are looking to these markets to see what will work, with plans to follow quickly in the next 24-36 months,” he added, also revealing that Indonesia, the Philippines and Thailand will invest most in compliance technology among those countries surveyed.

Will COVID-19 act as the catalyst for fintech growth?

One global trend on the rise thanks to COVID-19 is the increased deployment of contactless payments. More and more people began paying for products via their smartphones to decrease the risk of transmitting the virus by handing over cash or cards—as the World Health Organisation advised.

For as long as COVID-19 remains a threat, people will continue to turn to non-cash payments, and it will become a habit. Governments recognise this: the MAS is working with the Association of Banks in Singapore in a bid to increase adoption of contactless payments. Meanwhile, Malaysia and Singapore have already standardised quick response (QR) codes which can be used for transactions, with Cambodia and Thailand looking to follow suit.

Thailand’s government had already launched a national e-payment system, its goal to create a cashless economy. Before COVID-19, non-cash payments were projected to make up 21.1% of transactions in the country in 2021, up from 6.2% in 2014. Taking into account the impact of COVID-19, Statista predicted a 36.4% increase in mobile point-of-sale payments in Thailand next year, up from 27.44% last year.

Furthermore, as the need for contactless payment infrastructure continues to develop, investments in new solutions and technologies may increase. As banks have discouraged customers from coming into contact with employees, another survey suggested that in the Philippines and Singapore, 25% of customers could stick to digital banking from this point forward.

“The macro story has been the acceleration in digital adoption, and behaviours that would have taken two to three years to change have changed in the last two to three months,” said Tim Levene, CEO of fintech investment company Augmentum Fintech.

While these developments point to Southeast Asia’s fintech sector going from strength to strength, despite the pandemic, there will always be those that miss out. For example, small startups or those that might just have launched projects or products as the pandemic hit lacked the resources to cope.

On the other hand, those with a more established presence have been able to prosper by offering fintech-based solutions to problems exacerbated by COVID-19 such as loan reconsolidation, payment facilities and financial advice.

But the outlook generally remains positive. As Varun Mittal, EY’s global emerging markets fintech leader, commented, “In Southeast Asia, it’s probably the most exciting time to be here for the industry now. Technology has been the primary tool to enable growth and drive the region’s prosperity. We’ve seen that across all aspects of the economies,” although during the pandemic, “overall consumption has faced some challenges. Consumption is re-allocating.”

About the Author

John Pennington
John Pennington is an English freelance writer and a self-published author. He graduated from the University of Warwick with a bachelor’s degree in French and History in 2006. After spending time as a sports journalist, he now writes about politics, history and social affairs.