Financial Services in Digital economy
ASEAN has seen a remarkable surge in digital technology adoption, according to the 2023 e-ConomySEA report which was launched in Washington DC this month. The report mentioned that ASEAN digital economy generated $100 billion in revenue in 2023 across five key sectors, namely e-commerce, transport & food, onlline travel, online media and financial services (i.e., payment, lending, insurance, investments). This exhibits a 27% compound annual growth rate (CAGR) since 2021. The digitalization of financial services, marked by a surge in digital payments and fintech adoption, plays a key factor in unlocking the region’s digital economy.
In the financial services sector, lending stands out as the primary driver of revenue growth in Digital Financial Services (DFS), primarily from interest income and fees. Payments is another growth driver, but declining merchant discount rates (MDRs) are impacting revenue growth. Despite the underpenetrated nature of the insurance market in ASEAN, digital distribution channels are gaining momentum, particularly in the non-life insurance. Wealth sector revenue growth is primarily driven by volume growth, with the sector in its early stages, experiencing a fee upside from mix shifts given the faster growth rate in emerging markets.
For investors, DFS remains the top sector for capital deployment due to its high monetization potential. Despite a decline in private funding deployment over the last six years due to inflation and high costs, the increasing “dry powder” suggests that businesses have to demonstrate clear profitability pathways to attract funding. Simultaneously, ASEAN is becoming increasingly appealing to foreign direct investors, drawn by the focus on technology, innovation, and the promise of consumer markets.