Embedded finance booms in ASEAN
The ASEAN region’s fintech industry may not draw the headlines of its peers in North America and China, but it has been slowly gaining steam over the past few years and has increased its share of global fintech investment from 2% in 2018 to 7% in the YTD 2022, according to UOB.
The ASEAN region’s fintech industry may not draw the headlines of its peers in North America and China, but it has been slowly gaining steam over the past few years and has increased its share of global fintech investment from 2% in 2018 to 7% in the YTD 2022, according to UOB.
UOB took a closer look at the fintech industries across the ASEAN-6 (Indonesia, Malaysia, Singapore, Thailand, the Philippines and Vietnam) and discovered that Singapore and Indonesia won the lion’s share of funding, while the payments sector proved most attractive to investors.
The first finding is unsurprising given Singapore has long been a well-established fintech hub which has ongoing, public support from regulators. Indonesia, meanwhile, benefits from one of the biggest populations in the region across a large geographical area, meaning traditional financial services companies find it hard to serve the majority of people. That, along with high smartphone penetration, creates a ready demand for digital financial services.
Which leads us on to the second finding – that the payments sector attracted the greatest volume of funding. This trend is actually global, with CB Insights finding that payments companies received $3.9bn in Q3 2022, while the next greatest amount went to insurtechs which received $2.3bn. However, within that global figure, Asia received $1.8bn, compared to Europe’s $1.7bn and North America’s $0.9bn proving that while payments are hot everywhere, they are hottest in Asia.
That’s likely because, while many regions saw booming adoption of fintech solutions during the pandemic, Asia, and ASEAN specifically, had greater need for them due to its historically cash-based economies. The result was significant growth in the use of digital payments, with e-wallets in particular attracting many new users. That upward trajectory has continued as restrictions are eased, and the industry has moved onto the next phase of digital payments – embedded solutions, according to UOB.
The bank found that 81% of respondents across the ASEAN-6 have heard of embedded finance apps, and 70% have used one. While the survey didn’t capture when respondents first heard of, or started using, embedded finance, it seems reasonable to assume that it was in the last 12-24 months given the rapid recent growth of such services.
Consumers’ reasons for using embedded finance apps vary, but making payments and related transactions easier is high on many individuals’ lists, as one might expect. Some 70% say their motivation for engaging with the apps is to make payments easier, while 59% want to use instant payments, 54% are accessing loyalty points and rewards, and 45% don’t want to carry cash.
Embedded finance apps are likely to continue to evolve, with the provision of other services such as insurance and loans being made more accessible, and reliable, by the simultaneous growth in the use of technologies such as open APIs. Open APIs make it possible for apps to ingest a much wider range of customer data, with customers’ permission, enabling providers to personalize products and services, even when the customer has a limited official financial footprint.
That said, in order to drive use of such, arguably essential, services, embedded finance apps will have to work hard to gain consumer trust. To do that they will need to engage with individual communities, and understand the nuances of each localized economy. If they succeed with that, then it’s likely in the next year or so we will see the number of consumers across ASEAN engaging with embedded finance apps utilizing a wider range of services, beyond payments.
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